Career breaks are still unusual for male GPs, but the many female GPs who do take a break from practice when they start a family lose out financially. So it is worth doing some financial planning in advance.
The longer you stop working, the higher the financial sacrifice in terms of the gap in NHS pension contributions and other savings you will have.
Before returning to practice, you are likely to need refresher training and, unless the current lack of government funding for the GP Returner Scheme in England is reversed, you might have to pay for this training yourself. It may be worth approaching the local postgraduate deanery to see if it has retained some funds for returners or even try the primary care organisation to see if it will fund refresher training.
Taking the standard period of maternity leave then going back to work on reduced hours and doing enough continuing education activity to keep your skills up to date may be the more prudent course financially.
If you decide to return after maternity leave, it might be possible to return to your practice and work flexible hours or just a few sessions a week. Unfortunately, funding for the Flexible Careers Scheme for part-time sessional work to fit around family commitments such as school holidays, has also been withdrawn in England.
Unless your practice agrees to you moving to a very part-time role, the remaining option if you wish to do only the minimum number of sessions a week is the GP Retainer Scheme. This allows you to work as little as one session a week and the practice that employs you is paid a small allowance for each session you work.
Whether your career break is on a full or part-time basis, it is important to understand the impact it will have on your financial stability and future.
With careful planning you can minimise the effects and once back at work, take steps to plug at least part of the pension gap.
During a career break, a reduced household income and additional family expenses tend to mean that pensions are a low priority.
However, you do not need to be earning to take out a stakeholder pension plan. You can contribute up to £3,600 gross per year, and depending on the scheme, the contributions can be as little as £20 (one-off or regular monthly payments). Even if you do not have any earnings, you will still qualify for basic rate tax relief on the contributions.
If you choose a good performing stakeholder, you should have access to a wide range of share-based funds with the potential to grow into a decent sized retirement pension.
If paying into a stakeholder scheme is not affordable, you can make extra contributions to your NHS pension once you return to NHS work.
However, proposals to reform the NHS scheme mean that the added years scheme — under which you buy years of service you missed while not working — is unlikely to be available after 31 March 2008, although existing arrangements will not be affected.
Instead of added years, the proposed replacement scheme will enable you able to pay contributions for an additional annual pension up to a maximum of an extra £5,000 pension each year.
Under the proposals, the extra pension will be in units of £250 and can be bought with single payments or payments spread out over a set period.
Other ways to boost your retirement income include paying additional voluntary contributions to a plan run by a life insurance company on top of your standard NHS payments; taking out a personal pension for earnings that are not NHS-pensionable; and saving in non-pension investments. Check how much you can expect to receive from your spouse’s pension when you retire should they die.
Although there is a lot of debate about the financial value of a full-time parent, I believe the best test is the cost of a nanny. If one parent passes away it will cost an average of £25,000 per year to employ a full time nanny, should the other parent go back to, or decide to carry on, working full-time.
Sensible questions to ask yourself include how many children do you and your spouse or partner plan to have and how long will you need life insurance and forms of insurance cover.
Both of you will need life insurance if you have dependants. Check whether your spouse or partner has sufficient cover in their name: life insurance, permanent health insurance (income protection cover which pays an income if the policyholder is unable to work) and critical illness cover.
The last pays out if the policyholder contracts a serious illness (cancer, for example).
When sorting out insurance protection, it is advisable to work out how much would be needed for childcare or private schooling if either of you die.
Although many income protection or permanent health plans will not pay benefits if you do not have any earnings, there are some that will pay a monthly income to a full-time parent or homemaker who is too ill to fulfil that role.
Most of these plans have a ‘deferred’ period before they start paying out.
When at home with children, you need to choose the shortest deferment possible.
A plan that starts paying out after eight weeks of illness is not much good if you recover after four.
Few people want to plan pension arrangements when retirement is many years away.
But having the willpower to review your finances before starting a career break could save you grief later.
Liz Willis is from the Medical Profession Advisory Division, St. James’s Place Partnership. Contact her at firstname.lastname@example.org
Case study Career break pension gap
Dr Caroline Snell is a GP and her husband Dr Richard Summerfield is a consultant. The couple live in Winchester and have three adult children.
Dr Snell spent many years working part-time to spend as much time as possible with her children and also took a career break. Although they had protection plans in place, she did not have the additional funds to pay into a top-up pension scheme and will have only the basic NHS pension when she retires.
The couple recently saw a financial adviser who reviewed their finances.
‘The financial adviser explained that, although we are still paying large amounts into Richard’s personal pension and he gets 40 per cent tax relief on those, he will also be a 40 per cent tax payer in retirement,’ Dr Snell says.
While she is currently paying 40 per cent tax, the adviser pointed out that this will not be the case once she retires.
‘It therefore makes sense for us to pool our funds now and pay into a personal pension in my name,’ she says.
Dr Snell will qualify for 40 per cent tax relief on the payments, but in retirement will be liable for only 22 per cent lower rate income tax.