Planning Protection

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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 ISApproved Costs x Prescribed
Percentage
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COST RENT ISThe rental paid by the PCT to the
Practice for the use of the DOCTORS SURGERY,
thereby allowing the PCTs Patients to be treated
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NOTIONAL RENT ISThe current Market Rent
assessed by the District Valuer based on the
Alternative use VALUE OF THE DOCTORS SURGERY.
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NOTIONAL RENT ISThe rental paid by the PCT to
the Practice for the use of the DOCTORS SURGERY,
thereby allowing the PCTs Patients to be treated
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COST/NOTIONAL RENT

• Continues for as long as the building is used to
  treat the PCTs 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?
• 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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COST/NOTIONAL RENT

• Additional Details Required
• Existing Loan Details
• Amount
• Term
• Rate (Fixed or Variable)
• Repayment Method
• 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
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BREAK
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The NHS Pension Scheme (NHSPS)
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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

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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?

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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

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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

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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

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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

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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

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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

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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

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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

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FUNDING FOR MAXIMUM PENSION BENEFITS
(practitioners / salaried NHS appointment)

• NHS EARNINGS - ADDED YEARS
• - AVCs
• - FSAVCs
• NON-NHS earnings - Personal Pension

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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)

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Death Benefits (overview)

• 3 elements - what are they?
• Lump sum gratuity
• Spouses pension
• Dependants allowance

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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

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• 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 members pension (revalued to date of death)

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Widows

• 3 months members final pay (6 months if 1
  child)
• Then pension of 50 of members pension based on
  ill health
• In retirement, widows pension is 50 of
  non-actuarially reduced pension
• marries after leaving post 1978 service only

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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

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Childrens allowances

• Child under 17 or in full time education
• 25 of members pension (50 if 2)
• 33 and 67 for orphans
• As for widows, dependants allowances are based
  on non-actuarially reduced pensions

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NHSPS Contribution/Benefit Records

• Scotland Scottish Public Pensions Agency, St
  Margarets House, 151 London Road,
  Edinburgh, EH8 7TG
• Tel [phone]
• England/Wales NHS Pensions Agency, Hesketh
  House, 200-220 Broadway, Fleetwood, Lancs,
  FY7 8LG
• Tel[phone]
• Northern Ireland HPSS (Superannuation),
  Waterside House, 75 Duke Street, Londonderry,
  BT47 1FP
• Tel [phone]

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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) 960

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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

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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

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Pension for Doctors spouses

• employer contributions to spouse pension attract
  tax relief at the employers 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)

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BREAK
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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