Specialist medical financial advisor Paul Forder shares his key insights for GP partners thinking about stepping back from their full-time role and accessing their pension early
The pressures of the past 18 months will have prompted many GP partners to reconsider their professional and personal priorities. For some, this will have sparked thoughts about retirement.
Stepping back from the workplace completely can feel daunting, especially when it’s the culmination of a life’s work. That’s why flexi-retirement is becoming the go-to choice for many.
In line with the increasing popularity of ‘portfolio’ careers in general practice, some GP partners will be thinking about changing or diversifying their roles as they approach retirement, or altering their working patterns – for example, reducing the hours they spend in clinic.
For others, ‘flexi-retirement’ will mean continuing to work even after they’ve started accessing their pension savings. This could be in the same job, a new clinical role or even going ‘out of practice’ to lecture or help train staff.
People’s retirements are looking increasingly different, and with options to take a flexible approach – by reducing working hours, changing role or accessing pension benefits early – there is no reason to not have the retirement that suits you.
But it’s important to remember that every option will have financial implications. Here are the three key areas partners should review when planning for retirement – whatever shape that takes.
The first step when considering retirement or stepping back in any form, is checking the GP partnership agreement.
Some agreements may restrict when partners can retire, and what working patterns they can adopt. For example, partners are likely to have agreed to work defined hours, which could limit their ability to move to a part-time or locum role. Meanwhile, some agreements only allow a certain number of partners to leave within a specific period – a factor that might prevent an individual from stepping back when planned.
To avoid these challenges partners should regularly discuss their succession plans and review how they can amend or adjust their agreements to balance the partnership’s needs with the retirement plans of its senior team.
Building flexibility into partnership agreements can have benefits. For example, allowing partners who want to amend their working patterns to continue working in a partnership on a reduced hour basis – or even to leave the partnership to become a locum at the practice – can give their practice a known and reliable source of cover to help manage busy periods or partner holidays, and, importantly, provide continuity of care for patients.
Once it becomes clear that a flexible retirement plan is on the table for a GP partner, establishing what lifestyle they want and assessing what they need to achieve it is the crucial next step. For some it could be spending more time with family and grandchildren, while for others it could be to focus on a new passion or having more flexibility to travel.
Once that’s in place it’s time to review financial incomings and outgoings – what money is spent on now, what it might be spent on in the future, and overall living costs. It will also be important to understand what retirement savings a partner already has – which may be spread over multiple pension pots – or held in different asset classes, for example stocks and shares or cash.
Understanding these factors will set the framework for a discussion about what a partner needs – and can access – financially to make their planned retirement possible.
Both establishing goals and reviewing outgoings is something a professional financial adviser can help with. Some will use specialist cashflow modelling tools that look at current and future data on income, expenditure, and lifestyle to show how cash requirements might rise or fall over time, helping provide a clear overview of what money is needed.
Once a partner knows what they need to bring their retirement dreams to life it’s time to unlock the necessary money and savings needed to enjoy it.
For most GP partners, the first point of call is their NHS Pensions Scheme (NHSPS). Some partners will want to take a lump sum from their NHS pension to free up cash for enjoying with friends and family, or to clear debts.
If a lump sum is being taken, it’s crucial to think about tax implications. The amount of lump sum that can be taken tax-free is normally 25% of an individual’s standard lifetime allowance or 25% of the capital value of the pension, whichever is lower.
Before accessing their pension, it is important for partners to seek advice to ensure that it is the most effective course of action for them.
For those in the 1995 section of the NHSPS, taking a minimum lump sum is a condition of the plan, but this won’t always be tax free. With this in mind, it’s important for GPs to also check the specifics of their plan and act accordingly.
Outside of the NHSPS, some GP partners will have alternative pension pots and savings available. A wider choice of options to finance a flexible retirement does however mean that a partner could be subject to tax charges or breach their annual allowance, such as the Money Purchase Annual Allowance (MPAA) – a mechanism that reduces the amount individuals can pay into their pension without incurring a tax charge to just £4,000.
Taking benefits from a defined benefit (DB) pension such as the NHS pension Scheme does not trigger the MPAA. But individuals need to be aware of any retirement options under defined contribution pension plans, such as personal pensions, they hold that might do. Being mindful of the limits and planning the order in which to access finances can help avoid tax issues and reduced contribution limits – particularly for those wanting to continue to work.
There will also be other tax considerations to consider. For example, Capital Gains Tax (CGT) may be payable when an individual sells an asset that has increased in value – for example a second home, or stocks and shares that aren’t held in a tax wrapper such as an ISA.
The rules around CGT can be complex, so, again, it’s important that partners take advice before they encash their assets to ensure that this is done in the most tax-efficient way possible. There may also be ways partners can reduce or mitigate CGT charges – for example, by spreading the realisation of gains over two tax years.
For partners considering flexible retirement there are many aspects to consider, from their own finances to the impact it will have on their practice. Whatever they choose to do, getting the right advice and making a plan is key – a sound strategy will support the best outcome for both themselves, and their practice.
Paul Forder is area manager at the Wesleyan Group, a specialist financial services mutual for GPs
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