Dentists across the UK could find that they are better off taking retirement earlier due to new rules regarding lifetime pension allowances that are to be introduced by the Government next year.
During this year’s Budget the Chancellor of the Exchequer, George Osborne, announced a reduction to the lifetime pension allowance for individuals, from £1.25m to £1m in 2016, as part of plans to increase the tax take from high earners, who must pay a 55 per cent tax on any money paid into a pension above this limit.
However, this could be bad news for dentists who are provided with a guaranteed defined benefit pension, many of whom could see their lifetime pension contributions go above the £1m limit before they reach retirement at 60, leaving them with a huge tax bill.
As a rule dentist whose defined benefit pension, also known as a ‘final salary’ scheme, are worth more than £50,000 a year are likely to exceed the £1m allowance. This is because lifetime pension allowances for people on a defined benefit pension are calculated by multiplying their annual pension by 20, plus any additional tax-free cash.
With the average salary for an NHS dentist in the UK now £80,000, most professionals may find themselves going above their lifetime pension limit and they may choose to retire early in order to reduce their chance of having to pay the punitive tax of 55 per cent.