It’s important to keep track of your finances and make sure you’ve got plans in place to ensure you meet your long-term goals. Here, Wesleyan’s financial adviser team give their top five tips on how you can keep your dental practice’s finances on track.
Let’s take a closer look at the figures:
1) NHS Pension changes
As of 1st April 2015, the new NHS Pension Scheme was implemented. Under this scheme, there were changes to the way in which benefits are calculated, how they can be taken at retirement, and the age at which members can receive their pension.
Under the 2015 scheme, benefits are calculated on average earnings and take into account pensionable earnings in every year of scheme membership, rather than just the final year prior to retirement.
This scheme also brought normal retirement ages in line with the increased State Pension Age, although members still retain the right to take benefits at any time between the ages of 55 and 75.
If you have a private pension, changes made in 2015 give greater flexibility to how people will be able to access their retirement savings from the age of 55.
Main changes to private pension regulations:
- If over 55, you will be able to take any amount from your personal and stakeholder pensions – all of it in one go, if you wish – without buying an annuity
- You will still be entitled to take up to 25% of your pension savings as a tax-free lump sum, although any amount above this will be subject to income tax at your highest marginal rate
While these rules provide more flexibility and allow people greater access to their funds, you still need to carefully consider your options, as the money in your pension pot needs to last you the rest of your life and could be quickly depleted if you make regular sizeable withdrawals.
If you buy a lifetime annuity, you will receive a guaranteed income for life based on the amount you have saved and the annuity rates. Meanwhile, income drawdown involves taking an income, either on a regular basis or in one go, directly from the pension funds.
2) Check your retirement income
You can either go online & get a total rewards statement or ask the NHS Pension Scheme for an estimate of your pension benefits at retirement to see if you are on track. If you ask the pension scheme for this, they may ask you to pay a fee, typically £60 – £120 depends on the level of detail you request. If, after this, you do not think you will be receiving enough income, then you may want to consider making additional contributions or make other long-term investments to support you once you stop working.
If you’re not sure how you might be affected, talk to a financial adviser who understands the dental profession.
3) Check your Annual and Lifetime Allowance limits
There are restrictions on the amount you can pay into a pension in each tax year, which includes both your NHS pension and any private arrangements you might make. This is currently £40,000, unless you have any unused Annual Allowance to carry forward from the previous three tax years. Contributions made above this level will be taxed at your marginal rate.
There is also a limit on the total amount of pension funds you can build up before additional tax charges apply. This Lifetime Allowance is currently £1 million. If your total pension pot, including your NHS pension and any private pensions, exceeds the Lifetime Allowance, you will be liable to pay 55% tax if the excess funds are taken as a lump sum, or 25% if they are used to purchase a retirement income. If you’re not sure how you might be affected, talk to a financial adviser who understands the dental profession.
4) Utilise your full ISA allowance
Individual Savings Accounts (ISAs) allow you to save cash or invest in shares without having to pay tax on any gains you make, as you might with other savings products. Because of the tax advantages of an ISA, there is a limit to how much you can invest each year. For this financial year it is £15,240. You are now able to save the full amount in cash, stocks and shares, or any combination of the two.
5) Protect your income
Check how much sick pay you are entitled to from the NHS and for how long. If you are still unable to work when that runs out, then you may have to draw upon your own savings or, if eligible, rely on state benefits if you don’t have other protection.
An income protection policy will provide you with a regular tax-free income based on your full earnings, typically up to 55% of your pre-incapacity level. Most policies pay out until you are well enough to return to work, are no longer suffering from a loss of earnings (such as if you start receiving your pension), you reach the maximum age for your policy or you die.
The above information does not constitute financial advice. For further information, please speak to your financial adviser.
Wesleyan provides specialist financial advice and products to dentists. For more information, visit www.wesleyan.co.uk