Now you're contributing to the NHS Pension Scheme, make sure you understand the benefits.
Am I a member of the NHS Pension Scheme?
What are the benefits of the NHS Pension Scheme?
How are my NHS pension benefits calculated?
How much does it cost?
What happens if I opt-out of the scheme?
What are the downsides?
How can I find out more?
Am I a member of the NHS Pension Scheme?
Anyone who starts working for the NHS automatically becomes a member of the NHS Pension Scheme. Although Foundation Dentists can opt-out at any time, the scheme provides a number of worthwhile benefits that are expensive to replace.
What are the benefits of the NHS Pension Scheme?
The NHS pension is an excellent scheme compared to private policies. It provides three main benefits and you will definitely use one of these at some point in your life.
1. Retirement pension
This pays an income guaranteed for life and an optional lump sum at retirement in exchange for reduced pension income.
2. Ill Health Retirement Pension
You may be eligible for a pension if you have to retire early due to ill health - this is a regular payment and the amount depends on whether you are unable to continue to work in your current job or can't work at all.
3. Death in Service
A pension is provided for a bereaved spouse and dependent children if you die whilst in service.
How are my NHS pension benefits calculated?
Dentist's pension benefits are calculated differently depending on whether you follow a self-employed or salaried route.
Self-employed practitioners are part of a Career Average Revalued Earnings or CARE scheme. Each year's net NHS pensionable earnings are added together and are then uprated to account for inflation. An accrual rate is then applied to determine your annual indexed pension.
Salaried officers are part of a final salary scheme. The final pension is based on a sixtieth of the average annual salary earned in the best three consecutive years in last 10 years before you retire.
As you can see, calculating your NHS pension benefits is quite a complex area, so if you want to find out more, it's best to talk it through with a specialist Financial Consultant.
How much does it cost?
The amount that you contribute varies depending on your pensionable income. Self-employed performers pay contributions on 43.9% of their income - as a Foundation Dentist, you are in a salaried role so 100% of your earnings are taken into account.
- Foundation Dentists will contribute 6.5% of pre-tax earnings
- The NHS also contributes 14% - for every £1 you contribute, they put in £2.15
- A Foundation Dentist earning £30,000 would contribute £130 each month, but due to the benefits of tax-relief, your effective contribution is £162.50
The Department of Health has set out plans to increase contribution levels from 2012. Most newly qualified dentists are expected to pay an additional £25 per month after tax relief, but the NHS Pension Scheme will remain very good value.
What happens if I opt-out of the scheme?
If you opt-out of the NHS Pension Scheme, or if you go private after your Foundation Training, your benefits will be lost or reduced.
Although they can be replaced with a combination of pension, savings and protection products, they will be costly and any personal pension is unlikely to provide the security of your NHS scheme.
What are the downsides?
There are limits to the amount of pension benefits you can build up without paying a tax charge. It's important to review your pension situation each year with a Financial Consultant to make sure you don't go over the reduced annual and lifetime limits as you could end up with a tax bill. Read our guide to pension changes for more details.
How can I find out more?
Your Wesleyan Medical Sickness Financial Consultant is an NHS pension expert. To find out more about how your pension works or how you might maximise the benefits, contact us today to arrange a no-obligation meeting.