The NHS Pensions Agency has recently published new guidance on superannuation issues and operating as a limited company.
The new guidance has major implications for how dentists build up their pensions.
Changes include new rules, introduced in November, which mean that associates (Performers) operating through limited companies can no longer “pension” their GDS/GDS.
This is because the sub-contractor limited company is not recognised under the statutory NHSPS regulations.
The implication of this for associates working in predominately NHS practices is that the benefits of incorporation are substantially reduced.
A Performer must work as an individual (not through a unique limited company) to be able to pension their GDS/PDS income.
One should note that a Performer can operate as a limited company in one GDS/PDS Practice and as an individual in another, however they will only have access to the NHSPS in their “individual” role.
If a Performer (i.e Associate) works for a GDS/PDS Contractor as an individual they are afforded type 1 dental Practitioner NHSPS status. The Practice is legally required to ensure that the Performer’s GDS/PDS net income is pensionable unless they are ineligible i.e have retired and returned to NHS dentistry and are already in receipt of an NHS pension, they have formally opted out of the NHSPS by completing form SD502, or are working through their own limited company.
Consequently if a Performer opts out of the NHSPS or is ineligible to join, his or her colleagues cannot “pension” his or her GDS/PDS.
The guidance also contains confirmation of the NHS Superannuation position for practice owners.
The pensionable pay for providers is basically their net income derived from the GDS/PDS contract after taking accounting of the NHS income of the other dentists and a 43.9% pensionable earnings ceiling, with the exception of maternity, paternity and sick pay.
It may be possible to pension additional payments (such as performance or treating high treatment patients) and VT (vocational trainee) income but only if they fall within the ceiling. If the total contract value remains unchanged and the ceiling is already reached, these payments will not be pensionable.
Every GDS/PDS Practice must notify NHS Dental Services of the net pensionable earnings (NPE) for every Provider and Performer working at the Practice within two months of year-end.
If a Provider or a Performer is not a member of the NHSPS, their GDS/PDS net income is still accounted for under the pensionable earnings ceiling. This is to ensure that their NHS earnings are not assigned to another.
For example if a single handed GDS Practice has a total contract value of £1,000,000 the pensionable earning ceiling is £439,000. If there are four Performers and their net GDS income is £80,000 each, this leaves the Provider with up to £119,000 to “pension”.
However if one of the Performers is not a member of the NHSPS or is ineligible, the Provider cannot assign the £80,000 to their own pensionable pay record. The Provider’s pensionable pay remains at £119,000, and cannot be declared as £199,000.
Where a GDS/PDS Practice operates as a limited company, the director/shareholders can only pension income that they take each year as salary or dividends. It cannot be pensioned if taken in a future year.
According to NHSPS rules, a shareholder or director of a practice must be qualified (and listed) dentist to be afforded type 1 dental Practitioner/Provider status to be able to pension all GDS/PDS income.
The NHS Dental Services arranges employee contributions on a tiered basis based on the estimated pensionable pay in the current year. Current tiered contribution rates are currently 5%, 6.5%, 7.5% or 8.5% of pensionable income.
For a part-time Provider or Performer, the tiered rate is based on their actual pensionable pay and is not scaled to a full year.
If a GDS/PDS Provider or Performer is a new starter (or leaver) their pensionable pay is annualised for the purposes of setting the tiered rate.
Looking at this new guidance, associates who work in predominately NHS practices through limited companies should consider exploring private pension schemes or switch to a self-employed basis.