A quirk in a current NHS practitioners pension scheme means that some GP’s and Dentists reach their lifetime allowance by the age of 55, and as a result have to pay additional tax and costs if they continue to remain employed on their existing contract.
To combat these additional costs, many eligible practitioners are retiring at the age of 55… but only for 24 hours! After their ‘24 hour retirement’ they can start work again thereby avoiding the extra tax and costs. The only condition is that they work less than 16 hours per week in the first month after their pension becomes payable. After the first month they can go back to working normal hours.
This 24 hour break rule affects NHS practitioners who are members of the 1995/2008 Section and 2015 Scheme, and has been triggered by the reduction in lifetime allowance (the total amount an individual can have in their pension pot before being hit by additional tax). There are further costs for withdrawing lump sum payments when the lifetime allowance is exceeded. NHS practitioners have one allowance for both their private and NHS pension so the pot is often close to the lifetime allowance limit.
This painful excess charge can be avoided (or at least limited) if eligible practitioners take their NHS pension early. The normal age of retirement under the NHS Pension Scheme is 60, but some dentists and other NHS professionals can choose to retire at 55. This means they can start reducing their pension pot by taking out of it rather than paying in.
Sounds great doesn’t it? But how does it work in reality, and what do NHS practitioners need to be wary of? Here are a few things to consider:
- The member must retire from their NHS contract and employment for at least 24 hours and then not work for more than 16 hours per week in the first month after their pension becomes payable.
- They must take steps to ensure that their NHS contract continues after their 24 hour break. The biggest risk to them is losing their NHS contract. The NHS is under no obligation to offer a new contract following their 24 hour retirement.
- The process is easier for practitioners working in a partnership rather than as a Sole Practitioner:
- If the practitioner is already in a partnership, then they must check their partnership agreement to see if 24-hour retirement is permitted.
- Sole Practitioners need to enter a partnership by finding a trustworthy colleague or third party practitioner who is prepared to enter a partnership with them so they can retain and return their NHS contract.
- The whole process typically takes between 3 and 6 months and includes many steps.
Legal contracts should be used to ensure the 24-hour retirement process runs smoothly. This includes:
- Drafting a relevant partnership agreement between them and third party practitioners;
- Drafting and submitting a relevant contract variation notice to NHS England;
- Assisting and/or drafting of the CQC partnership application forms;
- Liaising with the CQC during the application process (usually 10-12 weeks);
- Drafting a retirement agreement;
- Drafting and submitting the relevant contract variation notice to NHS England for the retirement of the partner and the return of the partner after the 24-hour notice; and
- Drafting of a transfer agreement to ensure the transfer of the GDS contract to the third-party practitioner and then back to them.
As you can see the benefits are large, but it isn’t a straight forward process and there are many risks and potential pitfalls.
If you would like more information regarding 24-hour retirement then please contact 01283 526200.