Paul Forder, area manager at Wesleyan Financial Services, shares his key insights for GP partners thinking about retirement.
The pressures of the past 18 months will have prompted many GP partners to reconsider their professional and personal priorities. For some, this will have sparked thoughts about retirement.
Stepping back from the workplace completely can feel daunting, especially when it’s the culmination of a life’s work. That’s why flexi-retirement is becoming the go-to choice for many.
In line with the increasing popularity of ‘portfolio’ careers in general practice, some GP partners will be thinking about changing or diversifying their roles as they approach retirement, or altering their working patterns – for example, reducing the hours they spend in clinic.
For others, flexi-retirement will mean continuing to work, even after they’ve started accessing their pension savings. This could be in the same job, a new clinical role or even going ‘out of practice’ to lecture or help train staff.
People’s retirements are looking increasingly different, and with options to take a flexible approach - by reducing working hours, changing role or accessing pension benefits early – there is no reason to not have the retirement that suits you.
But it’s important to remember that every option will have financial implications. Here are the three key areas I review with my clients who are planning for retirement – whatever shape that takes.
Succession planning and stepping back
The first step when considering retirement or stepping back in any form, is checking the GP partnership agreement.
Some agreements may restrict when partners can retire, and what working patterns they can adopt. For example, partners are likely to have agreed to work defined hours, which could limit their ability to move to a part-time or locum role. Meanwhile, some agreements only allow a certain number of partners to leave within a specific period – a factor that might prevent an individual from stepping back when planned.
To avoid these challenges, partners should regularly discuss their succession plans and review how they can amend or adjust their agreements to balance the partnership’s needs with the retirement plans of its senior team.
Building flexibility into partnership agreements can have benefits. For example, allowing partners who want to amend their working patterns to continue working in a partnership on a reduced hour basis – or even to leave the partnership to become a locum at the practice – can give their practice a known and reliable source of cover to help manage busy periods or partner holidays, and, importantly, provide continuity of care for patients.
Planning your retirement dream
Once it becomes clear that a flexible retirement plan is on the table for a GP partner, establishing what lifestyle they want and assessing what they need to achieve it is the crucial next step.
For some it could be spending more time with family and grandchildren, while for others it could be to focus on a new passion or having more flexibility to travel.
Once that’s in place, it’s time to review financial incomings and outgoings – what money is spent on now, what it might be spent on in the future, and overall living costs. Understanding these factors will set the framework for a discussion about what a partner needs financially to make their planned retirement possible.
Both establishing goals and reviewing outgoings is something that a professional financial adviser can help with. Some will use specialist cashflow modelling tools that look at current and future data on income, expenditure, and lifestyle to show how cash requirements might rise or fall over time, helping provide a clear overview of what money is needed.
Putting pounds and pence in order
Once a partner knows what they need to bring their retirement dreams to life, it’s time to unlock the necessary money and savings needed to enjoy it.
For most GP partners, the first point of call is their NHS Pension Scheme (NHSPS). Some partners will want to take a tax-free lump sum from their NHS pension to free up cash for enjoying with friends and family, or to clear debts. For those in the 1995 and 2008 sections of the NHSPS, taking a lump sum is a condition of the plan, so it’s important for GPs to check the specifics and act accordingly.
If a lump sum is being taken, it’s crucial to think about tax implications. This is normally the lower of either 25% of the capital value of their benefits after commutation – in which an NHSPS member forgoes £1 of pension for every £12 of lump sum gained – or 25% of their standard lifetime allowance.
While accessing your pension before taking full retirement may be beneficial now, it’s also important to note this will affect the amount of income available in the remaining period of the plan.
Outside of the NHSPS, some GP partners will have alternative pension pots and savings available to them. A wider choice of options to finance a flexible retirement does however mean that a partner could be subject to tax charges or breach their annual allowance, such as the Money Purchase Annual Allowance (MPAA) – a mechanism that reduces the amount individuals can pay into their pension and still get tax-relief to just £4,000.
Being mindful of these limits and planning the order in which to access finances can help avoid tax issues – particularly for those wanting to continue to work.
For partners considering flexible retirement there are many aspects to consider, from their own finances to the impact it will have on their practice. Whatever they choose to do, getting the right advice and making a plan is key – a sound strategy will support the best outcome for both themselves, and their practice.