You need to keep working to gain that pension boost
Ps' pensions will be greatly improved under the new contract, but the way the calculations are done need to be understood if expensive mistakes are not to be made.
Many GPs approaching retirement will be turning their attention to how the proposed increase to their pensions will be calculated, and it is important this is correctly understood.
· There will be a guaranteed increase in funding for primary care of 33 per cent over the next three years, and this will form the basis of the pension increase.
· There will be a change to the way the dynamising factor is calculated (from the present increase in intended average net income, to the percentage increase in pensionable earnings).
· There will be an increase in expenses significantly less than the rise in income.
· There will be a net increase to superannuable income thought to be about 46 per cent.
· Previously non-superannuable income (worth around 1.5 per cent of net income) becomes superannuable, as do premises reimbursements (worth around 1.3 per cent of net income), locum income and GP co-operative out-of-hours work. These types of income will be reflected in the dynamising factor and would increase it beyond the estimated 46 per cent to around 55 per cent.
It is important to keep in mind that the full value of this
increase will not be realised until March 31, 2003, but GPs retiring before this date would receive a proportional increase to their pensions.
A 62-year-old GP has 37 years service and has dynamised earnings of £1,750,000 as at March 31, 2003. This provides an accrued pension of £24,500 a year and a tax-free lump sum of three times that amount £73,500.
The increase will be in respect of dynamised income only. As salaried GPs' pensions do not increase with dynamisation (they are based on a traditional 'final salary' formula), then their pensions will not rise in the same way. But as their pension is dependent on final salary, any rise in salary near retirement will boost their pension and lump sum.
The amount and type of work is also a consideration. Any income earned as a self-employed practitioner received in each of the next three tax years would ensure all GP income continues to be dynamised and attract the full increase as per the above example.
The same percentage increase would apply to a GP continuing in a full- or part-time position or working as a self-employed locum over the next three years. Also, as added years are based on income received during the period of the added years contract, then clearly any increase in income would boost their value.
As well as the increase in pensions, there are also a number of changes to NHS pension scheme regulations that will impact positively on some GPs' pensions:
· The income received in respect of salaried service prior to or after becoming a GP can, in future, be treated as GP income and dynamised regardless of whether the salaried service exceeded 10 years in respect of 'pre-practitioner' service or one year 'post practitioner' service.
· Old-style added years which pushes salaried service over the 10-year limit can also be dynamised.
· The preserved pensions of GPs changing from self-employed to employed status will in future be dynamised rather than increasing in line with inflation. All of the above measures are introduced retrospectively from April 1, 2003.
Any GP considering imminent retirement should examine their position. Continuing to work over the next three years could pay dividends.
Working on for three more years may be very valuable Andy Blake explains
The way calculations are done need to be understood if mistakes are not to be made~