Medical Money Management Established in 1971 to provide specialist insurance and financial planning advice to the medical and dental professions. Now one of the UK’s leading independent financial advisers; chosen by those who demand and appreciate independent financial advice provided in a personal and bespoke manner from well qualified professionals MMM

Chris Hopkinson & Kelvin Turner Medical Money Management Bradford Exit Course Weetwood Hall February 2009 Chris Hopkinson & Kelvin Turner Medical Money Management 0113 205 4130 MMM

Agenda Buying into a Practice Summary of NHS Pensions Scheme Benefits Pensions Simplification Legislation The “New” NHS Pension Scheme Basic Financial Planning for GPs MMM

Medical Money Management Why was the Cost/Notional Rent Scheme Introduced? Now known as Borrowing Costs Reimbursement!! 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 now known as Borrowing Costs Reimbursement 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 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

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

Summary of NHS Pension Scheme Benefits MMM

The problems with pensions Living longer In 1908 the State Pension was introduced and made available to men only, over the age of 70 In 1908 the life expectancy for a male was 48 Ageing population July 2007 was the first time there were more people retired than the number of children at school MMM

Contributions You pay 5% - 8.5% Practice pays 14% Total 19% - 22.5% Remainder: Subsidised by DOH (Treasury) Not “funded”, pay-as-you-go Income tax relief MMM

Individual Contributions You pay 5% - 8.5% Annual Pensionable Pay Contribution Rate Up to £19,165 5% £19,166 - £63,416 6.5% £63,417 - £99,999 7.5% £100,000 + 8.5% MMM

What do you get for your money ? Lump Sum and Index Linked Pension when you retire An Index Linked Ill Health Retirement Pension Death in Service Benefits Index Linked Widow’s / Civil partner’s / Dependants’ Pensions MMM

NHSPS Contribution/Benefit Records Scotland: Scottish Public Pensions Agency 7 Tweedside Park, Tweedside Bank, Galashiels, TD1 3TE Tel: 01896 893000 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 1F Tel: 01504 31900 MMM

Maximum Benefits Maximum Service 40 years at 60 rising to 45 years at 65 MMM

General Medical Practitioner (Salaried GP) Calculating Benefits Officers General Medical Practitioner (Salaried GP) Pension = 1/80 × Final Salary for each year of service Lump sum = 3 x Pension 1.4% x Total Dynamised Income Lump sum = 3 x Pension Additional lump sum available subject to computation Subject to pre-72 provisions Explain effect of 80ths. Explain dynamised career earnings Now a couple of ‘exercises’... MMM

Worked example: Officer Officer joins NHSPS at age 24 Assume retirement at age 60 Assume final salary of £100,000 pa Total service is 36 years Pension = 36/80 x £100,000 = £45,000 pa Lump sum = 3 x £45,000 = £135,000 Delegate to calculate pension from average dynamised earnings. Ignore pre-72 service rules Explain effect pf pre-GP officer service < 10 years. MMM

Worked example: Practitioner Practitioner joins NHSPS at age 24 I year Break in Service Assume retirement at age 60 Assume dynamised career average earnings of £100,000 pa Total (revalued) career earnings = £3.5m (35 years x £ 100,000) Pension = 1.4% x £3.5m = £49,000 pa Lump sum = 3 x £49,000 = £147,000 Delegate to calculate pension from average dynamised earnings. Ignore pre-72 service rules Explain effect pf pre-GP officer service < 10 years. MMM

Voluntary Early Retirement Available from age 50 until 5th April 2010 Available from 55 thereafter Age 55 56 57 58 59 60 Pension 75% 80% 84% 89% 94% 100% Lump sum 86% 92% 97% MMM

Ill Health Retirement Tier One Where a member is assessed as being “permanently incapable of efficiently discharging the duties of their present job in the NHS”. Benefits will not be increased. MMM

Ill Health Retirement – Example Tier One 30 year old GP takes Ill Health Retirement Service of 5 years AVERAGE income in General Practice £50,000 Pension would be around £3,125 pa Lump sum £9,375 MMM

Ill Health Retirement Tier Two MMM Payable when a member is “permanently incapable of doing both their current job and other regular employment across the general field of employment of like duration” “Their previous training, qualifications and experience, and not just the medical conditions will be taken into account in assessment of their permanent incapacity” Entitlement to early payment of the retirement benefits earned to date could be paid. Increase in pension by 2/3rds of the member’s prospective membership to NRD (60 or 65). A minimum increase of 4 years capped at 60 until March 2016 (but not for the new scheme). MMM

