Financial planning for associate dentists

 

Mortgages for associate dentists

Getting a mortgage as a self-employed dentist

If getting on the property ladder early is a priority, then choosing the right mortgage lender may be crucial. This is because if you are self-employed the standard criteria for getting a mortgage will require at least two years of trading accounts. For many dentists this could involve a delay of three years until such time as the required accounting history is available.

However, some mortgage lenders will accept your associate-principal agreement in lieu of trading accounts as evidence of income. This will need to specify your UDA target and ‘pay per UDA rate’. Often this will need to be accompanied by an accountant’s ‘letter of comfort’. Our mortgage advisers are independent and we only offer advice to dentists (and their partners). This means that we will recommend a lender that can accommodate your self-employed status.

What about interest rates, deposits and monthly repayments?

Affordability is key to assessing how much you can borrow as a self-employed associate dentist. From recent experience lenders will allow up to 5.5x taxable income and up to 95% of the property value. However is is important to assess what is affordable for you to borrow and what your monthly repayments will be. We can help you with this. We can also explain the difference between fixed rates and variable rates.

Income protection for associate dentists

Review your student or FD income protection policy

Many dental associates pick up an income protection policy at university with Wesleyan or Dentists Provident but fail to review it when starting a new associate or salaried post. This can lead to insufficient cover or simply a policy that won’t pay out when you need it. Some of these policies take account of NHS sick pay entitlement and some do not.

NHS sickpay for dental associates

So do associate dentists have NHS sick pay entitlement. For dentists with NHS fee income, the GDS Statement of Financial Entitlements covers eligibility for payments in the event of long-term sick leave. You could expect to receive income after four weeks of absence and up to 22 weeks.

There are a few points of caution to mention:

  • You need to have been a performer for two years or one year if you have just completed DF1
  • You rely on your practice to claim the appropriate amounts and pay you accordingly. The size of the payments depends on your contracted NHS income
  • This doesn’t cover any private fee income
  • The financial entitlement stops after six months (four weeks plus 22 weeks of claiming)
  • The rules are different if you are a salaried employee of the NHS. For self-employed dentists, at best you are covered for your NHS income for a maximum six-month period. After this the NHS will not pay you sick pay.

The main point to make here is that because of NHS sick pay you may not be able to claim on your income protection policy for six months. This means you might be paying for something you can’t claim. The solution is to review your cover to make sure it is set-up properly to tie-in with any NHS sick pay. Making changes to your income protection policy is best done sooner rather than later for two reasons:

First, the standard policy that most dentists arrange in their final year at university offers reviewable premiums. This means that your premiums may increase as you get older. While this might be acceptable for a few years, the policy could become very expensive in later years. Some policies may be reviewed in-line with general claims, which doesn’t offer much in the way of premium security. You should review your cover now and consider an insurer who offers dental-specific cover with a guaranteed premium. Locking into a guaranteed premium now will prevent future premium increases.

Second, making changes to your policy in later years could mean that some health conditions are excluded. For example, if you develop a musculo-skeletal issue and then decide to review your policy, future claims on the condition will be excluded.

In summary, don’t assume the policy you have is suitable for your circumstances, especially if you are moving to a new associate job or a salaried post. We can review your cover and recommend appropriate changes now. Our advisers are independent and will therefore recommend a policy that is the most suitable for your needs.

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Is the NHS pension enough?

What is the NHS pension retirement age for an new associate dentist?

We know from experience that the most financially secure dentists retiring now, are those who started saving for retirement early. Plans for retirement often fail to get off the ground because of a misunderstanding of the retirement saving options and a false belief that the NHS pension will cover all retirement bases.

Younger dentists joining the NHS Pension scheme now have an predicted retirement age equal to their State Pension Age. Currently 67, this is set to increase to age 68 from 2046. If you don’t want to work to this age you can take a reduced NHS pension early and make up the difference with additional pension savings.

What income do dental associates get from the NHS pension?

What you will (eventually) get from the NHS pension depends on your net pensionable earnings (NPE). You will get 1.85% of your (total career) NPE as a taxable annual pension when you retire. The level of your NPE will depend on how much NHS work you do. Every year you are required to verify your NPE via the NHS Compass system, so you should know what the amount is for the coming year. As an approximate rule of thumb for dental associates, your NPE is your taxable income from NHS work.

Forecasting how much pension you will get works like this:

You are an associate with £60,000 of NPE. In one year, you accrue a taxable annual pension from State Pension Age of £1,110 (£60,000 x 1.85%). If you continue with this level of NPE for 30 years you will pick up a taxable annual pension from State Pension Age of £60,000 x 30 x 1.85% = £33,300.

You can see the level of pension you receive depends on how much NHS work you do and how long you work for. However, there is serious flaw with this type of forecasting. First, if your NPE reduces in future years because you have a career break or you reduce your NHS work in favour of private fee income, your NHS pension could be significantly less than the above forecast.

The other significant potential variable is the degree to which public sector pension schemes will change between now and your retirement age. For an associate starting now, there could be 44 years of future legislation and government changes to contend with.

Are there additional NHS pension scheme benefits?

Yes – you get 'Death in Service' benefits which include a lump sum and a partners/widows/widowers/dependents pension. If you are unable to work (permanently) due to ill health you may be able to claim your pension before the normal retirement age.

This means the NHS pension is worth having albeit with some flaws that may mean you need to plan for additional retirement income.

What alternative pension saving options are there for associate dentists?

Saving early in your career could help you amass a significant fund to draw on later in life and with which to supplement your NHS pension. Whilst there are numerous solutions the personal pension regime allows you to make savings towards retirement that have tax advantages, with the current earliest age of access to these savings being 55 – a full 12 years earlier than the State Pension Age (assuming this is age 68) .

To incentivise you to make private pension provision the government allows you to claim tax relief on pension contributions. Most associates (England and Wales) will pay tax at the 40% rate, assuming your income is in excess of £50,000pa. In Scotland the tax rates are slightly different. In practice this means that your pension contribution could cost you only 60% of what ends up in your pension pot e.g. you pay in £200 and it only costs you £120. Paying a regular amount into a personal pension is usually the easiest way to budget for additional retirement savings. Starting this contribution soon after qualification means your savings have longer to accumulate.

Current legislation allows you to draw what you want when you want it from your pension fund from age 55. Perhaps you will reduce your working hours as part of phased retirement. In that instance you could draw an amount from your accumulated pension fund to compensate for reduced income. You could also use the fund to provide income if you decide to stop working before you draw your NHS pension. Planning for these eventualities is best organised now rather than closer to retirement. If left too late there will be insufficient time for you to accumulate meaningful pension savings.

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