Philip Barlow, dental Specialist Financial Adviser for Wesleyan Financial Services, shares his top tips for dentists looking to prioritise their retirement planning for the year ahead…
According to research carried out by Wesleyan Financial Services, saving enough for retirement is a key financial priority for dentists over the next 24 months.
However, there is a lack of understanding among the profession around key factors of retirement planning that may cause issues down the road when it comes to a retirement you can really look forward to.
Here are a few areas to look at to help give your plans a boost:
Plug your pension gaps
Our research revealed that 38% of dentists want to retire before age 60.
When exploring early retirement, it’s important to be aware of any pension gaps that might leave you with substantially less retirement income per annum than you might expect.
For those intending to rely on an NHS pension in retirement, the normal retirement pension age can range considerably depending on when you joined the scheme and whether or not you have a protected retirement age. Typically, this will mean that your normal retirement age will be 60 for those who joined the 1995 scheme, 65 for the 2008 scheme, or in line with the state pension age in the 2015 scheme (currently 65 but due to increase to 68 in the future).
While you can take your benefits from a minimum age of 55 (or 50 if you have a protected retirement age), you will face an actuarial reduction. This means the amounts will be reduced as your benefits are being paid earlier and over a longer period. It may impact your plans if the NHS pension is relied on as the sole provision.
Similarly, if you plan to reduce NHS commitments and increase your private provision, the basket of benefits you receive, including the NHS pension, will either reduce or cease. The longer you take to replace this benefit, the bigger the gap where you will miss out on regular tax-efficient savings.
In either case, exploring whether you can contribute to a separate personal pension might be beneficial.
Pensions offer an extremely tax-efficient option to save for the long term. With a personal pension, the earlier you begin to save the better as the pot may benefit from compound interest. This means that any interest you earn will then form part of the overall fund to earn further interest in the future. You won’t be required to personally contribute as much to meet a certain goal as you would if you began saving ten years later.
For each contribution you make, you can receive 20% tax relief, subject to the annual allowance. As a higher-rate taxpayer, you may qualify for additional tax relief through your tax return.
Please note: The value of your personal pension pot can go up and down and its value, when you take benefits, might be less than you paid in.
Understand your exit strategy
This applies to both dentists and practice owners, although what the exit strategy looks like will be very different depending on which camp you fall in.
Our research indicates that most practice owners are unsure about the tax implications when selling their practice.
Although dentists typically invest considerable effort in acquiring and managing their practice, many are unaware of the importance of thorough planning when it comes time to hand over the keys and exit. Careful consideration is essential to maximise the value of their asset and to understand the timeline involved in stepping away from the business.
Here, it may be beneficial to speak to a specialist financial planner regarding Business Asset Disposal Relief (BADR). Previously known as Entrepreneurs’ Relief, it aims to foster entrepreneurship by alleviating the tax burden on individuals when selling or disposing of specific business assets.
For dentists looking to exit the profession, gaining an understanding of your legal obligations as per your contract with the practice is crucial regarding timelines. Furthermore, three-quarters of dentists within our research were found to need better guidance on ways to optimise taking out retirement income.
How you choose to draw down your pension income can affect your tax situation. You can typically withdraw up to 25% of your pension as a tax-free lump sum.
You can help reduce taxation by diversifying your income sources and considering the order of withdrawals. This can be discussed with a financial adviser or planner as part of your exit strategy.
Please note: Tax treatment can depend on individual circumstances and may change in the future.
Speak to a specialist
Book a financial review with a dental Specialist Financial Adviser at Wesleyan Financial Services by visiting wesleyan.co.uk/dentists or calling 0808 149 9416.
Please note: Charges may apply. You will not be charged until you have agreed to the services you require and the associated costs.
Learn more about our charges at wesleyan.co.uk/charges.
About Phil Barlow
Phil Barlow is a dental Specialist Financial Adviser at Wesleyan Financial Services, supporting dentists, their families and their practices with financial planning to secure their financial future.
About the research
The statistics quoted throughout the article has been taken from two sets of research.
Findings of dentists’ key financial priorities were based on consumer research of 658 dental professionals conducted by FMC on behalf of Wesleyan Financial Services between 9th July and 28th August 2024.
Findings on retirement age, tax-free pension contributions and practice sales tax implications are based on consumer research in the form of a ‘Retirement Readiness Quiz’ posed to 203 dental professionals, conducted by FMC on behalf of Wesleyan Financial Services in September 2023.
Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is authorised and regulated by the Financial Conduct Authority. Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone: 0345 351 2352. Calls may be recorded to help us provide, monitor and improve our services to you.