Work until I’m 67! How can I afford not to?

Many of us are looking down the barrel of our ‘normal retirement age’ being 67. A chilling thought. One that drops to freezing when you think about how you’re going to finance the gap between when you want to retire and when you can actually afford to retire.

With the ever-reducing lifetime and annual pension allowances, there has never been a more important time for doctors and dentists to look at alternative ways to save for retirement outside of the NHS Pension Scheme.

So what are your options?

Making retirement affordable

1. ISAs

ISAs are a good starting point for a variety of reasons:

  • Everyone in the family can hold tax free money in an ISA, even the children.
  • Unlike pensions, ISAs are instantly accessible.
  • Whilst ISAs don’t offer the tax relief that pensions do, they do offer other tax advantages. Under current legislation, a family of two adults and two children under 16 could save £48,256pa (tax year 2017/18) in a tax efficient ISA environment.
  • The new Lifetime ISA and the existing Help to Buy ISA offer a Government bonus, subject to certain conditions being met. 5 ISA changes doctors and dentists need to know about >

Depending on your stage of life and situation, there are 4 different types of ISAs for adults to choose from, in addition to the Junior ISA for those under 18.

2. Pensions for your spouse

Instead of looking at funding your retirement individually, look at it as a family and consider ‘the better half’.  Whatever your spouse’s occupation, it’s worth looking at their pension options too.

If your spouse doesn’t earn

If your spouse doesn’t work, they can still have a pension that you pay into and get basic rate tax relief on your contributions. If this is their only pension in retirement, they may even be within their personal allowance (currently £11,500) and have no tax to pay on their pension income.

If your spouse works and is a basic rate tax payer

If your spouse works, are they eligible to join an occupational work pension scheme? If they are and they contribute to the scheme, would their employer match their contributions?

Assuming your spouse is a basic rate tax payer, to add £1,000 to their pension actually means you only need to contribute £800 and the Government will pay in the rest (£200) via the tax relief. That’s an extra 25% added straight away to your spouse’s pension, on top of what you yourself have put in.

If your spouse works for you or within your practice

GPs only

If your spouse earns a salary up to the National Insurance threshold (currently £5,876pa) and they are employed by the practice (not you), they can join the NHS Pension Scheme.

GPs and Dentists

If, on the other hand, your spouse is employed by you and you pay them through your Limited Company, you (as a company) can provide them with a pension. This would normally be an allowable business expense and tax deductible. Before you consider going down this route, you should first speak to your accountant or the Inland Revenue.

If your spouse is a 40% tax payer

If your spouse is a higher rate tax payer, you need to review what pension provision they have and make sure they will not be over the allowable limits.

Assuming they won’t exceed the new limits, prioritise putting contributions into their pension. As a 40% tax payer, adding £1,000 to their pension will actually cost you £600 after tax relief. That’s a 67% difference between what it cost you and what actually goes into their pension.

3. Venture Capital Trusts (VCTs)

VCTs are investment trusts that attract 30% tax relief. They are more complex than standard investments and do inherently carry greater risk.

Even so, if you have maxed out your annual or lifetime pension allowance and are looking for other tax efficient investment opportunities, you may want to at least explore investing in a Venture Capital Trust. Reducing your tax liability with VCTs >

4. Pensions for your children

No matter how unfair the recent pension age and allowance changes feel, they’re still preferential to what the next generation has in store.

To help soften the blow for your children, you could pay up to £240 a month (net) per child into a pension for them. Yes, they too can have a pension and benefit from tax relief. A very little can go a long way after years of compound growth.

Will your pension be enough?

Many doctors and dentists equate retirement planning to simply saving into a pension. Given the recent changes to pension legislation, tax reliefs and allowances, will your pension alone give you the freedom to retire when you want to, not when the Government can afford you to?!

Have you considered other ways to save for your retirement, outside of your pension? Which option have you gone for? Let us know by adding a comment below.

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