Pensions for Doctors living and working in the UK
22 Nov 2020 | Anne Marie Fogarty
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NHS Pension Scheme
The 2015 NHS pension scheme is a principal pillar of retirement planning for doctors in the UK. This scheme provides a lifelong income for a medical consultant with the benefits of life insurance and financial support. NHS Pension scheme provides a good amount of income. The 1995 and 2008 pension schemes vary from the 2015 pension scheme in that the latter provides CARE (Career average revalued earning) benefits for all doctors.
How much pension does a doctor receive in the UK after retirement?
In the 2015 NHS pension scheme, 1/54 is the accrual rate, which is equivalent to 1.85%, meaning that a person will earn annually 1/54 of their pensionable earnings. To calculate the final pension, the total of all the annual pension accrual amounts is summed up altogether at the time of retirement. Of course, if you are going to base your pension accrual on your lifespan earnings, then you will need a system in place to reassess your previous years’ earnings so that they do not depreciate. The revaluation rate in the 2015 scheme will be the CPI (Consumer Prices Index) plus 1.5%.
For instance, if someone earns, £75,000 this year, in pensionable income and the CPI is rate 3%, then his/ her pension equals to 1/54 x £75,000 = £1,389 and the revaluation rate would be raised to £1,452 (CPI 3% + 1.5 %).
How is a pension raised?
Each year the total of the preceding year’s pension accrual will be raised by the corresponding rate for that year.
Contributions rates into your NHS pension have now been fixed for the period April 2015 to 2021 and apply to both the 2015 and 1995/2008 schemes.
The employer’s contribution rate changed from 14.38% to 20.68% on 1 April 2019, which includes a scheme administration charge of 0.08%.
What happens if I have a break in service?
If you leave NHS employment and then return, what scheme you subsequently come under will depend on the length of the break and the level of protection you have.
This scheme also looks after your family if something should happen to you. The NHS Pension Scheme provides lump sum and pension benefits in the event of your death.
To calculate your pension amount on retirement use https://www.bma.org.uk/pay-and-contracts/pensions/calculating-your-pension/calculate-your-nhs-pension
Schedule of State-pension by the UK government:
The UK government introduced a common state-pension for those aged 65, for men and women, between the years 2010-2020 according to the following schedule.
|Date of birth||Pension age||Pension year|
|April 1950||60yr 1m||2010|
|October 1950||60yr 7m||2011|
|April 1951||61yr 1m||2012|
|October 1951||61yr 7m||2013|
|April 1952||62yr 1m||2014|
|October 1952||62yr 7m||2015|
|April 1953||63yr 1m||2016|
|October 1953||63yr 7m||2017|
|April 1954||64yr 1m||2018|
|October 1954||64yr 7m||2019|
Tax on Pension
In the UK Generally, all pensions are taxable. The starting rate of tax is 10%, the introductory rate of tax is 22%, while the higher rate of tax is 40%. A system of independent taxation of husband and wives was introduced. According to this system, both spouses’ incomes and capital gains are taxed separately.
The annual allowance is a threshold which restricts the amount of pension savings you are allowed each year before tax charges apply.
The standard annual allowance is currently £40,000. More information can be found at https://www.bma.org.uk/pay-and-contracts/pensions/tax/nhs-pension-annual-allowance
Doctors are excessively taxed on their pensions. This often contributes to early retirement, changes in career pathways as consultants pay high tax on pensions and so look for alternative more lucrative roles such as locum work- why not contact one of our dedicated consultants today to discover locum roles that benefit practice and paycheque!
Further information on Pensions in NHS for doctors at https://www.bma.org.uk/pay-and-contracts/pensions
Fay Smith, Michale J Goldacre, (2018) Retirement ages of senior UK doctors: national surveys of the medical graduates of 1974 and 1977, 8(6): e022475.
David Blake, (2003) pension Schemes and Pension Funds in the United Kingdom, Oxford University Press.
Michelle Pannor Silver, Angela D. Hamilton, Aviroop Biswas, (2016) A systematic review of physician retirement planning,14: 67.