Over the last three months we have seen an increase in GPs mentioning that they are considering bringing their retirement date forward somewhat. A combination of the stresses and strains of the job, the additional pressure put on services by the Coronavirus and the apparent additional health risk as we get older are all factors that seem to have contributed to questioning the long term sense of their current workload. In 2018 the ICGP estimated that 660 GPS were going to retire in the subsequent 7 years. It is possible that due to Covid-19 we will see that number increase over the short to medium term. So, if it is the case that a GP wishes to retire what are their pension options?
How do I know if I can afford to retire? Often the first thing a person thinks about when contemplating retirement is “Have I enough money?” It may seem obvious for me to say this but the best way to calculate if you have enough savings to live off is to add up how much money you need to spend in a year. It’s an exercise which takes considerable effort and isn’t as easy as people think. Everything has to be considered from day to day expenditure to cars, holidays and any major potential outgoings such as family weddings etc. Give yourself a few weeks to do it and once you have the figure you can begin to decide if you can afford it or not. In an ideal world GPs should run this exercise in their 50’s so that they can begin to plan what their retirement income will need to be.
GMS Pension Scheme If the GP has had a medical card list he or she will have received employer pension contributions to the GMS Pension Scheme during their career. In addition they will also have paid 5% of their own capitation payments to it also and possibly some AVC payments too.
To be able to retire a GMS pension a GP must resign their post. Once they have done that they can drawdown the GMS pension, 25% in cash and the remainder which will provide them with an income into the future.
In addition they may also have some Personal Pension savings relating to their private practice income. Private/personal pension savings can be accessed from age 60. A person does not need to physically retire from their position and they can continue to make contributions to personal pensions after that up to age 75 for private income.
In 2015 the ICGP published a booklet called ‘Transitions’ which covered most angles of retirement for GPS and is worth reading. It discusses far more than just the financial side and includes an interesting point: an estimate that GPs are retiring with an average of €900k in their pension funds between GMS, AVCs and personal pension savings.
Finally a GP may also have pension entitlements dating back to their time spent training in hospitals. These superannuation benefits are worth tracking down, they may have to write to the hospitals they worked in to confirm the details, but they are worth chasing. And of course we must not forget the old age pension entitlement, currently available at age 66.
GP Example Mary is a 66 year old retiring GP with the above mentioned average of €900k in pension savings. Mary is able to take 25% of that amount in cash of which €5k will have to be paid in tax leaving her with €220,000. The remaining amount of €675,000 will be used to give herself an income in retirement, her options are as follows:
1. Purchase an Annuity An annuity contract is a fixed income for the rest of your life which is bought from an insurance company with the money from your pension fund. As with interest rates, annuity rates are extremely low at present and so Mary will only get c4% of her €675,000pa. Once Mary and her husband are deceased there is no payment left to their children.
2. Invest in an Approved Retirement Fund (ARF)
An ARF is an investment fund that provides a variable rate each year, similar to the fund the pension was saved in originally. There is a Revenue requirement that 4% pa be taken from the fund but this is only a minimum and you can take more if you wish. Whatever remains in the fund at the time of demise of the owner is passed to their estate. The investor decides how the funds are invested and it is normally a more flexible and advisable option.
So to summarise Marys position, she can estimate her pension to be the following:
State old age pension €12,956 ARF income (6%) €40,500 (6% by choice) Hospital superannuation € 3,000
Total Pension €56,456
The €220,000 that Mary also received in the form of cash can also be invested similarly. If she decided to take 5% pa from that her income would increase to €67,456 p.a.
There are many variables to be considered & you will have lots of options when you do decide to retire so it is a good idea to chat through it with any colleagues who have experience of it already.