Does your accountant or financial adviser really understand the NHS pension scheme?

One of the biggest challenges we face is helping doctors who come to us for advice after receiving poor professional support elsewhere. Largely this is a result of working with an accountant or adviser who does not have specialist knowledge of the NHS pension scheme. The outcome is that their finances have been substantially impacted.

A senior doctor recently came to us for help after drawing a tax-free lump sum from their NHS pension. Unfortunately, they had not been advised that taking the cash sum from their NHS pot before their private pension could restrict the overall lump sum available.

If you have more than one pension arrangement you should be very careful about the order in which you take your benefits. In many cases it can be beneficial to look towards your private pension first.

You should be wary of the reduced lifetime allowance (LTA) – and how this restricts the availability of tax free cash. The maximum lump sum that can be drawn free of tax is 25 per cent of the LTA –£375,000 in this tax year. This will reduce to £312,500 from April 2014.

If you choose to retire after April and take the full NHS lump sum amount, this may not leave any allowance for private pension lump sums. However, if you take the private pension lump sum first – say £50,000 – this would still allow £262,500 to take tax-free from your NHS fund.

Remember, taking more of the NHS lump sum reduces your NHS pension which is an index-linked income, paid for life, so depending on your own circumstances the higher pension may be preferable.

Cavendish Medical advisers can discuss the pros and cons of enhancing tax free lumps sums and how this affects your retirement. To ensure you make the right decisions every time, speak to one of our team on 020 7636 7006.