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Your questions on pensions answered

PROTECTION

I would be grateful for further advice to help me to decide whether to ask for 'protection' before A-Day for pensions.

You have previously mentioned that when one exceeds the allowances (£1.8 million in 2010) there will be charges on the excess. The charges you mention are 55 per cent on a lump sum and 25 per cent when taken as a pension.

The lump sum is usually tax free, but a pension would probably be taxed at 40 per cent. Would the final figure be 55 per cent on a lump sum and 65 per cent (25 per cent plus 40 per cent) on a pension?

Both the 55 per cent and 25 per cent figures are applied to the excess funds above the prevailing lifetime allowance (LTA) charges. The aim of these charges is, essentially, to reclaim the income tax and national insurance contribution (NIC) relief obtained when pension payments were originally made.

For example, if the LTA was £1.8 million and the members' fund was £1.9 million, then the excess fund would be £100,000. If this was taken as a cash lump sum, then a 55 per cent LTA charge would be made, which means that the member would receive about £45,000.

PROTECTION 

However, if the £100,000 was used to purchase a pension, then the 25 per cent charge would be applied, reducing the amount to £75,000. This would then be used to buy a pension, with the ongoing pension payments being taxed at the members highest marginal rate (likely to be 40 per cent), which is an overall effective rate of 55 per cent as per the lump sum charge.

Kevin Quinn

WHEN TO RETIRE

I will be 59 in August this year and am thinking of taking early retirement in October. I started an NHS pension in 1977 and bought added years about nine years ago.

About this time last year I remember reading an article which suggested hanging on until March of this year to gain the maximum benefit from the pension negotiations of the new contract. I wonder if this is true; is October a good time or will it benefit me (other than the extra contributions of those six months) to wait until April 2007? With the new dynamising factor will the pension be about 30 per cent higher than an estimated quote in 2005?

It is generally expected that the major increases to GP pensionable income and consequently pension benefits will have occurred by April 2006.

Where benefits are taken before age 60, it should be remembered that an early retirement factor will be applied. Also, if a regular contribution added-years contract is not completed to the originally intended normal retirement age (60 or 65), then a proportionate added-years benefit will be paid.

Dynamisation figures published since the new contract was introduced are still interim figures, so it is impossible to make an exact prediction as to what the increase in pension benefits will be.

Kevin Quinn

OPTING OUT

I am a 39-year-old GP and have spent several years as a locum and overseas.

I have bought added years up to the maximum of 9 per cent of my salary, but even then will only have qualified for 38 out of 40 years at age 60.

With the new way of calculating GP superannuable pay I could now theoretically opt out of the scheme and take the employer's contribution as well. Is it worth considering leaving the NHS scheme and setting up a private pension?

Unless there is a very good reason for doing so, it is generally not advisable to opt out of the NHS Pension Scheme (NHSPS) in favour of money purchase arrangements such as personal pension plans.

This is because the NHSPS provides guaranteed benefits related to a GP's uprated lifetime superannuable earnings. Benefits from money purchase arrangements are not guaranteed and depend on future investment returns and annu-ity rates, both of which are unknown in advance.

In the current economic climate, generally the required rates of return under money-purchase plans to match the benefits provided by the NHS scheme are high and would be difficult to achieve without incurring significant levels of risk.

The NHSPS also provides valuable ill-health/disability, death-in-service and dependants' benefits.

Personal pension plans can, however, complement the NHSPS by offering increased flexibility where GPs wish to retire early or wind down before retirement or where NHSPS contributions are already being maximised.

With effect from 6 April 2006 and the introduction of the new pension simplification rules, there will be increased scope for many GPs to make significant tax-relieved investments into personal pension plans alongside their NHS payments.

Kevin Quinn

ASK THE EXPERTS - Email questions or phone our experts

NHS RULES: Dr Tim Kimber is a Littlehampton GP and a member of West Sussex LMC. Email: tim.kimber@nhs.net

ACCOUNTING: Stuart Williamson is a partner at accountants Williamson West. Email: ww@williamsonwest.com

LEGAL: Lynne Abbess is a partner at solicitors Hempsons. They can offer 10 minutes of free advice only, from 10am-4pm weekdays. Phone: (020) 7839 0278

PREMISES: John Hearle is a chartered surveyor and chairman of Aitchison Raffety. Email: john.hearle@argroup.co.uk or fax: (01727) 844 472

PENSIONS AND PERSONAL FINANCE: Kevin Quinn is a financial planner at Ramsay Brown & Partners. Email: kevin@ramsaybrown.co.uk

PMS: Dr Mo Dewji is a Milton Keynes GP and clinical director for primary care contracting. Email: mo.dewji@dh.gsi.gov.uk

ACCOUNTANCY AND TAXATION: Jenny Stone is a partner at Ramsay Brown & Partners. Email: jenny@ramsaybrown.co.uk or call (020) 8370 7746 9am-5.30pm weekdays

PRACTICE-BASED COMMISSIONING: Maggie Marum is a management consultant for the NAPC and runs its practice-based commissioning helpline. Call: (020) 7636 8626. www.napc.co.uk

PLEASE NOTE

Please ask for 'GP Ask the Experts'. You may be asked to book a full consultation if your request is time-consuming or difficult. Our specialists retain the right to refuse advice. The information in the Ask the Experts list is for information purposes only. The expert advice is intended to provide general guidance only. It should not be relied upon by readers, who should seek further professional advice. No legal responsibility can be accepted by GP for the experts' answers.

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