As of 6 April 2016, the Lifetime Allowance has a limit of £1 million before extra charges are applied. High-income earners are also now subject to further reductions known as the Tapered Annual Allowance. This means that anyone earning above £150,000 will face a reduction of £1 for every £2 of excess income. As a result, many dentists in their 50s will now be considering whether it is financially sensible to continue to work. After spending many years in education and with ongoing training to be a dentist, and then working long hours over and above an agreed contract, many dentists agree that careful planning for their retirement is crucial to ensuring a happy standard of living is achieved.
What is Retirement Planning?
Retirement planning, in a financial context, refers to the allocation of savings for retirement. The goal of retirement planning is to achieve financial independence. It was reported in the 2015 Scottish Widows Retirement Report that four out of ten earners on salaries more than £50,000 per annum have not saved enough to enjoy a comfortable retirement. There is obviously a need for heightened awareness of this issue or increased support to ensure that this is remedied.
A pension is the fund automatically considered when discussing retirement, and one of its main benefits is that it is a tax-efficient way to save for the future. Any growth in pension funds is free from UK Income Tax and Capital Gains Tax (CGT) as the government actively encourages individuals to take responsibility for their retirement. For all personal pensions, the provider claims back Income Tax at the basic rate of 20% and contributes this to the pension fund. This means that for every £80 an individual pays in to their 'pot', a further £20 is added. A high income tax payer must pay extra tax on savings if they pay income tax at the higher or additional rate.
Other Sources of Retirement Income
Individual Savings Accounts (ISAs) are another investment opportunity to help save for the future. ISAs also have tax benefits. In 2016, £15,240 of savings is protected from tax, either in Cash or in Stocks and Shares. Stocks and Shares ISAs are free from Income Tax and CGT, but can face a charge if a gain is made on more than the allowance. Money can also be transferred between ISAs from the previous year, from both Cash and Stocks and Shares ISAs, without losing the tax efficiency.
Government backed National Savings and Investment (NS&I) offer a large range of options, with some that are tax efficient and ideal for long term savers. The different products get changed regularly and so a keen eye must be kept on the Treasury to keep abreast of the best opportunities available for those looking for funds for when they retire. Usually, premium bonds and other bond type savings are the most tax efficient to invest in.
How to Get Started
It is advised by most financial advisers to start saving early and then generally agreed that a contribution of around 12-15% of a salary, if started early enough, should help to fill the retirement fund sufficiently1. However, this is not always practical and so it is advised that those in their 20s and 30s, when cash flow is maybe a little more restricted, should save wherever possible. Then from aged 40 onwards (when income and outgoings are hopefully more balanced) perspective should be changed to calculate what is required to be saved to hit a specific target.
This topic is complex, especially for higher earners who have more choice and opportunity with their investments. Independent financial advice is an effective way to help with planning for the future. These experts ensure they keep in touch with changes to tax rules, investment accounts and pensions so they can approach each individual circumstance with a wealth of knowledge and experience. The specialist Independent Financial Advisers (IFAs) at money4dentists have over half a century's experience, and exclusively advise dentists. The IFAs at money4dentists help to identify personal objectives and top priorities, and then use cutting-edge research tools to give guidance towards achieving them. They will give you the confidence that you are saving efficiently, and sufficiently, for your latter years.
No matter what stage you are at in your dental career, or whether you have already looked to your retirement or not, now is the time to review your current status and proactively ensure you are investing in a happy future.
For more information please call 0845 345 5060, 0754 DENTIST. Email firstname.lastname@example.org or visit www.4dentistsgroup.com
1. Scottish Widows