Do you know how large a pension fund you have built up? The key to successful retirement planning is to work out first how much income you will need, then check the value of your pensions and other investments to date.
Once you have a clearer picture of whether your retirement goals are likely to be achieved, you can take steps to make up any potential income shortfall.
For many GPs, pension plans - particularly the NHS scheme - will form the core of their retirement provision, so it is useful to know how to establish likely benefits for the main types of pension scheme.
NHS pension scheme
This provides guaranteed benefits linked to a GP's uprated (or dynamised) lifetime NHS earnings. Uprating is designed to ensure that previous years' earnings are revalued in line with general increases to average GP earnings.
Benefits include an inflation-proofed pension and a tax-free lump sum at retirement.
Depending on where in the UK you are based, by writing to the relevant NHS pension administrator you should be able to obtain a personalised statement of the scheme's various benefits. When asking for this, you need to supply either your personal scheme membership number or National Insurance (NI) number.
Level of benefits
Your statement should indicate both the level of benefits that have accrued to date, and the amounts of additional benefits that will be added for each future year of NHS service, assuming your pensionable earnings remain the same.
If you plan to take your NHS benefits before age 60, remember that early retirement reduction factors will be applied on a sliding scale. See the UK Database every week in GP for these factors if they are not included on the statement.
The amounts on the statement will be at today's value. Unless early retirement factors are applied, your actual pension and tax- free lump sum at retirement will be higher. However, because of inflation, these higher figures will only have the same purchasing power as those at today's value. The statement should also state if you are eligible to buy added years and what the cost will be.
Unfortunately, a calculation for the potential benefits offered by 'new-style' added years contracts (introduced in the 1980s) is not available due to the difficulties of predicting what your future income might be.
If you are buying 'new style' added years, the statement will underestimate your benefits.
State pension provision
Currently, the maximum basic state pension for men and women is £84.25 a week (£4,381 a year). Depending on your age and history of salaried employment, you may be entitled to earnings-related additions to the basic amount.
You can obtain a statement of potential state pension benefit entitlements online from The Pensions Service at www.thepensionservice.gov.uk, by calling 0845 3000 168 or by post (send form BR19). The forecast will tell you in today's prices the amount of state pension that you have earned already and the amount that you might receive at state pension age, based on assumptions about future NI contributions.
Money purchase provision
Unlike the NHS scheme, benefits from money purchase pension plans such as personal pensions, free-standing additional voluntary contribution plans and additional voluntary contributions are not guaranteed.
For an illustration of potential future benefits, contact the provider, quote your pension policy number and explain what you need. Most providers can vary the projections to reflect your specific plans, for example, if you are thinking about an early retirement.
- Kevin Quinn is a financial planner at independent financial advisers Ramsay Brown Services, north London.
- Visit www.ramsaybrown.co.uk
NHS PENSION SCHEME
What the scheme provides
- An inflation-proof pension and a tax-free lump sum at retirement.
- Life insurance cover.
- Ill-health retirement benefits.
- Family benefits.
- The option to increase benefits by buying 'added years' in the scheme.
Value of your NHS pension For how much your NHS pension benefits are worth contact:
England and Wales (01253) 774774; www.nhspa.gov.uk
Scotland (01896) 893 100; www.sppa.gov.uk
Northern Ireland (028) 7131 9000; www.dhsspsni.gov.uk
Isle of Man (01624) 685 598.