How prepared are you to maximise your future income? Many clinicians will have thought months and years in advance, but pensions are an important part of financial security that, done properly, would be established with decades of foresight. It’s never too late to set up a pension plan if you haven’t done so already, and as clinicians are often self-employed, it’s important to regularly review the personal pensions available to achieve the greatest return over time.
You may want a myriad of different things from you pension plan, but clinicians need to understand the solutions available to them, and the additional benefits that come with investing in this manner. The process may be helped by consulting an independent financial adviser, who can guide your decisions throughout the process of establishing and maintaining a pension.
The new State Pension
The first solution to understand is the new State Pension, which supports men born on or after 6th April 1951 and women born on or after 6th April 1953. You will need 10 qualifying years on your National Insurance record to receive it, with a year counting when an individual: worked and made national insurance contributions; received National Insurance credits due to unemployment, illness or being a parent or carer; or paid voluntary National Insurance contributions.
Individuals receiving the new State Pension can review their forecasted income online, alongside their National Insurance record. The full rate is £221.20 a week, at the time of writing, but individuals will require 35 qualifying years – typically more for those whose records started before April 2016, as employers may have paid more into workplace or private pensions instead – to qualify for this amount.
The new State Pension will increase each year with whichever is the highest out of earnings (measured through the average percentage growth in wages in Great Britain), prices (the percentage growth of prices in the UK measured through the Consumer Prices Index), or a simple 2.5 per cent rise. In April 2025, the new State Pension will rise by 4.1 per cent, with 12m pensioners supported with a rise to £230.25 a week, or an extra £470 a year.
To live more comfortably post-retirement, you could also invest in a private or workplace pension that supplements your State Pension. A workplace pension is mandatory to be provided by employers, but as dental professionals typically work under a self-employed model, there is the need to establish pension solutions individually.
Tax efficiency benefits
There are a variety of personal or private pension options available, differing in both appearance and potential financial returns, depending on your provider. They may also be called defined contributions or ‘money purchase’ pensions.
The money initially put away by a clinician will be invested by a pension provider. How much is received at the time of retirement will in turn be affected by the total value paid in, how the pension fund’s investments have performed, and the manner in which the money is withdrawn.
The benefits of pursuing a pension early in your career not only includes maximising the time available to invest into it, but the ability to make the most of associated tax breaks. Dental clinicians, like everyone else, receive a tax relief on their contributions on whichever is lower, their annual earnings or £60,000 a year. This annual allowance may be tapered down for those earning more than £200,000 a year. Concerning basic rate tax payers, for every £100 a clinician contributes, the government will add another £25, and if you are a higher rate tax payer, another £25 could be added through a tax return.
In effect, investing in a pension pot is an optimal way to not only develop income for the future, but maximise your current earnings in a tax efficient manner.
Find the solution for you
There is an abundance of pension pot solutions available to clinicians. Ordinary personal pensions are delivered by most major providers, but self-invested personal pensions may offer a wider range of investment options. Stakeholder pensions may also be set up by a self-employed professional, and allow for flexible minimum contributions.
With a range of solutions available to dental professionals, it’s important to find the right one for each person. Clinicians can minimise the time spent scouring providers by working with an independent financial adviser, like those at Money4dentists. With decades of experience working solely in the dental profession, Money4dentists advisers are able to provide individualised insights into the pension solutions available, for long-term success.
Establishing a pension fund has many benefits for the dental professional, and though they may receive the new State Pension when retirement comes, a personal investment is always beneficial.
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