National Sales Manager at Wesleyan Medical Sickness

Wesleyan specialises in financial services for dentists. For more information, call 0800 980 5462 or request a no-obligation financial review with a Financial Consultant.

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Protecting you and your finances from harm - guidance for young dentists

 

If you're a young dentist, it could be easy to dismiss the prospect of being unable to work because of illness or injury, as something that only happens to older colleagues.
 
Almost two-thirds (59%) of income protection claims made to Wesleyan Medical Sickness by dentists occur between the ages of 40 and 54. This may seem a long way off at the start of your career, but it is important to get protection early on.
 
Musculoskeletal issues are the single most common cause of incapacity in the profession and made up a quarter of income protection claims made to Wesleyan between 2002 and 2012. This is more than twice as many as the next most common ailments.
 
Overall, the vast majority of dentists (86%) claim income protection for less than a year before returning to work. However, Wesleyan’s analysis shows those who are unable to work for more than 12 months, on average claim for almost eight-and-a-half years.
 
This is a stark reminder of how debilitating some conditions can be and how long you may be away from your surgery without an income.
 

Protecting yourself

When you consider how hard you’ve worked to get where you are today, it makes sense to take steps to protect your income. Taking out income protection should be an integral part of any financial plan as it will enable you to maintain the standard of living that you currently enjoy should anything happen to you. The longer you leave it before taking out a policy, the more difficult it could be to find cover later on.
 
 
Sick pay and additional protection
 
The amount of sick pay you are entitled to during your foundation year will depend on the deanery where you are studying. Once you take up a second year of foundation training (DF2) or take up a Performer position, you are likely to lose your entitlement to NHS sick pay for the next 12 months.
 
You need to complete two years on the General Dental Council register, before you are eligible again for sick pay from the NHS. This can include your foundation year and your first year as a Performer, or two foundation years. You’ll then receive full pay for six months, subject to the PCT’s discretion.
 
Without an income protection policy, once your sick pay stops you may have to draw upon your own savings or, if eligible, rely on state support. The Employment and Support Allowance pays out a maximum of £105.05 a week, which may be some way short of your regular income.
 
Income protection policies are generally based on your full earnings and will pay you a regular tax-free income, typically up to 50% of your pre-incapacity level. Most policies pay out until you are well enough to return to work, are no longer suffering from a loss of earnings (if you start receiving your pension for example), you reach the maximum age for your policy, or you die.
 
When buying income protection you should ensure the policy is specifically tailored to your needs and provides all the key benefits you require if you need to claim. For example:
 
  • Ensure the policy includes an ‘own occupation’ definition, meaning it will pay out if you are unable to carry out your specific job. If the policy states ‘any suited occupation’, it won’t pay out if you are able to carry out other types of work based on your knowledge and experience.
  • Check the scheme offers ‘permanent’ protection, meaning the terms on which it is offered will remain unchanged until the policy expires or you retire, whichever comes sooner.
  • Think about the right deferred period for your needs. Premiums are normally cheaper if you wait longer before benefits are paid, so you might choose to defer payments until other sources of income, such as sick pay, have expired or reduced.
  • Review your policy regularly as it may be impacted by any changes in employment conditions and salary increases that occur throughout your career.

 

Critical illness
 
You may want to supplement any income protection policy with critical illness cover. While income protection will pay a regular income until you are able to return to work, critical illness policies will provide a tax-free lump sum if you are diagnosed with a pre-defined medical condition, even if you are able to carry on working. This lump sum could be used to pay off your mortgage or to adapt your home to assist with changing requirements if you were to suffer a disability, for example.
 
Any time you are off work without receiving an income could leave you financially vulnerable. Speak to a financial adviser with an understanding of the dental profession to ensure you have adequate cover in place throughout your career.
 
The above information does not constitute financial advice. For further information please speak to your financial adviser.
 
