I have represented many dentists and doctors (GPs and Consultants) over the past 20 years who were advised to contribute more towards their retirement with an FSAVC (which stands for Free-standing Additional Voluntary Contribution) Pension Plan.
An FSAVC is an investment based product, which builds a retirement fund based on the contributions being invested in assets such as company shares and bonds. Poor investment decisions and/or performance will lead to a reduced fund.
This is in contrast to the benefits that are paid from the NHS Pension Scheme, which are derived mainly from length of service and salary.
GPs and dentists are somewhat unique in being both self-employed and eligible for membership of the NHS Pension Scheme. So, unlike all other self-employed individuals, they benefit from the secure benefit arrangements that the NHS scheme provides.
This means the choice of arrangement for AVCs (additional voluntary contributions) is wider than normal. GPs and dentists are not restricted to using investment based pension plans, like other self-employed individuals. Uniquely, they can buy in more secure benefits through the NHS Pension Scheme, just like their Consultant counterparts.
So called “Added years” is a concept within the NHS Pension Scheme that allows members to purchase additional years of pensionable service. This can be a valuable option for doctors and dentists, as it can enhance their retirement (and other) benefits in several ways:
Enhanced Pension Income
“Added years” will increase the number of years of pensionable service used to calculate your pension benefits. So if a doctor joined the scheme in their mid 20s, they could buy an extra 5 years service and achieve maximum benefits (40 years service).
Early Retirement
The opportunity to retire early is one that most people value. It is possible to use “added years” for this purpose, building up an unreduced pension through the purchase of extra years of service.
Flexibility in Retirement Planning
“Added years” is a more flexibility arrangement than is often believed. Members of the NHS scheme can choose to buy “added years” at different career stages. For example, a young doctor just starting out may only be able to afford 1 or 2 extra years, but a fully qualified Consultant should have scope to purchase more as their career and salary progresses. This flexibility allows adjustment to the size of the pension benefits to suit your individual needs.
Tax Efficiency
Contributions made to purchase “added years” are usually tax-deductible. This can provide tax benefits for higher rate tax payers, making the “added years” option even more attractive, as it permits higher rates tax relief to be granted at source (particularly for Consultants).
Protecting Dependant Family Members
The NHS Pension Scheme provides benefits for widows/widowers and children. By increasing pensionable service through buying extra years of service (“added years”) doctors and dentists can increase the financial security of family members in the event of death.
It’s important to note that each individual’s circumstances will be different and “added years” won’t be suitable for everyone. I would also recommend doctors and dentists to seek advice from a qualified financial advisor or the NHS Pension Scheme itself to understand the cost and benefits of purchasing extra service or pension credit in their particular situation. This is particularly true for GPs and dentists, due to their unique self-employed tax status.
