Retirement Planning for NHS professionals
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Retirement Planning
for NHS professionals
Liz Willis
BA(Hons) DipPFS
Principal of The Liz Willis Practice,
Partner Practice of St. James’s Place Wealth Management
The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial
Conduct Authority) for the purpose of advising solely on the Group's wealth management products and services, more details of
which are set out on the Group’s website at www.sjp.co.uk/products. The `St. James’s Place Partnership' and the titles `Partner'
and `Partner Practice' are marketing terms used to describe St. James's Place representatives.
3 Key Messages re Retirement • Budget and impact on your Pensions • 2015 Pension • Annual Allowance and alternative savings
Many millions of us will be spending
around a third of our lives or more in
retirement.
Source: SteveWebb, Pensions Minister, December 2010Lifetime Allowance • £1.5 million from all sources if received Fixed/Individual Protection 2014 • £1.25 million from all sources if not received Fixed/Individual Protection The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances
Protection from Lifetime Allowance
• Individual Protection (IP14)
– Similar to Primary Protection
– Can apply if total value of existing pensions >£1.25mill on 5 April
2014
– Maintains LTA at lesser of £1.5mill or deemed value at 5 April
2014
– Protects TFC up to £375,000
– Can continue to pay into pensions
– Have to apply by 5 April 2017.
– Will have similar type of protection for 2016 reduction in LTALifetime Allowance • £1.5 million from all sources if received Fixed/Individual Protection 2014 • £1.25 million from all sources if not received Fixed/Individual Protection • Budget 2015 - £1.0 million from April 2016 • Transitional protection will be available for those over £1M already. • Will increase by CPI from 2018 (but small relief) • Will apply to total of NHS and personal pensions. The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances
Maximum benefits from NHS Scheme
2014/15
Pension £54,347.83 (x 20 = £1,086,956.83)
Tax free cash £163,043.49
TOTAL £1,250,000.09
2016/17
Pension £43,478.27 (x 20 = £869,565.40)
Tax free cash £130,434.81
TOTAL £1,000,000.20
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief
depends on individual circumstancesEffect of Lifetime Allowance charge
• Assume excess £100,000 above Lifetime Allowance
• LTA Charge: 25% x £100,000 = £25,000
• £25,000 divide by 20 = £1,250
• Pension reduced by £1,250 per annum
• Option to pay 55% upfront, but will have to survive
a long time in retirement to make it worthwhile
(only personal schemes, not NHS)Lifetime Allowance – strategy for non-NHS
pension plans
• If over age 55 take benefits via Drawdown Pension
• After April 2015 as Cash (‘crystallisation event’)
• Testing when vesting – future growth ignored
• 25% tax free cash
• Minimum income £0Lifetime Allowance – strategy for NHS
pension arrangements
• Consider stopping ‘Added Years’
• Consider stopping ‘Additional pension/AP’
• Consider maximising tax free cash (£1 pension = £12
tax free cash so reduces value against LTA - commuting)
• Consider ‘allocation’ (increasing spouse’s death after
retirement pension) as this reduces initial pension.
• Clinical lead/MRA roles – non pensionable (unless
retiring on the higher salary)
Try all the above before Opting out! And before Opt
Out, seek advice!2015 Plan • Career average earnings BUT: Accrued rights protected/frozen, Choice 2 Frozen as 1995 or 2008 plan – difference in retirement age • Accrual rate 1/54 • Plus ‘Revalued /increased’ by CPI plus 1.5% • Spouse’s pensions remain at 1/160 (or 25% by commutation) • Retirement age automatically linked to State Pension Age
2015 Plan (cont.) • Option to buy extra years to reduce retirement to age 65 (max 3 years), ERRBO • Members of 1995 Scheme can take 1995 benefits from age 55 and defer 2015 benefits until SPA, BUT without future accrual • Added years/Additional Pension can continue – Available at end of contract date without reduction • Pensions in payment (and deferment) linked to CPI. • Final salary linking for frozen pension • Options at retirement, Wind down, Step down and Draw down
1995 MHO Rules • After 20 years, every year is doubled (only complete years) • At age 55, max 40 years or 45 calendar (for part timers) years • 45 years before 60, carry on paying pension until 60, or Opt out • 45 years after 60, stop • All stop at 65
MHO after 2015 • MHO status does not apply under 2015 (or 2008) Scheme • If 45 or over on 1 April 2012 – remain in existing Schemes (full protection) • If 41 years and 6 months on that date - entry into 2015 Scheme delayed (transitional protection) • If under 41y 6m on 1 April 2012, joined 2015 Scheme immediately ( 1 April 2016).
‘Uniform Accrual’ Formula
• Improves position for MHO members who could
have had at least 21 years by age 55
• Formula
Final years’ pensionable pay x Actual MHO membership (A) x Total potential membership to age 55 (C)
80 (accrual rate) Potential Membership to age 55 (B)‘Uniform Accrual’ Example Dr X is 48 with 22 years’ service. At age 55 would have had 29 years (and 9 doubled) as if 38 years. Pensionable pay £100,000 Amount protected = 22/29 x 38 x £100,000/80 = £36,034 Without this : 22/80 x £100,000 = £30,000
Annual Allowance • The IMPACT an increase has on your Pension! • Personal Contribution = 5% - 14.5% • Deemed Contribution = 16 x value of increase in pension benefits + value of increase in TFC for 1995 members • Increase in pension = £1,000; Tax free cash = £3,000 Deemed value of contributions = £19,000 (£1,000 x 19 = £19,000). • Can ‘carry forward’ 3 years plus year you are in, total 4 years
Paying the Annual Allowance Charge
• Excess over Annual Allowance (after carry forward) added
to income for year to determine effective tax rate
• If tax charge £2,000:
– If deemed contribution to a scheme exceeds Annual Allowance,
scheme has to allow charge to be paid by reduction in benefits
– NHS will pay it now, and charge CPI + 3% per year interest
– That figure then divided by % factor at retirement and result,
reduction in pension
– Reduces value against LTA
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief
depends on individual circumstancesShould I stay or should I go?
• Consultant earning £100,000
• Normal Pension Age of 55
• 2/80th pension accrued in year = £2,500
• 6/80ths tax free cash accrued in year = £7,500
• Personal conts = £13,500 (2015/16)
Personal pension fund needed to
provide £2,500pa* + £7,500 £129,600
Age 50 45
Contribution to personal pension
(assume 6% after charges)
£96,844 £72,367
*(Money Advice Service’s Comparative tables (www.moneyadviceservice.org.uk/tables) 28/03/15)Other concerns…
Other changes • Minimum pension age to increase in line with state pension age (SPA) – i.e 55 increase to 57 in 2028 when SPA 67 • Transfers from unfunded public sector Defined Benefit schemes (eg NHS Pension Schemes) to Defined Contribution schemes banned from 6 April 2015. • April 2016, can take whole personal pension pot as cash, subject to Tax rules
Retirement Planning is all about
Planning!5 Key Messages • Almost everyone has to save more for their retirement • If you do not accumulate enough, you risk outliving your savings • Determine how much you will need to save and consider alternative investments, such as ISAs, Property NOW • Understand the cost of delay • Commit to your plan and take action – advice needed.
Next Steps
• Will you be caught by £40k Annual Allowance?
• Stop AVC’s/Additional Pension/Personal pensions
• Where are you against Lifetime Allowance?
• Deadline 6 April 2016 !
• Information packs
• Feedback forms
• www.totalrewardstatement.nhs.uk
• Private Consultation.
Thank You!Any questions?
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