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Lifetime Allowance reduction could leave some dentists with a significant tax charge

The Lifetime Allowance is the total amount of pension savings you can build up tax efficiently over your lifetime. On 6 April 2014 the Lifetime Allowance will be reduced from £1.5 million to £1.25 million. Many dentists could well exceed this due to the generous nature of the NHS Pension Scheme, especially those later in their career. A pension pot of £1.25 million translates roughly into an annual NHS pension income of between £54,300 and £65,500 depending on which section of the NHS pension scheme you are in.

Remember that the value of your pension savings for the Lifetime Allowance includes any private pensions or occupational pensions you may have, as well as your NHS pension.
 
You're encouraged to review your existing pension arrangements before the changes come into force in April 2014.
 

What will the impact of the changes be?

If your benefits at retirement exceed the Lifetime Allowance, you will incur a Lifetime Allowance tax charge on the excess amount. This will be 55% if the excess is taken as a lump sum and 25% if taken as an income.
 

How likely am I to exceed the Lifetime Allowance?

If you fall into one of the following groups, you may have already reached, or be close to reaching, a pension pot in excess of £1.25 million:
  • you have accrued significant NHS pension benefits already during your career, this will be driven by both your years service as well as your revalued lifetime earnings
  • you have made significant contributions over your working life to a private pension or have bought additional benefit through your NHS pension, for example through Added Years

 

Is there anything I can do to protect myself from the changes?

In his 2012 Autumn Statement the Chancellor, George Osborne, proposed two new types of protection – fixed protection 2014 and individual protection 2014 – both designed to ease the transition to the new lower limit and help protect existing pension savings. 
 

Fixed protection 2014

  • This will allow people to fix their Lifetime Allowance at £1.5 million
  • The protection may be lost if individuals build up additional pension savings after 5 April 2014
  • Fixed protection may also be lost if an individual starts contributing to a new pension arrangement
  • Individuals need to apply for this protection before 6 April 2014. It is expected that the application form will be available later this year 
  • You will not be eligible to apply for this protection if you have Primary, Enhanced Protection or Fixed Protection 2012.
 

Individual protection 2014

This is under consultation until 2 September 2013, after which final details will be confirmed, but it is expected that:
  • It will give individuals a personalised Lifetime Allowance based on the value of their pension savings on 5 April 2014 up to a maximum of £1.5 million
  • Individuals will need to have pension savings of at least £1.25 million on 5 April 2014 to apply
  • Protection will not be lost if further savings to pensions are made
  • You will have three years to apply for individual protection 2014 from 6 April 2014
  • You will not be eligible to apply for this protection if you have Primary or Enhanced Protection

 

Should I opt out of the NHS Pension Scheme in order to register for fixed protection?

For the vast majority of active members this would be unwise, as the benefits lost by voluntarily opting out of the NHS Pension Scheme before retirement would be far greater than any advantage gained by having a higher lifetime allowance. However, for a small number of members, such as those already very close to retirement, there may be some merit in exploring this option further.
 
Decisions about leaving your pension scheme prematurely should be taken extremely carefully. Whist minimising your tax liabilities is definitely one consideration, it shouldn’t be the only one.
 
This is a complex area and one which isn’t easily navigated. Only by understanding all of your options and your current pension position will you be able to make an informed decision. It’s important to remember that there is no ‘one size fits all’ approach when it comes to fixed protection and that no ‘rule of thumb applies’. You should seek guidance from a financial adviser who has a good understanding of the NHS Pension Scheme.
 

Contact your local Financial Consultant

If you would like to find out more about how these changes may impact you, request a no-obligation appointment with one of our Financial Consultants:
 
Call 0800 092 1990, email: This email address is being protected from spambots. You need JavaScript enabled to view it., or book an appointment online.
 
Visit our website to find our more about Wesleyan's range of  financial services for dental professionals and practices.
 
Wesleyan Medical Sickness is a trading name of Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) which is authorised and regulated by the Financial Conduct Authority. Wesleyan Financial Services Ltd is wholly owned by Wesleyan Assurance Society which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Head Office: Colmore Circus, Birmingham, B4 6AR.
Telephone calls may be recorded for monitoring and training purpose. DE-SP-59 07/13
 

 

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