Pensions deal costs £7,000

GP contributions rise by up to £6,690, Retirement age stays at 60, 'Widows' pensions' for life partners.

A GP with a pensionable income of £130,000 will have to pay an extra £6,690 a year in pension contributions from April 2008.

A deal brokered between the GPC and NHS Employers introduces tiered income-based contributions and removes the cap on employer's contributions.

This means the current 6 per cent fixed rate will be replaced with a four-tier sliding scale system (see table below).

GPs earning between £63,417 and £99,999 a year will pay 7.5 per cent of their salaries in pension contributions from April, while GPs whose earnings top £100,000 will have to pay 8.5 per cent.

The table on the right shows how GPs with a pensionable income of £130,000 will be affected.

The removal of the £112,800 earnings cap on contributions means the 14 per cent employer's element would increase by £2,408 (from £15,792 to £18,200).

The employee's contribution would rise by £4,282 (from £6,768 to £11,050) because of the increase from 6 to 8.5 per cent. Adding £4,282 to £2,408 contributes to the total £6,690 increase.

The Association of Independent Specialist Medical Accountants (AISMA) has warned of a 'huge increase in superannuation contributions' for some.

AISMA estimates that younger GPs who do out-of-hours work to top up their earnings could face superannuation contribution increases of up to £14,000 a year.

Luke Bennett, an AISMA committee member from Cornwall accountants Winter Rule, said GPs might overlook the cap removal, which applies to all pensionable earnings.

'Funding for employer contributions is factored into the global sum for GMS practices or baseline for PMS practices and this will not increase.

'So the GP will end up having to fund the extra contributions,' he added.

But Dr Andrew Dearden chairman of the GPC's pensions committee, said the higher cost comes with many trade-offs which, if part of a private pension package, would cost three times as much.

Everyone working in the NHS will be able to retire at 60, but those starting careers from April 2008 will retire at 65.

Life partners will receive 'widow's pensions' even if they are not married and even if they re-marry after the original recipient dies.

However, medical accountant Mr Philip Gorrod warned many GPs would be furious.

'If they are also paying 9 per cent for added years, as many of my clients are, they will be losing 31.5 per cent of their income,' he said. 'That is ridiculous.'

Changes for a GP earning £130,000
  Before changes After changes
Earnings cap for employer's contribution £112,800 N/A
Employer's contribution (14%) £15,792 £18,200
Employee's contribution
6% £6,768 8.5% £11,050
Total pension contribution £22,560 (17% of earnings) £29,250 (22.5% of earnings)

Sliding scale of pension contributions
Annual income Current contribution Contribution from April 2008
Up to and including £19,165 6 per cent 5 per cent
£19,166 to £63,416 6 per cent 6.5 per cent
£63,417 to £99,999 6 per cent 7.5 per cent
£100,000 plus 6 per cent 8.5 per cent

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