Medical Money Management M M M Medical Money Management Authorised by the Financial Services Authority PRACTICE FINANCE By Chris Hopkinson MMM

Medical Money Management Why was the Cost/Notional Rent Scheme Introduced? MMM

Medical Money Management Why was the Cost/Notional Rent Scheme Introduced? Answer: Because it saves the Government a lot of money! MMM

COST RENT IS: Approved Costs x Prescribed Percentage MMM

COST RENT IS: The rental paid by the PCT to the Practice for the use of the DOCTORS’ SURGERY, thereby allowing the PCT’s Patients to be treated MMM

NOTIONAL RENT IS: The current Market Rent assessed by the District Valuer based on the Alternative use “VALUE OF THE DOCTORS’ SURGERY. MMM

NOTIONAL RENT IS: The rental paid by the PCT to the Practice for the use of the DOCTORS’ SURGERY, thereby allowing the PCT’s Patients to be treated MMM

COST/NOTIONAL RENT Continues for as long as the building is used to treat the PCT’s Patients MMM

COST/NOTIONAL RENT Providing the Cost/Notional Rent is mostly sufficient to cover the interest on a loan, there is little financial consequence should a doctor Die Leave Retire From a Practice MMM

COST/NOTIONAL RENT The fact that most Doctors have to borrow money to build or buy into a Surgery is largely irrelevant to the payment of the Cost or Notional Rent. MMM

COST/NOTIONAL RENT Questions to ask? When will I be expected to buy a share of the surgery premises? How will the share be valued? Is the Practice in receipt of Cost or Notional Rent? Whichever – how much and when was the last triennial review? MMM

COST/NOTIONAL RENT Additional Details Required Existing Loan Details: Amount Term Rate (Fixed or Variable) Repayment Method Security MMM

Medical Money Management M M M Please note: The content of this presentation is intended for general guidance only and you should seek specific financial advice before taking action on any aspect of it. The risk profile of investment products varies and should be matched to your individual attitude to risk. The value of certain investment products can go down as well as up. Some funds may include investments that are not designated in sterling and the prices may alter purely as a result of exchange rate movements. Past performance is not necessarily a guide to future performance. Medical Money Management Authorised by the Financial Services Authority

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The NHS Pension Scheme (NHSPS)

AGENDA Summary of main scheme conditions and benefits. Retirement benefits: calculation Early retirement: the effect Maximum service Topping-up benefits - added years - AVCs Ill-health retirement Death benefits

CONTRIBUTIONS 6% personal contribution for both practitioners and officers. Income tax relief. Lower NI for salaried officers; contracted out Employing authority (e.g GP Surgery) - 4% contribution Remainder: Subsidised by DOH (Treasury) - not ‘funded’, pay-as-you-go. Effect? Explain terms ‘practitioner’ and ‘officer’ and discuss employment status. 4% surgery contribution (effectively) refunded by FHSA

NHSPS BENEFITS Tax free lump sum on retirement Inflation-proof pensions (normal, early, widows & dependants) - 60 onwards (55 special classes) Death in service gratuity: 2 x pensionable pay TFC = 3 x pension. Always? For males, pre March 1972 serviceentitles him to TFC of 1 x pension (I.e. 1/80th instead of 3/80ths).

CALCULATING PENSION BENEFITS Officers: accrual basis = 1/80th pension plus 3/80th TFC for each year of service general medical practitioner 1.4% of “total dynamised career NHS pensionable earnings” for each year of service (pension); 3 times for cash Subject to pre-72 provisions Explain effect of 80ths. Explain dynamised career earnings Now a couple of ‘exercises’...

Worked example: Practitioner Practitioner joins NHSPS at age 24 Assume retirement at age 60 Assume dynamised career average is £ 42,000 pa Total (revalued) career earnings = £1,512,000 (36 years x £ 42,000) Pension = 1.4% x £1,512,000 = £21,168 pa Lump sum = 3 x £21,168 = £63,504 Delegate to calculate pension from average dynamised earnings. Ignore pre-72 service rules Explain effect pf pre-GP officer service < 10 years.

