‘my vision over time is to move increasingly towards defined contribution rather than final salary schemes’ for the public sector. (David Cameron November 2008)
Dentists should reduce their reliance on the NHS pension to fund their retirement. Massive government debt includes a public sector pension liability of £650 bn. Both Gordon Brown and David Cameron have vowed to reduce the generous MPs’ pension scheme so they can ‘look other public employees in the eye’ when introducing pension reform.
We predict that Dentists under the age of 35 may well be most heavily affected. These practitioners will generally have at least 25 years to retirement. Dentists under 35 may have adequate time to build a back-up strategy but need to start now to achieve this. Few commentators expect the NHS pension scheme to exist in the current format by 2035. Sweeping changes to the scheme in 2008, including increased contributions and an extended retirement age of 65 for new joiners just won’t be enough to withstand the political and economic pressure the NHS pension scheme faces.
Whilst the generous pension scheme remains intact we advise all dentists to continue with NHS pension contributions where possible. However a personal pension could offer an additional and valuable source of income especially for practitioners with some private fee income. For those with more than 20 years to retirement personal pensions offer the prospect of significant tax breaks and the advantage of a long-term investment horizon. Tax relief is still available for most Dentists- this is how it works for higher rate tax payers:
• You pay £500 per month
• The government adds £125 per month
• Your total contribution becomes £625 per month
• You reclaim £125 per month through self assessment
• A £625 contribution costs you £375 net of tax
The cost of delaying your contributions is well documented and adjusting to a new era where public sector pensions may be phased out will require some professional and independent advice.
Jon Drysdale BA (Hons) Cert PFS is a qualified and experienced independent financial adviser and Director of Practice Financial Management Ltd (PFM) members of the ASPD