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Pensions - How to count down to your retirement

Phil Mileham advises planning ahead in stages and starting this well before the year you will retire.

Proper planning can help you ensure you have sufficient income in retirement to enjoy the lifestyle that you want (Photograph: Getty Images)
Proper planning can help you ensure you have sufficient income in retirement to enjoy the lifestyle that you want (Photograph: Getty Images)

For some GPs retirement will not come quickly enough but others will be reluctant to leave a job they love and which gives them a valued role in their community.

Whatever your attitude, remember that you could live for 20 years or more after you retire. So make sure you have the income in place to enjoy the lifestyle you want.

Seven to 10 years ahead

Many GPs pay into their NHS Pension Scheme (NHSPS) and even additional pension schemes without knowing how much they will receive as income in retirement.

Write to NHS Pensions (or its equivalent if you are in Scotland or Northern Ireland) and any private providers to ascertain your current and projected benefits. Also contact the Department for Work and Pensions for a state pension estimate.

NHS pension
Personal pension
  • Contact the provider.
State pension

Check whether your combined pensions are likely to be valued in excess of the lifetime allowance (currently £1.8m reducing to £1.5m on 6 April 2012). If so, consider specialist financial advice on how to reduce any lifetime allowance tax charge at retirement.

Once you know how much money you will have coming in, determine if this is enough to meet your needs. What kind of lifestyle do you want? Are you planning to travel more? Will you still have financial commitments, such as grandchildren, that you want to support?

Try to estimate what your retirement plan is likely to cost and whether your pension income will cover it. If it will not, you still have some time to make up the shortfall.

Review any other savings to check they are performing as required. Consider using your full ISA allowance, increasing to £11,280 from April, because ISAs can provide additional tax-free income in retirement.

If you are still short of funds, is downsizing to a smaller home an option? Or should you consider retiring later or working part-time after taking your NHS pension benefits? What about taking 24-hour retirement so that you can take your NHS pension benefits and continue to work but put in fewer hours?

Three to five years ahead

Review your investments. As you move closer to retirement your attitude to investing may change. If you are relying on investments providing income during this period, take less risk with them.

Diversify your assets to protect against sudden stock market movements and consider safer cash-based products. Use spare cash to reduce outstanding debts such as a mortgage or credit cards.

12 months to go

If you are a GP partner check what notice period your partnership agreement requires you to give. Give the relevant notice to your primary care organisation and NHSPS that you plan to retire. Speak to your accountant about your tax position. If you are a partner, you need to think about how you take your share of capital out of the practice because there could be a capital gains tax liability.

Consider if you will still need locum and medical defence cover. Review your income protection policy as you may no longer need it. If you have personal pensions, the provider should contact you six months before your contracted retirement date about your pension options.

Review them with your financial adviser to help you to decide on the best options to meet your retirement goals.

Only three months left

Apply to the NHSPS three months ahead of your planned retirement date. Your benefits will include a monthly pension linked to your service and career earnings that will rise yearly in line with the Consumer Prices Index.

You will also receive a tax-free lump sum (optional for GPs in the NHSPS 2008 section). A dependant's pension is payable when you die.

Get advice on how to take your personal pension benefits. Many people choose to buy an annuity which can include options such as spouse's benefits and index-linking. If you smoke or have health problems you may be able to get a better rate because you may have a reduced life expectancy. Shop around to ensure you get the best rate because you have just one chance to buy your annuity.

If you smoke or have health problems you may be able to get a better annuity rate because you may have a reduced life expectancy.

Another option is income drawdown where an income is paid directly from your pension fund. Some people will not feel comfortable with this as the benefits are not guaranteed. The underlying investments in the pension fund may not perform well, leading to reduced income in future years.

You may decide you do not need the income from personal pensions immediately and prefer to defer until much later in life. How much later may depend on individual providers implementing a deadline.

The day arrives

When you receive your NHS pension tax-free lump sum, make sure that you reassess your position regarding inheritance tax.

Remember that retirement is an exciting chapter of your life. You will be able to enjoy new pursuits, devote more time to family and friends and relish fresh challenges secure in the knowledge that you have your finances under control.

  • Phil Mileham is national sales manager with Wesleyan Medical Sickness www.wesleyan.co.uk

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