For all dentists, and especially if you have recently qualified or completed Dental Foundation Training (DFT) or Dental Core Training (DCT), there is a compelling case for early planning in four key areas of your finances – pensions, income protection, securing a mortgage and engaging a dental accountant.
Is the NHS pension enough?
Plans for retirement often fail to get off the ground because of a misunderstanding of the retirement saving options and a false belief that the NHS pension will cover all retirement bases. Anyone joining the scheme now has an NHS pension retirement age equal to their State Pension Age. Currently 67, this is set to increase to age 68 from 2046. If you don’t want to work to this age you can take a reduced NHS pension early and make up the difference with additional pension savings.
The level of NHS pension you receive depends on how much NHS work you do (Net Pensionable Earnings- NPE) and how long you work for. However, there is serious flaw with any forecasting. First, if your NPE reduces in future years because you have a career break or you reduce your NHS work in favour of private fee income, your NHS pension could be significantly less than expected.
What alternative pension saving options are there?
Saving early in your career could help you amass a significant fund to draw on later in life and with which to supplement your NHS pension. The personal pension regime allows you to make savings towards retirement that have tax advantages, with the current earliest age of access to these savings being 55 – a full 12 years earlier than the State Pension Age (assuming this is age 68).
To incentivise you to make private pension provision the government allows you to claim tax relief on pension contributions. In practice this means that your pension contribution will cost you only 60% of what ends up in your pension pot e.g. you pay in £200 and it only costs you £120. Paying a regular amount into a personal pension is usually the easiest way to budget for additional retirement savings. Starting this contribution soon after qualification means your savings have longer to accumulate.
Protecting your income
This should be a priority. Many associates pick up an income protection policy at university but fail to review it when starting a new associate or salaried post. This can lead to insufficient cover or simply a policy that won’t pay out when you need it. Some of these policies take account of NHS sick pay entitlement and some do not.
The main point to make here is that because of NHS sick pay you may not be able to claim on your income protection policy for six months. This means you might be paying for something you can’t claim. The solution is to review your cover to make sure it is set-up properly to tie-in with any NHS sick pay.
Engage a dental accountant
As a self-employed associate the list of business expenditure that can be claimed to improve your tax position is comprehensive. Common expenses that can be claimed include the costs of courses and training (including travel and subsistence), professional subscription costs, mobile telephone expenses and protective and work clothing purchased.
If you have to buy any dental materials or equipment, such as loupes, these are also allowable expenses. HMRC provides specific advice regarding motor expenses. The key point is that travel costs to and from your regular place of work are classed as private use and are not allowable for tax purposes.
The annual declaration of NHS Net Pensionable Earnings (NPE) is required by 30 June each year. As the figures you confirm annually are used to calculate your pension entitlement, it is important to make sure you are accepting an accurate earnings figure.
As a self-employed associate, the responsibility lies with you to ensure that the figure is correct and should not be confirmed until you are happy with it. This is a specialist area so seeking advice on this is something I strongly recommend. Having a specialist dental accountant to guide you through the setting up of your sole trader business and during the first few years is beneficial.
About the author
Jon Drysdale is a Director at PFM Dental, chartered financial planners for dentists.