Pensions for therapists: a case study

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Good financial planning is a must, particularly if you′re self employed. We all want to ensure a comfortable retirement and protection for our loved ones. But where do we start?
The following Case Study illustrates some of the issues that therapists face, particularly when moving from the NHS to private practice. Hopefully it will help you when making your own plans.
It has been written by Guy Dawe, an independent financial adviser from Morgans Ltd.
Samantha, aged 20
Samantha is a psychotherapist working for the NHS. She joined the NHS pension scheme at age 20 and has just left, at age 40, with a salary of £30,000.
She is going into private practice and intends to remain so until retirement. Samantha is married, with a young family and an older child from a previous marriage.
Let’s look at the NHS pension scheme. Income derived from this scheme is nearly 2% of her salary per year of service of about £12,000 per annum. If inflation averages 3% per annum up to age 65, then the income from this scheme may be about £24,000 per annum and the pension fund has a value of about £480,000.
Samantha, aged 40
Samantha wants a pension plan to provide an income of about £40,000 per annum at age 65.
If Samantha invests in a personal pension plan and contributes about £250 per month (gross)/£200 per month net of tax relief and assuming long term investment returns of about 7% net of charges, then this will produce a pension fund of about £200,000.
From this pension fund Samantha draws out 5% per annum so about £10,000 per annum.
The state pension requires at least 30 years of national insurance contributions to attain the maximum level of about £7,000 per annum.
With the combined income from her NHS pension, personal pension and state pension, Samantha has attained her investment goals.
The pension contributions can be paid by the self employed, employed and or/ employee.
Samantha, aged 65
At age 65 Samantha has a mortgage free home valued at £300,000, half of which which will pass to her husband and youngest child. She wants a tax free income from her pension fund (now £200,000).
Samantha elects to nominate her eldest child to receive the pension fund in the event of her death.
Samantha takes £5,000 per annum of the available tax free cash sum (25% of the fund value or £50,000) as a tax free income per annum.
If Samantha dies prior to age 75, the remainder of the pension fund (about £150,000) passes free of inheritance tax to her eldest child. They can choose to take a tax free income or a tax free lump sum from the pension fund, or allow the fund to grow for their own retirement.
If Samantha dies at age 75 or later, the remainder of the pension fund passes free of inheritance tax to her eldest child and any income of lump sum taken is taxed at the child’s highest rate of income tax.
Samantha, aged 75
At age 75 Samantha wants to maintain the same income from the pension fund (which is now taxable) or about £6,250 per annum.
As long as the remainder of the pension fund grows by about 2.5% per annum the unused pension pot will grow to about £200,000.
As long as the investment returns in retirement are at about 3.125% then the pension fund will support an income of £6,250 per annum and still maintain its value.
All of these options and many more besides would benefit from receiving professional financial advice from an independent financial adviser.
Receiving Advice from Morgans Ltd
Morgans Ltd, based in Bath, has been providing professional independent financial advice since 1982.
Morgans Ltd has and will always be independent, which means we are not restricted to providing advice on products from any particular providers but utilise products from the whole market.
Any advice provided is individual and bespoke and will be relevant and specific to the client’s financial needs.
Guidance can be provided by the Money Advice Service.
By receiving advice the responsibility for that advice rests on the independent financial adviser for as long as the client and the financial adviser are alive. This means that advice provides the client with regulatory protection for their lifetime.
If you would like to receive a no obligation review of your retirement planning pension needs and gain a full understanding of how the pension freedoms may affect you then please feel free to contact Guy (mention The Private Practice Hub).
Guy Dawe: (01225) 473954 or (07738) 538631 or email guyd@mfgl.com.
Morgan Financial Group Ltd Independent Financial Adviser tel no (01225) 429471 Fax No (01225) 445697
Morgans Financial Group Ltd 02759457 FCA ref no 159488. Registered offices at 41 Gay Street, Bath BANES, BA1 2NT