It’s a sobering thought, working well into your late 60s. When I ask clients when they hope to retire, the answer often depends on the day of the week. Mondays usually prompt dreams of early retirement, while even the weather plays a role; cold, grey days tend to bring that desired age down significantly.
The most common answer I hear? “Tomorrow.”
But how realistic is it to plan for, and more importantly, achieve retirement before reaching state pension age?
With the NHS pension scheme’s normal retirement age now linked to your state pension age, many NHS staff face a challenging question: How do you bridge the financial gap between when you want to slow down or stop work and when you can actually access your pension benefits?
This challenge has become even more complex in recent years. Factors such as the McCloud judgement, changes to projected NHS pension scheme benefits, the removal of the lifetime allowance, and increases to the annual allowance have reshaped the retirement planning landscape.
What are your options if you wish to consider alternatives outside the NHS?
1. ISAs:
ISAS are always 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.
- While ISAS don’t offer the same tax relief as pensions, they do offer other tax advantages. Under current legislation, a family of two adults and two children under 16 could save £58,000 p.a. (tax year 2025/26) in a tax-efficient ISA environment.
- The Lifetime ISA offers a Government bonus, subject to certain conditions being met.
2. Pensions for your spouse or partner
Instead of looking at funding your retirement individually, look at it from a family perspective and consider ‘the better half’. Whatever your spouse’s occupation, it’s worth looking at their pension options..
If your spouse’s work doesn’t attract a salary
If your spouse doesn’t carry out paid work, they can still have a pension that you pay into and get basic rate tax relief on your contributions, up to a maximum of £3,600 p.a. total contributions (this costs you £2,880 after tax relief). If this is their only pension in retirement, they may even be within their personal allowance (currently £12,570) and have no tax to pay on their pension income at retirement and the option of a tax-free lump sum of 25% of the fund at the point of access.
If your spouse works and is a basic rate taxpayer
If your spouse is working, 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? If so, it could be a powerful way to boost your household retirement savings.
Here’s how it works: Assuming your spouse is a basic rate taxpayer, contributing £800 to their pension effectively adds £1,000 to their pension pot, thanks to 20% tax relief from HMRC. That’s an extra 25% immediate uplift, without any investment decisions being made yet.
If your spouse works within your practice (i.e.GP’s)
It’s not uncommon for a GP to have spouses working within the same practice. If your spouse is employed by the practice (not directly by you) and earns a lower salary, perhaps working part-time up to the national insurance threshold, they may still be eligible to join the NHS pension scheme.
This arrangement can offer several financial advantages. For example, if your spouse’s income remains below the personal tax allowance and under the employee national insurance threshold, they won’t pay income tax or NI contributions. Similarly, the practice may avoid paying employer NI contributions if earnings are kept below that threshold.
From April 2025, however, there are a few key changes to note:
- The employer’s National Insurance rate increases from 13.8% to 15.0%.
- The NI contribution threshold reduces from £9,100 to £5,000.
Even with these changes, employing a spouse part-time can still be a highly tax-efficient way to increase household income and practice manpower. What’s more, it allows your spouse to build valuable NHS pension scheme benefits, an often overlooked long-term advantage.
Of course, spouses earning above the national insurance threshold are also eligible to join the NHS pension scheme, and doing so remains a worthwhile option for many families.
Limited Companies
If your Limited Company employs your spouse, you (as the company) can make employer pension contributions on their behalf. These contributions are usually treated as an allowable business expense, making them corporation tax-deductible. This is a smart way to extract value from the company while boosting your spouse’s retirement savings.
However, before implementing this strategy, it is essential to consult with your accountant or HMRC to ensure:
- The arrangement is commercially justifiable (i.e., the salary and pension contributions reflect the work done).
- You comply with employment and tax regulations.
- Contributions are made within annual allowance limits.
If your spouse is a 40% taxpayer
For spouses paying higher-rate income tax, pension contributions can be even more valuable. It’s important, however, to first assess their current pension provision, especially in light of:
- The annual allowance (and possible tapering for high earners).
- Any carry-forward opportunities from previous tax years
- The total impact on their lifetime retirement planning.
Assuming they’re within the allowable limits, higher-rate taxpayers should prioritise putting contributions into their pension.
Here’s why: As a 40% taxpayer, adding £1,000 to their pension will only cost you £600 after tax relief. That’s a 67% difference between what it costs 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 pension’s annual allowance and are looking for other tax-efficient investment opportunities, you may wish to at least explore investing in a Venture Capital Trust. See here for more details >
VCTS are not suitable for everyone, and it’s important that you fully understand the risks involved. We always recommend you talk to a financial adviser before making investment decisions.
4. Pensions for your children
No matter how unfair the pension age and allowance changes feel, they’re still preferential to what the next generation has in store. Although not strictly helping you to retire early, this one is a great option for your children and your own overall estate.
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.
This can have the added bonus of potentially reducing your estate for Inheritance tax purposes.
Additional considerations for retirement planning
In October 2024, the Chancellor announced that most unspent pension funds will form part of your estate for Inheritance tax purposes from April 2027. This change makes the decision to prioritise alternative forms of provision over pensions seem more attractive; however, as no other investment or savings offers the tax benefits of pensions, it’s not that simple. The order you start to draw on these investments may change after 2027, but the important thing is to take action and advice to close the gap between your hoped-for retirement age and state retirement and full access to your NHS pension benefits.
Also, bear in mind you are now able to take NHS Partial retirement, where you start to draw the pension and lump sum from one section of your NHS pension scheme while remaining at work and contributing to the ongoing 2015 section. As both the 1995 and 2008 sections of the NHSPS have earlier normal retirement ages of 60 and 65, this can also form part of the solution. You can also access each of the NHSPS sections before their own normal retirement ages, but beware, as this action will attract punitive penalties.
Will your pension be enough?
The golden question! Many doctors and dentists still view retirement planning as simply contributing to the NHS pension scheme. But to truly answer when you can afford to retire, you need more than that. A clear understanding of your current living costs, along with a timeline of any significant future expenses, is essential.
Working with a financial adviser can bring much-needed clarity. Together, you can define your target retirement income and assess whether your existing pensions, savings, and investments are on track to support it.
Given the recent changes to pension legislation, tax reliefs, and allowances, it’s time to ask: Will your pension and investment portfolio give you the freedom to retire when you want to?
If the answer is “no” or even “I’ve no idea”, then now is the time to take action. Face the facts, understand your position, and start planning to shape a more realistic and desirable retirement age.
Fully understanding ALL the options available to you and your family can really help to make that early retirement a reality, rather than an elusive pipe dream!
Why not contact your financial adviser to check you are fully utilising all options?
The concepts and suggestions in this article must not be viewed as advice. As always, we recommend you approach a Financial Adviser who will take your circumstances into full consideration before providing advice.
This article was originally published in September 2019 but has been rewritten and updated for accuracy purposes in May 2025.
Are you saving for your retirement outside of your pension? If so, which option have you gone for? Let us know by adding a comment below.