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Working through your retirement options

Accountant Rosemary Smith looks at the questions you need to ask yourself when investing for your retirement


Whether you are close to drawing your pension or it seems to be so far over the horizon you can't see it, everyone needs to understand the mechanics and the options you have to ensure a comfortable retirement.

There is much uncertainty about the NHS Pension Scheme at the moment, with the Government yet to announce what changes it is going to make, but it is still likely to be the best option for younger GPs and any changes are unlikely to be retrospective. However, the NHS scheme is not the only option for income when you are retired, and I would recommend that a wide range of investments are considered to ensure that nest eggs are placed in different baskets.

In this article I will outline the basics of retirement planning, with the caveat that it is no good making all the decisions yourself and then telling your accountant or independent financial adviser what you have done afterwards.

In fact, the earlier you sit down with them the better their chance of helping you to come out with the maximum pension you can be entitled to.

Here are the questions you should ask:

1. What is your likely fund value?

For those of you who are less than five years away from retiring, and it is estimated that you are in the thousands, you must start straight away. The first thing to do is to ask Pensions House for an up-to-date uprated career earnings figure, as you cannot begin without this. Written requests for information should be posted to the NHS  Pensions Agency (Hesketh House, 200-220 Broadway, Fleetwood, FY7 8LG) or can be emailed to them.1

Add to this the age you plan to retire, your current working profile and whether it includes out-of-hours work or other NHS posts. Consider anything that could change your likely future earnings. General practice is a hard master, so you may be considering reducing your working commitments or your practitioner sessions before you retire. If so, when?

Bring all this information, alongside any added years and private pensions (even if they are dormant) to your accountant, so they will be able to calculate an estimate of your final career earnings. 

2. Do you exceed the lifetime allowance?

The lifetime tax allowance for earnings was £1.8m, but this is dropping to £1.5m from next April. The change is going to catch a number of GPs out, unless they apply for ‘fixed protection'.

This retains a lifetime earnings allowance of £1.8m; however, members of the NHS Pension Scheme can still contribute with fixed protection, but pension benefits from one year to the next cannot increase by more than inflation as measured by the consumer price index (CPI). Therefore, hospital staff can probably retain fixed protection, but because self-employed GPs may earn more in one year than the last, their pension benefits may often increase by more than CPI. There is no harm in you applying for fixed protection, but don't rely on it.

To work out whether you are going to exceed your lifetime allowance, we'll use the following example: an individual has a pension benefit of £70,000 plus a lump sum of £210,000. Multiply £70,000 by 20 and then add on the lump sum – this results in £1,610,000. This is well above the new £1.5m lifetime allowance, and a tax charge would apply. Within the NHS, it is now possible to commute your pension for a larger lump sum (give up £1 of income and gain £12 lump sum). So in our example the individual could decrease their pension to £60,000 and increase their lump sum to £330,000.

As this is new legislation it is not fully clear yet how this will work, but the calculation would presumably now be £60,000 multiplied by 20 plus the lump sum, and at £153,000 it would still be slightly over the lifetime allowance.

However, be warned that the rules on this have yet to be clarified by HMRC and I suspect they will look at what the original benefit was – in other words, £70,000 per annum.

If you are unsure, download the form APSS227 from Inland Revenue and have your accountant or independent financial adviser help you fill it out.2

3. Should you retire earlier than planned?

Once your lifetime accrual has been calculated, you can then look at how much your career earnings will be for each year up to your planned retirement.

Depending on how close you are getting to breaching the lifetime allowance, it may be a good idea to consider taking 24-hour retirement sooner to reduce your pension pot.

All GPs taking 24-hour retirement must retire from their NHS contracts for not less than 24 hours and not work more than 16 hours per week in the first calendar month after retirement.

Dr Julius Parker has written some clear guidance on what to consider before doing this.

However, before you even contemplate this you must check over your partnership agreement and see if it is okay to do this. You must also be clear on how taking early retirement will reduce your pension.

If you joined the 1995 version of the NHS Pension Scheme before 6 April 2006, you can choose to take actuarially reduced early retirement from age 50 and receive reduced benefits. Your pension and retirement lump sum are reduced because they are being paid earlier than expected. Your dependents will still get any benefits they are entitled to in full.

If you joined the 1995 version of the NHS Pension Scheme on or after 6 April 2006, your minimum pension age changed to 55 on 6 April 2010. If you returned to the scheme after 6 April 2006, this may also apply to you. Table 1 shows how much your pension and lump sum is reduced if you choose to retire early. If you retire between the ages shown the benefits payable will vary.

For the 2008 scheme, the minimum pension age is 55. Similarly, you can choose to take voluntary early retirement from the minimum retirement age and receive reduced benefits and dependents will still get benefits they are entitled to.

Table 2 shows how much your pension is reduced if you choose to retire early under the 2008 scheme. There are no reduction factors for lump sums in the 2008 section.

4. Have you considered all the options?

The Government is yet to reveal how it will alter the existing NHS Pension Scheme, and it is still one of the best schemes available. However, it may be worth looking into alternatives that can offer additional income for your retirement, although I would advise you seek independent advice before choosing one. Here are some options:

• Individual savings accounts (ISAs) – although you receive no tax relief on the monies you invest in an ISA, you have a good selection of ways of taking your monies out that are tax free. You can invest up to £10,200 per annum and they are low-risk investments.3

• Venture capital trusts – you can receive tax relief on up to £200,000 invested in small companies, but they can be high-risk investments.4

• Stocks and shares – you can invest directly on the stock exchange. No tax relief is given on the money being paid in, but there is capital gains tax (or losses) available on their sale. Now is a good time to invest in this option as prices for shares are very low.

• Buy-to-let property – no tax relief on the monies invested, but income tax is payable on any profits made from the rents received with capital gains tax being due on the sale of the property. This has always been a popular investment for the long term, but the unpredictability of the housing market means there are no guarantees.

The best advice is to talk to people in the know and not act hastily, but weigh up all the possibilities with people who understand the markets.

Rosemary Smith is the GP liaison manager at Baldwins Accountants


1. NHS Pensions Agency. contact_us.cfm

2. HMRC application for protection of your lifetime allowance.

3. HMRC Individual Savings Accounts (ISAs) guide. www.hmrc.

4. HMRC Venture Capital Trusts guide. guidance/vct.htm





How your pension is reduced if you retire early (1995 scheme)

Age (years)    54        53        52        51        50

Pension (% of earnings)      25        29        32        34        37

Lump sum (% of earnings) 18        20        23        25        27


Age (years)    59        58        57        56        55

Pension (% of earnings)      5          10        14        18        22

Lump sum (% of earnings)  3          7          9          12        15





How your pension is reduced if you retire early (2008 scheme)

Age (years)    59        58        57        56        55

Pension (% of earnings)      27        31        34        37        40


Age (years)    64        63        62        61        60

Pension (% of earnings)      6          11        15        19        24


Don't forget it's your last chance to book for our Pensions and Personal Finance seminar this Wednesday 19 October in London – and hurry if you want to take advantage of one of a limited number of places at the special price of just £70 (+ vat).