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Our expert answer your questions on a variety of different pension situations

Q I am a half-time salaried GP aged 35 with 10 years' NHS service. This includes three years of hospital service, one year as a GP registrar and one year of maternity leave before starting my present post. My current salary is £35,000. I plan to continue half-time work to age 60, when I hope to retire. Can you tell me what my pension may be worth by that time?

A Under current rules for salaried NHS employees you will be entitled to a pension based on the best year of earnings out of your last three years prior to retirement. For the calculation this salary is adjusted to a full-time equivalent year (ie £70,000 in your case). This will be multiplied by your total number of years of full-time equivalent service (assuming your one year of maternity took place during full-time service this will count as one full-time year.) The total will then be multiplied by 1.25 per cent to reach your annual pension.

Using your current salary of £35,000, if you were 60 and retiring now you would have five full-time years and 30 half-time years to your credit. This totals 20 full-time equivalent years. Multiplied by your full-time equivalent salary this totals £1.4 million. Multiplying this by 1.25 per cent gives an annual pension of £17,500 plus a tax-free lump sum of three times this, ie £52,500. These figures are at today's prices. The actual amount will rise in line with your salary.

Rules are likely to change as the NHS pensions review is currently drawing up new proposals, which include normal retirement at age 65 rather than the current 60. If it is passed, by the time you retire at 60 you may face a reduction in your pension and lump sum. For example, your pension could be reduced to around £14,500 per year and the lump sum to £47,000 (at today's prices).

You can ask the NHS pensions agency for an annual update of your forecast pension. Watch carefully for the finalised changes in case you wish to make extra provision for retirement at 60.

Q I am a principal aged 32. I want to increase my income options for a retirement at 60. I would like to maintain as much flexibility as possible and do not wish to tie all my extra income up in annuities. What are my options?

A Your major income in retirement will come from your NHS pension. Thankfully GP principal pensions have had double-digit increases following the last two years of pay rises. Given your age, however, your final pension at 60 will be affected if the Government achieves its aim of making 65 the normal GP retirement age. Before looking at flexible options do not forget added years, NHSAVCs, FSAVCs and private pensions, so take some expert pension advice now.

By flexibility I assume you mean having access to the capital generating the income, both before and after retirement. This can be very useful but you also need to be very disciplined if the bulk of the capital is to remain intact, at least to retirement.

The best vehicles for you will depend on your current income, savings and family situation. Given the relatively poor performance of pension funds in the last five years, many experts recommend ISAs as part of your savings.

Although you pay for these with taxed income (you get tax relief on pension contributions) growth within them is largely tax free, particularly valuable to a 40 per cent tax payer. When you start to draw an income later on, this is also tax free (unlike pensions which are taxable). You also have access to the capital at any time. Each individual can currently invest up to £7,000 a year with a variety of investment options.

In the last 10 years property has been an excellent investment. Under new rules from April 2006, property can be held within a pension scheme but this would not give you the required flexibility. If you purchased a buy-to-let property outside a pension you could claim tax relief on the mortgage interest and running costs including insurance, maintenance and other running costs.

Although property prices are levelling off, with 28 years to retirement this could prove a good investment. Whatever you do, have a good spread of investments and monitor them regularly.

Q I am a 45-year-old full-time principal. My accountant tells me I can invest £3,600 this year in a personal pension scheme. Is it more tax efficient and practical to top up my own pension or give the money to my wife for investment in a stakeholder pension? My wife is a lower-rate taxpayer.

A Under current rules you can invest an age-dependent proportion of any excess between your taxable and superannuable incomes each year into a personal pension scheme. If you invest £3,600 you will in effect pay £2,160 as you will get 40 per cent tax relief on the lump-sum payment. Assuming 4 per cent growth this would be worth around £6,700 in 15 years' time.

Assuming an annuity rate of 5.5 per cent (with two-thirds widow's pension) the pension value would be around £368 per annum gross. The size of your NHS pension means you are still likely to pay tax at 40 per cent

after retiring so the net value will be £220 per annum. If you pre-decease your wife she will get two-thirds of the gross amount, most likely taxed at 22 per cent (unless she is also a high earner!). This would represent £191 per annum.

If you instead invest an equivalent amount in a stakeholder pension for your spouse the net cost would be £2,808 (standard 22 per cent tax relief is applied). Assuming the same growth rate the final pension value would also be £6,700 with a gross pension of around £368 but a net of £287 (spouse at 22 per cent tax). This would not change if you died first.

For one year's pension investment there is therefore a £57 per annum pension benefit before and £96 per annum after your death by investing in a stakeholder for your wife. If you did the same each year, the difference would be significant, even allowing for the higher net cost due to less tax relief on the stakeholder investment.

Q I am 57 and a singlehanded principal. My list has historically been large. Consequently my average superannuable income has also been well above average. Following the recent increase in dynamising factors my predicted pension at retirement in three years' time will be £68,000. This is likely to rise considerably over the next three years of predicted dynamising. I also have a private pension plan with an estimated maturity value of £200,000. Will the ‘A' day new pensions rules planned for April 2006 affect me?

A Briefly, the new pension rules will levy extra tax charges for any person whose pension pot is worth more than £1.5 million from next April. This threshold will rise slowly over subsequent years to £1.8 million by 2010. Few GPs will be affected – however, it does look like you will be an exception!

Your current NHS pension value (if you were retiring now) will be multiplied by 20 to give a cash value, ie currently around £1.24 million. Your NHS pension scheme lump sum current value of £187,000 will be added, as will the current value of your private pension of around £175,000. This gives a total of £1.6 million. Although the threshold will have risen by 2008, so will all the above figures. You face a 55 per cent tax charge on the amount above the threshold!

Luckily, you can ring-fence the current value of your pension before ‘A' day and so avoid the charge. It is, however, possible that you may have to suspend any further payments into one or both schemes from this date. You must speak to a specialist pensions adviser urgently.

‘Under new rules, property can be held in a pension scheme'

‘You can ring-fence the current value of your pension before ‘‘A'' day'

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