In a recent survey run by Wesleyan and the RCGP, more than three-quarters (77%) of women family doctors said they weren’t aware of how reducing their hours or taking a career break could affect their pension.
Taking time out of clinical work can be hugely rewarding – personally and professionally. But it is critical that any GP considering time out of work plans for the financial implications that a break may have, particularly when it comes to retirement income through the NHS Pension Scheme.
This can be especially important for women, where the impact of career breaks can compound the potential financial implications of the existing 15% pay gap between the earnings for men and women doctors.
Here, we review how a career break could affect a practitioner’s retirement income and what steps can be taken to help mitigate the impact.
How could a career break or changing hours affect my pension?
How a career break will affect a GP can vary hugely based on their own specific circumstances.
An immediate risk of reducing hours or taking maternity or adoption leave is the potential for lower pay to affect the final value of a doctor’s NHS pension.
For partners and salaried GPs, maternity and adoption leave are all pensionable, although the actual amounts paid into the pension pot can vary based on the actual pay received. Where pay has decreased, pension contributions can decrease too.
The same situation could be faced by those who choose to reduce their hours and see a corresponding reduction in pay.
A more significant impact, however, could be experienced by GPs who take a longer career break, in which they stop contributing to the NHS Pension Scheme.
Not only could this result in a much smaller NHS pension pot at retirement, but it could also lead to them losing valuable associated benefits – such as the death in service gratuity, which pays out a lump sum of two times a doctor’s income if they die during a period of NHS employment.
After five years out of the scheme, individuals will also lose pension ‘dynamisation’, in which benefits are increased in line with pensions increases, plus 1.5%.
Locum GPs might be particularly affected by career breaks. They are not eligible for pensionable parental leave, and they can’t contribute to an NHS pension or qualify for death in service benefits, unless they are in work. Locums will also need to be aware that they will not quality for statutory maternity pay, but may be able to claim maternity allowance.
Plan, plan, plan
Managing any potential financial impact of a career break or change in working hours starts with good retirement planning.
Every GP should ensure that they’ve taken the time to assess factors such as when they want to retire, what they might want their retirement to look like and what funding options they might have available – whether an NHS pension, a private pension or personal savings and investments.
Knowing what your end goal is, and where you currently stand, means you can then accurately assess what the impact of a career break or change in working hours might be.
In some cases, GPs may not be able to afford to maintain contributions during a period of otherwise pensionable leave.
While this may be unavoidable, it is advisable that you speak to your employer to see if an alternative arrangement can be reached so that you can maximise pension contribution opportunities. For example, a GP on a period of unpaid maternity or adoption leave may be able to repay their employer for contributions they make on their behalf, once they return to work.
Where it is recognised that a career break or change in working hours will result in a shortfall against expected or required retirement income, GPs should consider how they might be able to make up the gap.
One option could be through starting or increasing the amount of money held in investments.
The process isn’t a quick win and generally means locking money away over extensive periods of time – often at least five years, but typically longer. If a GP feels they might need that money sooner, investing might not be the right option.
Finally, practitioners will need to consider how they might be able to make-up for any lost NHS Pension Scheme benefits. Where the death in service gratuity is forfeited – and cover isn’t already in place elsewhere – this may need to include considering a life assurance policy that will make an alternative pay-out to loved ones in the event of death.
Seek expert advice
Deciding to take a career break, or change working hours, can be a big professional and personal decision to make. But as part of the process, it’s essential that GPs consider the financial implications.
The NHS Pension Scheme is highly complex, and understanding what specific choices, plans and ambitions will mean for individuals’ pensions can be difficult to determine.
Speaking to a professional financial adviser who understands NHS pensions can help – they’ll be able to explain what is possible within the pension scheme, and what steps a clinician might need to take separately to ensure their finances remain on track.