1. Medical Money Management
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Medical Money Management
Authorised by the Financial Services Authority
PRACTICE FINANCE By
Chris Hopkinson
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2. Medical Money Management
Why was the Cost/Notional Rent
Scheme Introduced?
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3. Medical Money Management
Why was the Cost/Notional Rent
Scheme Introduced?
Answer: Because it saves the
Government a lot of money!
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4. COST RENT IS: Approved Costs x Prescribed Percentage
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5. 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
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6. NOTIONAL RENT IS: The current Market Rent assessed by the District Valuer based on the Alternative use “VALUE OF THE DOCTORS’ SURGERY.
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7. 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
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8. COST/NOTIONAL RENT
Continues for as long as the building is used to treat the PCT’s Patients
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9. 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
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10. 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.
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11. 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?
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12. COST/NOTIONAL RENT Additional Details Required Existing Loan Details:
Amount
Term
Rate (Fixed or Variable)
Repayment Method
Security
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13. Medical Money Management
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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

14. BREAK
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15. The NHS Pension Scheme (NHSPS)

16. 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

17. 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

18. 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).

19. 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’...

20. 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.

21. 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

22. 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

23. 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?

24. 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

25. 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

26. 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

27. 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 years - contributing service not increased
service from 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.

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

29. 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

30. 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.

31. 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

32. 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

33. 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

34. NHSPS Contribution/Benefit Records
Scotland: Scottish Public Pensions Agency, St Margaret’s House, 151 London Road, Edinburgh, EH8 7TG
Tel:
England/Wales: NHS Pensions Agency, Hesketh House, Broadway, Fleetwood, Lancs, FY LG
Tel:
Northern Ireland: HPSS (Superannuation), Waterside House, Duke Street, Londonderry, BT47 1FP
Tel:

35. 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) £

36. 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

37. 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

38. 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

39. BREAK

40. Planning / Protection
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41. 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
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42. Basic Financial Planning/Protection Issues
Critical Illness
Provides a capital sum in the event of being diagnosed with a qualifying illness
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43. 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
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44. Income Protection Permanent Health Insurance Points to Consider:
Definition of Illness
Definition of Occupation
Practice Agreement
Level of Cover
NHS Ill-health Retirement Benefits
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45. 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
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46. 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)
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47. Income Protection Cover
Cover should dovetail with Practice Agreement
Do not over insure
Benefits are taxable unless Locum employed
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48. Income Protection Cover
Locum Costs vary
PCT support varies
Current Locum Costs are £1,300+ per week
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49. THE END
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50. Medical Money Management
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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