Mark Blakeman answers some questions.

Mark Blakeman, National Sales Manager, takes a look at some of the key financial questions that have been taxing dentists recently.

I want to manage my savings in the most tax efficient way that I can. What are the options?
There are many options available to you but you should first consider what you want to achieve with your savings and over what period of time, as well as your attitude to risk.

One way of saving is through an ISA or Individual Savings Account. ISAs are not investments but wrappers that help to make investments such as cash and stocks and shares more tax efficient. Interest earned on a cash ISA isn’t subject to income tax and there is no Capital Gains Tax applicable on a stocks and shares ISA. You can currently invest up to £7,000 (£7,200 from April) in an ISA each tax year.

If you are saving to provide financial security in retirement, personal pension policies are a good option as tax relief is available on contributions. So for every £100 that a higher tax payer contributes, for example, it actually costs just £78, or from April £80, from their net income. Up to £18 (£20 from April) could then be claimed back from the Revenue.


Where is a safe place to invest my NHS lump sum to enhance my income in retirement?
There are several options available that will provide you with an additional income in retirement. These include deposit accounts, National Savings, guaranteed income bonds, ISAs, OEICs/unit trusts, investment bonds and purchased life annuities. Which option, or options, you go for should depend upon the level of risk you are willing to take with your capital.

Whatever investments you decide upon, a key factor to consider is that the investment provides a level of return greater than inflation; otherwise the buying power of your investment income will decrease over time. You should also consider how the investment and the income itself will be taxed.

You may decide to spread your lump sum, making sure you have easy access to some of the cash in case of emergencies. You could then invest the rest according to your attitude to risk, the time available before you want to start drawing an income and the guarantees on return that you require.

A bank or building society deposit account will provide one of the safest homes for your NHS lump sum however the returns received may not be particularly high and will be subject to taxation at your highest marginal rate.

Guaranteed income bonds, as their name suggests, can provide guaranteed rates of income and return on your investment, as well as the potential for growth on the money you invest, although access to capital may be limited.

If you want access to your capital at any point you could consider investment bonds, which can be used to provide an income through regular, tax-deferred withdrawals. Alternately there are OEIC/unit trusts which aren’t taxed on growth or income when held within an ISA. Both of these products can be arranged with investment funds suitable for those wishing to minimise the risk to their capital.

What exactly is happening to the NHS pension scheme in April 2008?
A new pension scheme will be introduced for members of staff who join the NHS pension scheme from 1 April 2008, which features some important differences to the current scheme. Some modifications are being made to the existing scheme, which will continue for its members, although there will be the opportunity to switch to the new scheme if desired.

Will my retirement age change?
Not if you remain in the existing scheme. Your normal pension age will stay at 60. Earlier retirement on reduced benefits will also still be possible. Under the new scheme the normal pension age will rise to 65 and early retirement will only be allowed from 55.

Will I have to pay higher pension contributions even if I stick to the existing pension scheme?
Yes you will. Both schemes will cost you the same. Instead of the current flat rate contributions of 5% or 6%, a system of tiered contribution rates based on earnings will apply. Those earning less than £19,166 will continue to pay 5%, but if you are a higher earner you will contribute more: 6.5% if you earn between £19,166 and £63,416, 7.5% if you earn between £63,417 and £99,999, and 8.5% if you earn £100,000 or over. The new contribution rate will apply to the whole of your earnings. Also under the new scheme there will no longer be an earnings cap. All earnings will be pensionable, which will mean higher pension benefits for some doctors and dentists. The earnings cap is also being removed for future accruals under the existing scheme. 

Contact your local Financial Consultant to discuss further using the locator above. Alternatively call us on 0800 072 3679 or if you prefer, we can call you