How to make the most of your NHS pension

Want to know how to maximise your pension on retirement? Read our short guide to see how you can make the NHS pension work for you.

We all worry about what will happen when we reach retirement and in an uncertain economic environment trust in basic structures such as pensions is not what it used to be. The good news, if you’re a doctor, is that you benefit from one of the best schemes around: the NHS pension.

What you get from the NHS pension

The NHS pension offers all sorts of attractive features such as:

  • A link to the length of your service.
  • You can be eligible even if you’re a locum, freelance, or self-employed doctor.
  • Early retirement at the age of 50 or 55 depending on what scheme section you’re in.
  • Taking 25% of the capital value of the pension as a tax-free lump sum.
  • Benefits for dependants if you die.
  • Benefits in case you have to retire early due to ill health.

A generous pension

Unfortunately, making the most of it is not always as straightforward as you might think. That’s partly because the pension is divided into different sections, and the exact rules often depend on which section of the pension plan you are in. Understanding your entitlements and plotting the best course forward can be devilishly difficult.

Recent rule changes have also made things a little more complicated. In 2016, the government limited the total amount of pensions savings you can build up to £1million, down from £1.25million. Any savings you accrue beyond this limit could be subject to a punitive 55% tax rate. Given that many doctors and GPs are relatively highly paid, you might expect to reach that limit some time before you reach retirement age, which might make early retirement a little more appealing.

Tax relief

The good news is that there are attractive tax relief on offer. The Government is desperate for more of us to pay into our pensions and so they will top up our contributions. If you’re contributing to an NHS pension plan directly from your salary, the payment is deducted from your gross salary before they take the tax. You therefore save tax on the money contributed to your pension.

You can also contribute to a private pension and receive an additional 25% of the value of your contribution from HMRC subject to certain limits. Let’s say you pay £80 into a private pension HMRC will then pay in an additional £20 making the contribution £100.

There are limits, though. You can only benefit from tax relief on deemed contributions up to £40,000 every year. Tapering of individual annual allowances was also introduced in April 2016. If your income is more than £150,000 and the threshold income is more than £110,000, you’ll have a reduced limit on the amount of tax efficient savings you can claim. The rules also have a habit of changing regularly. The retirement age may change and so too could rules about tax relief and other measures. Keeping up with it all can be quite a challenge, which is why it’s useful to get help from the experts.

Berley offers a comprehensive accountancy service that is tailored to your specific needs as a doctor. We can help you with everything from bookkeeping and payroll services, to personal tax advice. We can also help you to plan for your future by creating a pension plan and advising you on any tax relief that you may be eligible for. There are many challenges that you face as a doctor, but Berley will ensure that your accounts and pension will not be one of them.

To find out more about your pension and how to make the most out of your finances, call Berley today on 020 7636 9094.