How to Go Private

Get in the Driving Seat: Take Control of Your Finances There are so many factors to consider when deciding to go private but none are more important than making sure your personal as well as your business finances are in order. You may not have realised how comprehensive the personal support and benefits offered by the NHS are until they’re no longer there. In this article we aim to highlight some of the key questions you should ask yourself when moving into private practice and explain how specific products such as pensions, key person insurance, income protection and critical illness cover can meet these needs.

 
How can I replace my NHS Pension Scheme?
Moving in to the private sector will undoubtedly be an exciting time and you won’t necessarily have retirement on your mind. However ensuring you have the right pension scheme in place is a key issue and not an easy one to resolve on your own.

The NHS pension scheme is excellent. It is linked to your NHS lifetime’s earnings and pays an income guaranteed for life, no matter how long you live. This kind of pension scheme is known as a Defined Benefit scheme and is now rarely offered to employees in the private sector.

Replacing your NHS pension will cost a lot of money so it is vital that, from the first day you take on a private patient, you bear this cost in mind when setting your fees. Even if you have only a handful of private patients, you have to make provision otherwise you may find yourself ending up with a shortfall in your pension when you retire.

How much do I need to factor into my fees to allow for my pension provision?
Some experts suggest that you factor in 20% of the NHS fees that you earned in the past to cover your pension. However you should take professional financial advice because the kind of pension you need will depend on the age at which you want to retire, the kind of lifestyle you plan to have, how much cover you want to provide for your dependents and your attitude to risk.

Will a private scheme give me a guaranteed income in retirement?
A Defined Benefit scheme such as your NHS pension guarantees your retirement income. A private pension will not guarantee a pension income linked to former earnings. Instead it will build up a fund for you to draw on in retirement or to use to buy an annuity from an insurance company. This will guarantee an income for life but it will be dependent on the fund size, your age, state of health and other factors. This means that the income you will have to draw upon as a pension will depend on how much, and how well, you invest now.

I’ve heard that SIPPs are a good form of pension investment. What are the benefits of a SIPP?
One form of private pension that you could consider is a Self-Invested Personal Pension known as a SIPP. A SIPP is like a shopping trolley where you can collect a number of different assets. It allows you to make your own investment decisions to build up a pension fund that will provide a tax free lump sum and a pension income either by purchasing an annuity on retirement or by taking income withdrawals. You can invest commercial property, funds, shares, bonds, gilts, futures and options into the SIPP, which is itself just a tax efficient wrapper around these investments.

If you own the freehold of your practice, one of the attractions of a SIPP is that you can hold the property in it. The SIPP would then own the property and lease it back to you. The rent becomes a tax deductible business expense and the rental income is an additional asset to your SIPP and can be invested accordingly. When the property is sold it is exempt from Capital Gains Tax. However, there are potential risks associated in doing this and you should seek professional advice.

If you don’t like the thought of having such a huge investment choice or if you prefer to keep the needs of your professional business separate from property investment then a SIPP may not be suitable for you and you should consider an alternative pension options such a stakeholder or personal pension.

Does my NHS pension only cover income in retirement?
The NHS pension scheme is more than just a pension. It includes other benefits that you may want to replace if you move to private practice. You may find it more difficult to claim the Ill Health Retirement Pension (IHRP) on an own occupation basis. You should therefore consider Income Protection to ensure that you will still have cash coming in if ill health prevents you from practicing.

The NHS pension also includes death benefits including a Death in Service lump sum and a dependents’ pension for a bereaved spouse and dependent children. Replacing these benefits is important and there are a range of policies that can be used to cover them, including term assurance, whole of life assurance and family income benefit assurance.

 
In order to ensure your long term security, you could also consider critical illness cover. Be careful not to confuse this type of policy with an income replacement policy as they are designed to do different things. Critical illness pays out if you are diagnosed with one of a range of specified illnesses such as a stroke, heart attack, cancer and so on.

The key thing to ensure with critical illness is that you buy a policy that is career specific, that is, it will pay out if you really can’t continue working as a dentist even if you could do another form of work. After all, you have studied, trained and worked hard to get where you are so you don’t want a policy that will only pay out if you are completely and totally disabled from doing any job.

What kind of cover can I get to help me manage the associated loss of income if I, my partner or another income provider such as a dental hygienist falls ill?
The cost of running a dental practice can run into hundreds of thousands pounds each year so it is essential that you talk to your financial adviser and find out what products are on the market to help you through these difficult times. You could for example consider locum protection that will assist in meeting the costs of employing the service of a Locum tenens in the event of sickness or absence so that you can continue to provide a full service to patients. Key person assurance will safeguard your business profits if a key member of staff unexpectedly passes away and gives you time to find a replacement. There’s also surgery insurance that will cover you if staff or patients have an accident on your premises or suffer loss or damage to valuable equipment.

What other considerations are there?
You would be wise to ensure that any agreement or partnerships that you put in place are formal, robust and legally binding. Many practices are set up without thought to what would happen if one partner is ill or dies. Who will inherit the deceased partner’s share of the practice? Probably his family and they could decide to sell it on to a third party if you don’t have a legally binding option to purchase. Or what if your partner decides to retire before you are ready? Do you have to sell the surgery and start again?

You need to think about how decisions are made between partners because you might not always agree on every issue, as well as what you would do if your partner underperforms or builds up excessive expense liabilities. These are all questions that you need to consider in advance of setting up your practice. Then ensure you have the right financial cover to take account of them and the correct legal trusts in place.

Conclusion
Undoubtedly moving into private practice can be exciting and offer real financial rewards. It puts you firmly in the driving seat of your own finances with no need to worry about the government clawing back cash if you fail to meet targets. However you are, to all intents and purposes, a self-employed business person and you need to think and act accordingly. One of the most important things you need to do is seek professional financial advice and make sure it’s from an adviser who understands your profession and the NHS pension scheme.

If you would like to discuss any of areas covered in the above topic, please contact your local Financial Consultant by using the locator above.