M M M

1. MMM Medical Money Management Authorised by the Financial Services Authority PRACTICE FINANCE By Chris Hopkinson MMM

2. Why was the Cost/Notional Rent Scheme Introduced? Medical Money Management MMM

3. Why was the Cost/Notional Rent Scheme Introduced? Answer: Because it saves the Government a lot of money! Medical Money Management MMM

4. COST RENT IS:Approved Costs x Prescribed Percentage MMM

5. COST RENT IS:The rental paid by the PCT to the Practice for the use of the DOCTORS’ SURGERY, thereby allowing the PCT’s Patients to be treated MMM

6. NOTIONAL RENT IS:The current Market Rent assessed by the District Valuer based on the Alternative use “VALUE OF THE DOCTORS’ SURGERY. MMM

7. NOTIONAL RENT IS:The rental paid by the PCT to the Practice for the use of the DOCTORS’ SURGERY, thereby allowing the PCT’s Patients to be treated MMM

8. Continues for as long as the building is used to treat the PCT’s Patients COST/NOTIONAL RENT MMM

9. 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 COST/NOTIONAL RENT MMM

10. COST/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

11. COST/NOTIONAL RENT Questions to ask? • When will I be expected to buy a share of the surgery premises? • How will the share be valued? • Is the Practice in receipt of Cost or Notional Rent? • Whichever – how much and when was the last triennial review? MMM

12. COST/NOTIONAL RENT Additional Details Required • Existing Loan Details: Amount Term Rate (Fixed or Variable) • Repayment Method • Security MMM

13. M M M 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. Medical Money Management Authorised by the Financial Services Authority

14. BREAK MMM

15. The NHS Pension Scheme (NHSPS)

16. AGENDA • Summary of main scheme conditions and benefits. • Retirement benefits: calculation • Early retirement: the effect • Maximum service • Topping-up benefits - added years - AVCs • Ill-health retirement • Death benefits

17. CONTRIBUTIONS • 6% personal contribution for both practitioners and officers. Income tax relief. • Lower NI for salaried officers; contracted out • Employing authority (e.g GP Surgery) - 4% contribution • Remainder: Subsidised by DOH (Treasury) - not ‘funded’, pay-as-you-go. Effect?

18. NHSPS 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

19. CALCULATING PENSION BENEFITS • 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

20. Worked 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

21. Worked 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

22. NHS PENSION SCHEME (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

23. How does this affect the worked example?(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

24. How does this affect the worked example?(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

25. MAXIMUM SERVICE ALLOWED • pensionable “service” may not exceed…. • 40 years by age 60 • 45 years by age 65 • (different for special classes) • service after age 70 does not count and benefits will be paid

26. FUNDING FOR MAXIMUM PENSION BENEFITS(practitioners / salaried NHS appointment) • NHS EARNINGS - ADDED YEARS - AVCs - FSAVCs • NON-NHSearnings - Personal Pension

27. Ill-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)

28. Death Benefits (overview) • 3 elements - what are they? • Lump sum gratuity • Spouse’s pension • Dependants’ allowance

29. DEATH GRATUITY • Death in pensionable employment before 70 • 2 x pensionable earnings • paid to surviving widow or widower (unless notice in writing to not do so) • if no spouse (or as above), paid to personal representatives

30. Death after pension becomes payable • 5 x pension (less amount already paid) • (provided not greater than 2 x last PE less TFLS • Death with preserved pension • 3 x member’s pension (revalued to date of death)

31. 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

32. Widowers • 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

33. Children’s allowances • Child under 17 or in full time education • 25% 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

34. NHSPS Contribution/Benefit Records • 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

35. Claiming tax relief on NHS pension contributions • general practitioner, age 47, has £40,000 of NHS pensionable earnings and claims tax relief on NHSPS contribution…. • pensionable NHS earnings £ 40,000 • 6% NHSPS contribution (15% max) £ 2,400 • Tax relief (40% of £ 2,400) £ 960

36. 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

37. Waiving tax relief on NHS pension contributions • pensionable NHS earnings £ 40,000 • 6% NHSPS contribution (15% max) £ 2,400 • Tax relief (£ 960 waived) £ NIL • 25% personal pension contribution £ 10,000 • Tax 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

38. Pension 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)

39. BREAK

40. Planning / Protection MMM

41. Basic Financial Planning/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

42. Basic Financial Planning/Protection Issues Critical Illness Provides a capital sum in the event of being diagnosed with a qualifying illness MMM

43. Income Protection Permanent 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

44. Income Protection Permanent Health Insurance Points to Consider: Definition of Illness Definition of Occupation Practice Agreement Level of Cover NHS Ill-health Retirement Benefits MMM

45. Income Protection Locum 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

46. Income Protection Cover What 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

47. Income Protection Cover Cover should dovetail with Practice Agreement Do not over insure Benefits are taxable unless Locum employed MMM

48. Income Protection Cover Locum Costs vary PCT support varies Current Locum Costs are £1,300+ per week MMM

49. THE END MMM

50. M M M 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. Medical Money Management Authorised by the Financial Services Authority