Are you making the most of your GP pension? As a doctor, you spend your days caring for patients – but looking after your financial health is important, too.
In this guide, we’ll explain how your NHS pension scheme works for practitioners, from navigating the annual pension allowance and making the right pension contributions to how to secure a comfortable retirement.
Understanding your GP pension
Fully guaranteed by the UK Government and with 3.4 million members across England and Wales, the NHS pension scheme pays out more than £12 billion annually to pensioners.
Unlike traditional NHS employees, GPs are usually self-employed or provide NHS services through their own limited company. They’re still entitled to the NHS pension, but the benefits are often accrued and calculated in a different way as a result.
How are my pension benefits calculated?
The way your GP pension benefits are calculated will depend partly on when you joined the NHS pension scheme:
- 1995 scheme members: GPs who are members of the 1995 scheme will receive an annual pension based on 1.4% of their earnings. These members are usually entitled to a lump sum up to three times the size of their total pension pot.
- 2008 scheme members: If you’re a 2008 scheme member, your pension will be based on 1.87% of your earnings. While you won’t receive a lump sum payment automatically, you’ll still have the option to take up to 25% of your fund as a tax-free lump sum – but only if you’re willing to receive a reduced pension in return.
- 2015 scheme members: Finally, 2015 scheme members receive an annual pension worth 1/54th of their salary. Similarly to 2008 members, these NHS workers will not receive a tax-free lump sum automatically, but they do have the option to take one if they prefer.
Regardless of when you joined the scheme, your pension benefits will be reviewed yearly to keep them in line with inflation.
Working out your GP pension benefits can be more complicated if you’ve moved from one scheme to another over the course of your NHS career. Your pension entitlement may also depend on how many years you’ve worked as a GP for the NHS.
If you’re not sure how much to expect from your NHS pension, we’d recommend getting in touch with an expert.
Annual pension allowance
The annual pension allowance is the maximum tax-free sum you can pay into your pension pot each year. This rose from £40,000 to £60,000 in April 2023. If you pay more than this amount within a tax year, either you or your pension provider will need to pay tax on it.
Prior to April 2023, a £1,073,100 lifetime allowance also applied. However, the Government scrapped this limit as part of the 2023 Autumn Statement.
Making your contributions
Each month, NHS pension scheme members pay a set contribution to their pension pots out of their salaries. The percentage you need to contribute is directly linked to your earnings.
For example, NHS workers in England and Wales making less than £13,246 a year must contribute 5.1% of their earnings to their NHS pension, while top earners must contribute 13.5%. In addition, the NHS will typically make a further contribution worth 20.63% of your salary (or 20.9% in Scotland)
Furthermore, the NHS is a defined benefit scheme, which means your pension income is predetermined.
Making the most of your GP pension
Now that you understand how the scheme works, let’s explore how to make the most of your GP pension.
Increasing your NHS pension
There are numerous ways to increase your pension as an NHS pension scheme holder. Common methods include:
- Additional pension payments: These can be paid either as a lump sum or through regular contributions deducted from your earnings.
- Early retirement reduction buy out (ERRBO): 2015 scheme members can buy out the reduction that would apply if they claimed their pension before reaching pension age.
- Money purchase additional voluntary contributions (MPAVC): You may be able to build a separate retirement fund by supplementing your main scheme benefits with voluntary contributions.
Understand the rules
Understanding how the NHS pension scheme works, how it applies to you as a GP and the legislation surrounding your pension contributions is vital if you want to make the most of your GP pension.
For example, ensuring that you don’t exceed your annual pension allowance and understanding the tax implications of withdrawing a lump sum can help you optimise your tax position both before and during retirement.
Explore other retirement planning strategies
Your pension doesn’t need to be your only source of income in retirement. Exploring other retirement planning strategies such as investing in the property market or taking out life insurance policies can help you protect your financial future even further.
Work with experts
As experienced accountants for GPs, we know how hard you work to look after your patients and run your practice as efficiently as possible. As well as providing services to help you manage your practice’s finances, we offer comprehensive pension support for our clients.
Get in touch to discuss your GP pension.