In this article, Specialist Financial Adviser, Karen Watson-Brown, highlights the potential benefits of taking partial retirement.
What is partial retirement?
Partial retirement allows NHS doctors and dentists to continue working after their pension savings have been accessed.
In 2023, the NHS reviewed and extended retirement options for members in the 1995 section of the scheme, and enhanced the offering for members in the 2008 and 2015 sections. Previously, members of the 1995 section only had options to protect their pay should they choose to step into positions of less responsibility.
As well as partial retirement, the scheme added a retire and return option – both of which were already available in the 2008 and 2015 sections of the scheme. Each option has its own financial implications, which are important to fully understand when planning for retirement.
How does it work for members?
There are currently two different schemes within the NHS pension – the legacy scheme made up of the 1995 and 2008 sections, and the 2015 reformed scheme. The scheme a member is part of will depend on when they joined.
Many doctors and dentists currently at retirement age will be in both the legacy and reformed scheme, and therefore eligible to take part in partial retirement.
As mentioned, partial retirement was previously only available to members of the 2008 and 2015 schemes. As of 1st October 2023, members in the 1995 section can also take partial retirement.
These changes have allowed members to partially retire and claim up to 100% of their pension benefits from any section or scheme.
Why consider taking partial retirement?
Taking partial retirement can offer a number of financial benefits. It is also a lifestyle choice for many doctors and dentists, allowing them to slow down a little and free up time to do other things.
For some, giving up work altogether may not be financially viable. Many are still paying for their children’s education or have other financial obligations. For others, it may be that walking away from the workplace entirely is simply too daunting. In these cases, partial retirement allows for an easier transition.
What are the financial benefits?
Now that members of the 1995 NHS Pension Scheme are eligible for partial retirement, anything from 20% of their benefits can be taken.
Members of the 1995 and 2015 schemes can choose the benefits they take and from which scheme. Many opt for the 1995 scheme, due to penalties applied to the 2015 scheme.
If their 1995 scheme provides sufficient income to meet their needs, then the 2015 scheme remains untouched. Following partial retirement, members now have the option to continue contributing to the 2015 scheme based on their reduced NHS earnings.
Example one
To give an example of how partial retirement can be financially beneficial, let’s imagine an NHS doctor who is a member of both the 1995 and 2015 scheme, earning £90,000 per annum (before tax).
At the time of writing, they would pay 13.5% of their NHS earnings towards the cost of their pension, which equates to £12,150 per annum. However, this is due to change to 12.5% in April 2024.
By opting for partial retirement, they could use their retirement money, reduce their working hours and still maintain their annual income.
Example two
As another example, let’s imagine an NHS dentist who is currently working five days a week and earning £90,000 (before tax). They want to reduce their working week to two and a half days for a better work-life balance. However, due to family commitments, they need the same amount of income.
To many, this may sound unachievable, but let’s assume that said dentist’s 1995 NHS pension will provide an annual income of £45,000. By halving their working week from five days to two and a half, they would also be earning £45,000 per annum.
As such, their NHS pension could hypothetically provide them with the other £45,000, depending on how much was already in their pot. Therefore, the dentist could still be earning £90,000, but now only working two and a half days.
What is the best way to get started?
To start the process for partial retirement, members will need to log onto the NHS portal and complete a AW8 retirement benefits application, as well as the partial retirement supplementary form. This will then need to be sent to their employer.
Partial retirement is a big decision, so talking to someone who fully understands the intricacies of the NHS Pension Scheme, as well as complex income, can help.
This is where speaking to your Specialist Financial Adviser from Wesleyan Financial Services could help, offering a comprehensive financial review to help doctors and dentists fully understand their pension options.