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What pension is right for you?

Accountant Nick Holmes looks at the pension options for GPs at various stages in their careers

I joined the NHS Pension Scheme before 2008, but am still 15 years before retirement. should I stay on the existing '1995 section' or change to the new '2008 section'?

Your starting point is the age you intend to retire. If you want to retire at 60 then this is pointing towards you remaining on the 1995 section, however if you are considering retiring at 65 it may be beneficial for you to change.

A self-employed GP Partner with £68,000 per year of pensionable earnings pays the 6.5% employee and 14% employer's contributions, costing £13,940 per year or £697 per month after 40% tax relief.

With 40 years of service the 1995 section could give an annual pension of £40,000 with a lump sum of £120,000 whilst the 2008 section would be a lower annual pension for the same lump sum. This is because if you retired at 60 from the 2008 section you are effectively retiring early and your pension is reduced by 26% for it.

Your choice will depend on your view of life in that to live for a long time after retirement you may be happier with a smaller lump sum and larger annual pension. There are obviously financial implications for changing so if you are unsure then read through your pension choice statement. If you haven't received one contact the Pensions Agency's Choice Members Helpline on 0300 123 1601.

You only have one chance to make this choice so if you decide to change you must do it before your deadline passes. If you do change your decision cannot be reversed, and if you do nothing you automatically remain on the 1995 section.

I am a salaried GP between 25 and 30 and have just joined on the 2008 section – is it worth me still paying in to the NHS scheme?

The NHS Pension scheme you have just joined is going to make you work until you are 65 if you want to collect your full pension, but it is a guaranteed pension with lots of cover and supposedly doesn't catch a cold when they sneeze in Wall Street (unlike private pensions).

As an employee if you are earning £30,000 per year you will be paying 6.5% contributions on your earnings. So this costs £1,950 per year or £130 per month after 20% tax relief. With 40 years of service you could receive an annual pension of £30,000 assuming that you retire at the age of 65 and do not convert part of it into a lump sum. If you wanted to retire at 60 ie 5 years early then the pension would be reduced.

I am a GP partner on the 1995 section and close to retirement

Your retirement age is crucial! As a GP partner you may decide that you are happy with the benefits accrued over your working life, then decide to take 24-hour retirement, remain at work and have a proportionally increased profit share and drawings for not having to pay pension contributions anymore.

Please be aware that if you take 24 hour retirement then your future tax bill will increase by not making the pension contributions. On that basis could you be a 50% taxpayer or do you lose a proportion of your personal allowance and pay tax at a higher rate than that? Talk to your accountant to plan for this. Forewarned is forearmed.

I am on the 1995 section and am retiring on the grounds of ill health

If you haven't received it already you should request a personalised ill-health choice statement. The NHS Pensions will tell you that you should have more benefits by being on the 2008 section instead of the 1995 section because your ill health retirement benefits are worth more at aged 65 than at aged 60 and despite ‘retiring early' your pension is not reduced.

Do not make the decision to change to 2008 without seeing and understanding your specific figures first. You could always write to the Pensions Agency and ask them to confirm your understanding or your interpretation of the choice statement.

It sound complicated but it doesn't need to be. Call the choice helpline, talk to a financial advisor or your accountant. They should be able to point you in the right direction so that you can make an informed decision.

Nick Holmes is a partner at Darnells Chartered Accountants

Nick Holmes No to 65

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