The annual allowance, which limits how much a GP can save in their pension each year before a tax charge is made, is falling from £50,000 to £40,000. The lifetime allowance, which limits the amount of a pension fund at retirement, is falling from £1.5m to £1.25m.
GPs who are going to be over the lifetime limit on 5 April can apply to HMRC for either fixed protection or individual protection, both of which will set their lifetime allowance at the amount reached at that date, subject to a maximum of £1.5m. For example, a GP who has a pension fund of £1.4m on 5 April would have that figure secured.
Most medical accountants have already warned their GP clients if they are likely to be affected by either the annual or lifetime allowance. If you are affected, you should seek advice from an independent financial adviser.
These changes, coupled with increasing contribution rates and the potential changes to the NHS scheme in 2015, are causing some GPs to question whether they should do something else with the money. Some of my GP clients question whether a private scheme might be more suitable.
However, this decision should not be taken without discussion with a financial adviser, since the new NHS scheme still has many plus points. Probably the most significant is that the level of NHS pension payable is based mainly on factors within the GP’s control, for example how much they earn each year and when they retire. By contrast, the amount payable from a private pension is affected mainly by the performance of the fund and annuity rates at maturity.
Moreover, when GPs stop contributing to the NHS scheme, some benefits – such as levels of death-in-service cover and the uprating of dynamised career earnings – will change.
An NHS pension is also index linked. The contributions needed to generate an equivalent private pension and benefits would be significantly more than the 28.5% contributions GPs currently face.
Bob Senior is chair of the Association of Independent Specialist Medical Accountants and head of medical services at Baker Tilly