M M MMedical Money Management

Authorised by the Financial Services Authority

PRACTICE FINANCEBy

Chris HopkinsonMMM

Medical Money Medical Money ManagementManagement

Why was the Cost/Notional Rent

Scheme Introduced?

MMM

Medical Money Medical Money ManagementManagement

Why was the Cost/Notional Rent

Scheme Introduced?

Answer: Because it saves the

Government a lot of money!MMM

COST RENT IS:COST RENT IS:

Approved Costs x Approved Costs x Prescribed PercentagePrescribed Percentage

MMM

COST RENT IS:COST RENT IS:

The rental paid by the PCT to the The rental paid by the PCT to the Practice for the use of the Practice for the use of the DOCTORS’ DOCTORS’

SURGERYSURGERY, thereby allowing the , thereby allowing the PCT’s Patients to be treatedPCT’s Patients to be treated

MMM

NOTIONAL RENT IS:NOTIONAL RENT IS:

The current Market Rent The current Market Rent assessed by the District Valuer assessed by the District Valuer based on the Alternative use based on the Alternative use “VALUE OF THE DOCTORS’ “VALUE OF THE DOCTORS’

SURGERYSURGERY..MMM

NOTIONAL RENT IS:NOTIONAL RENT IS:

The rental paid by the PCT to the The rental paid by the PCT to the Practice for the use of the Practice for the use of the DOCTORS’ DOCTORS’

SURGERYSURGERY, thereby allowing the , thereby allowing the PCT’s Patients to be treatedPCT’s Patients to be treated

MMM

COST/NOTIONAL RENTCOST/NOTIONAL RENT

Continues for as long as the building is used to treat the PCT’s Patients

MMM

COST/NOTIONAL RENTCOST/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

MMM

COST/NOTIONAL RENTCOST/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.

MMM

COST/NOTIONAL RENTCOST/NOTIONAL RENT

Questions to ask?

1. 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?

MMM

COST/NOTIONAL RENTCOST/NOTIONAL RENT

Additional Details Required

1. Existing Loan Details:Amount

Term

Rate (Fixed or Variable)

2. Repayment Method

3. Security

MMM

M M M

Medical Money ManagementAuthorised by the Financial Services Authority

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.

BREAKBREAK

MMM

The NHS Pension The NHS Pension Scheme (NHSPS)Scheme (NHSPS)

AGENDAAGENDASummary of main scheme conditions and

benefits.Retirement benefits: calculationEarly retirement: the effectMaximum serviceTopping-up benefits

- added years- AVCs

Ill-health retirementDeath benefits

CONTRIBUTIONSCONTRIBUTIONS

6% personal contribution for both practitioners and officers. Income tax relief.

Lower NI for salaried officers; contracted outEmploying authority (e.g GP Surgery) - 4%

contributionRemainder: Subsidised by DOH (Treasury) -

not ‘funded’, pay-as-you-go. Effect?

NHSPS BENEFITSNHSPS 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 CALCULATING PENSION BENEFITSBENEFITS

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: PractitionerWorked 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: OfficerWorked 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 NHS PENSION SCHEME (EARLY RETIREMENT)(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

Age 50 51 52 53 54 55 56 57 58 59 60

Pension 60% 62% 65% 68% 72% 75% 80% 84% 89% 94% 100%

Lump Sum 75% 77% 79% 82% 84% 86% 89% 92% 94% 97% 100%

How does this affect the worked How does this affect the worked example?example?

(practitioner)(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 How does this affect the worked example?example?(officer)(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 ALLOWEDMAXIMUM SERVICE ALLOWED

pensionable “service” may not exceed….

40 years by age 6045 years by age 65(different for special classes)

service after age 70 does not count and benefits will be paid

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

NHS EARNINGS - ADDED YEARS

- AVCs

- FSAVCs

NON-NHS earnings - Personal Pension

Ill-health retirementIll-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)Death Benefits (overview)

3 elements - what are they?

Lump sum gratuitySpouse’s pensionDependants’ allowance

DEATH GRATUITYDEATH GRATUITY1 Death in pensionable employment before 70

2 x pensionable earningspaid 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 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

WidowersWidowers

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 allowancesChildren’s allowances

Child under 17 or in full time education25% 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 NHSPS Contribution/Benefit RecordsRecords

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

ClaimingClaiming tax relief on NHS tax relief on NHS pension contributionspension contributions

general practitioner, age 47, has £40,000 of NHS pensionable earnings and claims tax relief on NHSPS contribution….

pensionable NHS earnings £ 40,0006% NHSPS contribution (15% max) £ 2,400Tax relief (40% of £ 2,400) £ 960

Who can fund personal pensions?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

WaivingWaiving tax relief on NHS tax relief on NHS pension contributionspension contributions

pensionable NHS earnings £ 40,0006% NHSPS contribution (15% max) £ 2,400Tax relief (£ 960 waived) £ NIL

25% personal pension contribution £ 10,000Tax 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

Pension for Doctors’ spousesPension 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)

BREAKBREAK

Planning / ProtectionPlanning / Protection

MMM

Basic Financial Basic Financial Planning/Protection IssuesPlanning/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

MMM

Basic Financial Basic Financial Planning/Protection IssuesPlanning/Protection Issues

Critical Illness

Provides a capital sum in the event of being diagnosed with a qualifying illness

MMM

Income ProtectionIncome ProtectionPermanent 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

MMM

Income ProtectionIncome ProtectionPermanent Health Insurance

Points to Consider:

Definition of Illness

Definition of Occupation

Practice Agreement

Level of Cover

NHS Ill-health Retirement BenefitsMMM

Income ProtectionIncome ProtectionLocum 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

MMM

Income Protection CoverIncome Protection CoverWhat 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)

MMM

Income Protection CoverIncome Protection CoverCover should dovetail with Practice

Agreement

Do not over insure

Benefits are taxable unless Locum employed

MMM

Income Protection CoverIncome Protection CoverLocum Costs vary

PCT support varies

Current Locum Costs are £1,300+ per week

MMM

THE ENDTHE END

MMM

M M M

Medical Money ManagementAuthorised by the Financial Services Authority

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.