Worked example: Officer Officer joins NHS at age 25 Has 2 years break to carry out VSO work at the age of 35, then returns to NHS Assume retirement at age 60 Assume final earnings at retirement are £53,200 Total Service = 33 years Pension = 33/80ths x £53,200 = £21,945 pa Lump sum = 3 x £21,945 = £65,835 Explain ‘VSO work’ Ignore pre-’72 service rules

NHS PENSION SCHEME (EARLY RETIREMENT) Voluntary early NHS retirement from age 50 is possible, but NHS pension benefits reduced if taken prior to age 60 No reduction applies for ill health retirement, and dependants’ benefits based on unreduced pension Next exercises to see how this would impact the previous examples

How does this affect the worked example? (practitioner) Practitioner had entered service at 24 Assume early (voluntary) retirement at 55 Therefore, only 31 years potential Assuming same career average (£42,000pa) total career earnings = £ 1,302,000 Pension = 1.4% x £ 1,302,000 x 75% = £13,671pa Lump sum = 3 x 1.4% x £ 1,302,000 x 86% = £47,028 How does this affect the ‘value for money’ of the scheme? Assume death at age 81. What is the result in terms of funds enjoyed by the member between retirement and death?

How does this affect the worked example? (officer) Practitioner had entered service at 25 Assume early (voluntary) retirement at 57 Assuming same final earnings (£53,200pa) Only 30 years potential (2 year VSO break) Pension = 30/80th x £53,200 x 84% = £16,758pa Lump sum = 3 x 30/80th x £53,200 x 92% = £55,062

MAXIMUM SERVICE ALLOWED pensionable “service” may not exceed…. 40 years by age 60 45 years by age 65 (different for special classes) service after age 70 does not count and benefits will be paid 45/80ths - does it exceed IR maximum? example

NHS EARNINGS - ADDED YEARS - AVCs - FSAVCs FUNDING FOR MAXIMUM PENSION BENEFITS (practitioners / salaried NHS appointment) NHS EARNINGS - ADDED YEARS - AVCs - FSAVCs NON-NHS earnings - Personal Pension

Ill-health retirement payable when “permanently” incapable of discharging duties efficiently because of physical or mental infirmity retirement benefits of pension and lump sum payable if member retires on grounds of permanent ill-health and has at least 2 years service service 2 - 5 years - contributing service not increased service from 5 - 10 years - contributing service doubled (subject to maximum reckonable service by 65) service of more than 10 years - increased to greater of 20 years (subject to 65 limit) or add 6 years 243 days (subject to age 60 maximum) Different definition of ill-health for early leavers: any occupation.

Death Benefits (overview) 3 elements - what are they? Lump sum gratuity Spouse’s pension Dependants’ allowance Lump sum Spouse’s pension Dependant’s allowance

DEATH GRATUITY Death in pensionable employment before 70 2 x pensionable earnings paid to surviving widow or widower (unless notice in writing to not do so) if no spouse (or as above), paid to personal representatives Pensionable earnings = career average for practitioners

Death after pension becomes payable 5 x pension (less amount already paid) (provided not greater than 2 x last PE less TFLS Death with preserved pension 3 x member’s pension (revalued to date of death) Widows pension does not include TFLS whether death occurs in service or in retirement.

