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

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Medical Money Management
Authorised by the Financial Services Authority
PRACTICE FINANCE
By
Chris Hopkinson
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Medical Money Management
Why was the Cost/Notional Rent
Scheme Introduced?
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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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COST RENT IS:
Approved Costs x
Prescribed Percentage
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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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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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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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COST/NOTIONAL RENT
Continues for as long as the building is used to
treat the PCT’s Patients
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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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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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COST/NOTIONAL RENT
Questions to ask?
When will I be expected to buy a share of the surgery
premises?
2. How will the share be valued?
3. Is the Practice in receipt of Cost or Notional Rent?
4. Whichever – how much and when was the last triennial
review?
1.
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COST/NOTIONAL RENT
Additional Details Required
1.
Existing Loan Details:
Amount
Term
Rate (Fixed or Variable)
2.
Repayment Method
3. Security
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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
BREAK
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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?
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
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
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
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
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
A ge

50
51
52
53
54
55
56
57
58
59
60
P en sio n
60%
62%
65%
68%
72%
75%
80%
84%
89%
94%
100%
Lum p Sum
75%
77%
79%
82%
84%
86%
89%
92%
94%
97%
100%
No reduction applies for ill health retirement, and
dependants’ benefits based on unreduced pension
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 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
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)
Death Benefits (overview)


3 elements - what are they?
Lump sum gratuity
 Spouse’s pension
 Dependants’ allowance
DEATH GRATUITY
1

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
2
Death after pension becomes payable

5 x pension (less amount already paid)
 (provided not greater than 2 x last PE less
TFLS
3
Death with preserved pension

3 x member’s pension (revalued to date of
death)
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….

£ 40,000
£ 2,400
£ 960
pensionable NHS earnings
 6% NHSPS contribution (15% max)
 Tax relief (40% of £ 2,400)
Who can fund personal pensions?

general medical practitioners / salaried NHS
officers with non-NHS earnings

general medical practitioners with nonpensionable 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

£ 40,000
£ 2,400
£ NIL

25% personal pension contribution £ 10,000

Tax relief (40% of £ 10,000)
pensionable NHS earnings
 6% NHSPS contribution (15% max)
 Tax relief (£ 960 waived)
£ 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)
BREAK
Planning / Protection
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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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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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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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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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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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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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Income Protection Cover
Cover should dovetail with Practice
Agreement
Do not over insure
Benefits are taxable unless Locum employed
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Income Protection Cover
Locum Costs vary
PCT support varies
Current Locum Costs are £1,300+ per week
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THE END
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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