Newly qualified doctors and dentists who have recently started their careers are reporting that they are struggling to save into a pension. It is not that they don’t recognise the importance of investing into a pension, it is that they have more pressing needs. They feel they need to focus on shorter term needs, such as paying off credit cards and student debt. On average a doctor will graduate with £82,000 worth of debt, which could take them nearly 30 years to pay off!
This does not constitute advice and advice should be sought in all instances before acting on it.
NHS pension
The fact they we are living longer which makes retirement more expensive. It is imperative that you start planning for your pension as some as possible to ensure you have enough money to support you during your retirement.
Some medical professionals have stated they cannot afford to pay into the NHS pension scheme. By not doing so they are missing out on a potential employer contribution of 14.3%, plus other benefits, like access to the death in service benefits. We encourage everyone to invest into this pension even if this means paying in a modest amount to begin with.
Pension options
The Pension Freedom reforms that were introduced in April 2015, means that anyone over 55 has more power over how they spend, save or invest their pension pot. Instead of diverting all your money into the NHS pension, you can choose to invest some money into a pension portfolio that is spread across differing assets.
There are some ‘off the shelf’ portfolio packages available that are based on differing levels of risk and which may be more straightforward to manage.
However, pensions are an incredibly complicated area and one that needs regular monitoring. It also requires you to have some technical knowledge of how the markets work.
You may feel comfortable with managing your pension portfolio yourself, but we always advise that you seek advice from an experienced financial who has specialist knowledge in this area.
Before investing your money into a pension, you should consider the following:
Choosing the right pension:
There are a couple of options. First is the drawdown scheme which allows you to draw an income to live off whilst retaining some capital in the pension. Second, is a fixed-term annuity. This allows you to defer your decision on what you want to do with the funds in the pension.
Each has its own pros and cons, and you should discuss this with a financial advisor.
Pay attention to tax:
Don’t get caught out paying heavy levels of tax on withdrawing money from your savings. You can take out 25% as a tax free lump sum, and the rest is taxed at 20%, 40% and 45%.
After you take your 25% you should take money out of your pension in small amounts over several years to avoid moving up into a higher tax band.
Review your portfolio:
We strongly recommend that you carry out a regular ‘health’ review of your investments. This should be done once a year and ideally around the same time. This will give you continuity and enable you to make a like-for-like comparison of the funds’ performance.
Want to know about your pension options?
Dental & Medical Financial Services have been helping doctors and dentists with pension planning for over 25 years.
Tel: 01403 780 770