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How cost-of-living rises may affect NHS retirement plans

nhs pension
cost of living for dentists
cost of living for doctors
3 min
Man sitting at desk with laptop on phone

Adam Thompson, Specialist Financial Adviser from Wesleyan Financial Services, shares his thoughts on what the current economic climate means for NHS pensions and investments for retirement…

Many people are facing tough times as the country endures cost of living increases. Experts have warned this could lead to the worst fall in living standards since the 1950s.

With rising bills, rent, inflation and petrol prices, plus a warning from the Governor of the Bank of England about ‘apocalyptic’ increases in food prices, people naturally worry about their finances. How much is in their bank account and how much more do they need to spend, simply to maintain their current lifestyle?

It’s understandable that with any increase your focus is usually fixed on the here and now. But it’s wise to take time to consider the future and make sure your long-term situation is also secure.

If you’re building your savings or pension pot so that you can enjoy retirement, it’s worth understanding how your future plans could be impacted by the current rise in the cost of living.

Increased inflation and the NHS pension

It’s recently been reported that we may need to brace ourselves for a staggering 22% inflation*. More than ten times the Bank of England’s 2% target.

Inflation is a threat to the purchasing power of the money we hold as savings. As the general value of goods and services rise, it erodes this purchasing power over time.

If you have an NHS pension, the good news is that it's fully index linked to protect the scheme from inflation. This means your pension will increase every year in line with the cost of living, which is a big benefit in the current economic climate.

However, while the indexing of the NHS pension scheme is an overall ‘pro’, one of the ‘cons’ is that the booming growth of the scheme can become a tax headache. Particularly when you consider the Lifetime and Annual Allowance.

To make sure everything's as it should be and avoid as much stress as possible, it’s wise to seek annual advice well ahead of the year-end deadline.

Personal pensions and investments

If you’re a private dentist or doctor with a small or no NHS pension, you may be saving into a personal pension to fund your retirement. This comes with its own risks, such as investment performance and inflation.

You'll need to make sure you're:

  • Saving for retirement
  • Invested in the correct funds for their risk profile and length of time to retirement, with the potential for an above-inflation return

Remember the value of investments can go down as well as up and you may get back less than you invest.

When it comes to retirement and pensions, as with all aspects of financial planning, regular reviews and careful monitoring are a good idea. This is so you can account for the effect of inflation and make sure you stay on track to achieve what you want.

Adjusting savings to protect retirement

With high inflation rates, such as we’re seeing now, you might need to consider adjusting how much you’re currently saving to ensure a comfortable retirement.

Fortunately, there are experts who can help you to do this by forecasting all your retirement savings, pensions and assets, and running projected scenarios for the future costs of living.

It also pays to speak to someone with an understanding of the NHS pension scheme, who can advise on complex matters. This includes the public service pension discrimination case.

Not only will this give you a clear picture of where you stand now and what kind of retirement you could have, it will also help you to make informed decisions about any changes you can make to ensure you don’t just survive in retirement, but thrive.

Book a no obligation financial review to speak to a Specialist Financial Adviser from Wesleyan Financial Services.

Tax treatment depends on the individual circumstances and may be subject to change in future.

* The Guardian

About the author
Adam Thompson
Adam Thompson

Specialist Financial Adviser at Wesleyan Financial Services

Adam is a Chartered Financial Planner and provides specialist financial advice for dentists and dental professionals in Berkshire and North London. He’s worked in financial services since 2002 and has been with Wesleyan since 2010. Adam can advise on all financial areas, and his expertise includes retirement planning for dentists and the NHS Pension Scheme, alongside inheritance tax planning and investment planning.

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