Ill Health Retirement – Example Tier Two 30 year old GP takes Ill Health Retirement Service of 5 years Average income in General Practice £50,000 Service is up-rated by 2/3 potential membership pension service Pension would be around £15,625 pa Lump sum of around £46,875 MMM

Terminal Illness A member, who is terminally ill and does not expect to live longer than 1 year, can apply to exchange all of their pension for a one-off, usually tax-free, payment. MMM

Death in Service Benefits 3 elements - what are they? Lump sum gratuity Spouse’s / Civil partner’s pension Dependants’ allowance MMM

Lump Sum Death in pensionable employment before 70 2 x pensionable earnings Paid to surviving widow or widower or Civil partner (unless notice in writing to not do so) If no spouse or Civil partner (or as above), paid to personal representatives MMM

Spouse’s / Civil Partner’s Pension 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 / Civil partner’s pension is 50% of non-actuarially reduced pension MMM

Dependants’ Allowance Child under 23 or in full time education 25% of member’s pension (50% if 2+) 33% and 67% for orphans As for widows / Civil partners, dependant’s allowances are based on non-actuarially reduced pensions MMM

Pension Simplification Introduce a Standard Life Time Allowance (SLA) of currently £1.65 million (indexed) on the size of the pension fund Any pension benefits in excess of the SLA will be subject to the Lifetime Allowance Charge The SLA Charge is a tax of 55% on excess funds MMM

NHS Benefits & SLA Anticipate accumulated NHS benefits will be 20 x pension + Lump sum A pension of say £75,000 pa would be valued in excess of £1.7 million and breach the SLA. MMM

Pensions Simplification All Schemes will be treated the same AVC will have tax free cash option MMM

Pensions Simplification Higher contributions allowed 100% of Earned Income Annual Allowance MMM

Changes to the existing NHSPS 1/4/08 Added Years replaced 1/4/08 3x Lump Sum increased to 25% of “fund” Survivor’s Pension paid to “qualifying” partners Retirement age for NHS members remaining at 60 Children's Pension increased to age 23 Ill health benefits changed MMM

New joiners on or after 1/4/08 “New NHSPS” New scheme with different rules & regulations Normal Pension Age 65 Increased accrual rate (1/60th) – with no automatic lump sum Final pensionable pay – average of best 3 consecutive years in the last 10 MMM

New joiners on or after 1/4/08 Early retirement from age 55 Actuarial increase on late retirement Pensionable re-employment allowed MMM

Personal Financial Planning MMM

Personal Financial Planning Objectives To ensure you have enough income to maintain and improve your standard of living in real terms throughout your life. To ensure that following the death of a partner, the surviving spouse / Civil partner has enough income and capital to maintain his / her standard of living in real terms for his / her life. To create a transfer mechanism to pass assets to your beneficiaries. MMM

Why wills? Ensure your assets are passed to the right person(s) Appoint guardian for your children To mitigate any Inheritance Tax To avoid the laws of intestacy To avoid unnecessary delays MMM

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

Writing policies under Trust Protection Issues Writing policies under Trust Speeds up the payment of any claim Ensures only those people you want to benefit actually benefit Paid outside of the estate Reduces IHT liability MMM

Critical Illness Insurance Protection Issues Critical Illness Insurance Provides a capital sum in the event of being diagnosed with a “qualifying” illness (Usually to protect a mortgage or other debts) MMM

Income Protection Policy Protection Issues Income Protection Policy Provides a regular income after a waiting period (deferred period) to a pre-determined age (normally age 60 or 65) or until return to work Benefits are tax free MMM

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

Protection Issues – Income Protection Policy Cover should dovetail with Practice Agreement Do not over insure MMM

Protection Issues 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 – benefits are taxed MMM

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

Protection Issues – Locum Insurance Locum costs vary PCT support varies Current Locum costs are £2,500+ per week MMM

Where to get advice? Tax Advice – get a specialist Accountant Making a will – use a multi partner practice Financial Planning – use a specialist Independent Financial Adviser Delegate to calculate pension from average dynamised earnings. Ignore pre-72 service rules Explain effect pf pre-GP officer service < 10 years. MMM

M M M Medical Money Management SUMMARY Stay in the NHS Pension Scheme Obtain statement of service and current benefits Arrange a review – preferably with MMM! Complete MMM and NHS Enquiry Forms Medical Money Management Authorised by the Financial Services Authority

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 and Regulated by the Financial Services Authority