Widows 3 months member’s final pay (6 months if 1+ child) Then pension of 50% of member’s pension based on ill health In retirement, widow’s pension is 50% of non-actuarially reduced pension marries after leaving = post 1978 service only

Widowers Largely as for widows but only based on service since April 1988 ‘past’ service may have been bought up to July 1989 Pre 88 service may be taken into account if demonstrable dependent widower

Children’s allowances Child under 17 or in full time education 25% of member’s pension (50% if 2+) 33% and 67% for orphans As for widows, dependant’s allowances are based on non-actuarially reduced pensions

NHSPS Contribution/Benefit Records Scotland: Scottish Public Pensions Agency, St Margaret’s House, 151 London Road, Edinburgh, EH8 7TG Tel: 0131 244 3585 England/Wales: NHS Pensions Agency, Hesketh House, 200-220 Broadway, Fleetwood, Lancs, FY7 8LG Tel:01253 774774 Northern Ireland: HPSS (Superannuation), Waterside House, 75 Duke Street, Londonderry, BT47 1FP Tel: 01504 31900

Claiming tax relief on NHS pension contributions general practitioner, age 47, has £40,000 of NHS pensionable earnings and claims tax relief on NHSPS contribution…. pensionable NHS earnings £ 40,000 6% NHSPS contribution (15% max) £ 2,400 Tax relief (40% of £ 2,400) £ 960

Who can fund personal pensions? general medical practitioners / salaried NHS officers with non-NHS earnings general medical practitioners with non-pensionable NHS earnings general medical practitioners who wish to fund the NHSPS and a personal pension (simultaneously) from their NHS earnings. They must decide (annually) to waive tax relief on their NHSPS contribution for this exercise

Waiving tax relief on NHS pension contributions pensionable NHS earnings £ 40,000 6% NHSPS contribution (15% max) £ 2,400 Tax relief (£ 960 waived) £ NIL 25% personal pension contribution £ 10,000 Tax relief (40% of £ 10,000) £ 4,000 Notes: GP has obtained £ 3,000 extra tax relief (£4,000 minus £1,000) GP is funding NHSPS and personal pension simultaneously from same source of NHS earnings

Pension for Doctors’ spouses employer contributions to spouse pension attract tax relief at the employer’s top rate of tax pension fund accumulates tax-free and is returnable to employer as tax free fund should spouse die before retirement Use new Stakeholder Schemes - £300 per month contribution irrespective of earnings tax-free lump sum of up to 25% of accumulated fund benefits can be taken at any age after 50 (from 2004) Excessive benefits - not always best to transfer to PPP any more

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Planning / Protection MMM

Basic Financial Planning/Protection Issues Life Assurance Term Assurance - Level, Convertible and Decreasing Family Income Benefit Whole Life - With Profit and Unit Linked Endowment - Low Cost, With Profit and Unit linked Writing Policies under Trust MMM

Basic Financial Planning/Protection Issues Critical Illness Provides a capital sum in the event of being diagnosed with a qualifying illness MMM

Permanent Health Insurance Income Protection Permanent Health Insurance Provides a regular income after a waiting period (deferred period) to a pre-determined age (normally age 60) or until return to work Benefits are tax free MMM

Income Protection Permanent Health Insurance Points to Consider: Definition of Illness Definition of Occupation Practice Agreement Level of Cover NHS Ill-health Retirement Benefits MMM

Premiums qualify for tax relief Income Protection Locum Cover Provides a regular income after a waiting period for a specific period of time (usually up to 12 months after incapacity) Premiums qualify for tax relief MMM

Income Protection Cover What the PCT Provides? Superannuable Income for up to 12 months providing medical services continue to be provided for patients PCT Locum Allowance for up to 12 months subject to residual list size (and other factors) MMM

Income Protection Cover Cover should dovetail with Practice Agreement Do not over insure Benefits are taxable unless Locum employed MMM

Income Protection Cover Locum Costs vary PCT support varies Current Locum Costs are £1,300+ per week MMM

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Medical Money Management M M M Please note: The content of this presentation is intended for general guidance only and you should seek specific financial advice before taking action on any aspect of it. The risk profile of investment products varies and should be matched to your individual attitude to risk. The value of certain investment products can go down as well as up. Some funds may include investments that are not designated in sterling and the prices may alter purely as a result of exchange rate movements. Past performance is not necessarily a guide to future performance. Medical Money Management Authorised by the Financial Services Authority