General Practitioners are automatically enrolled in the GMS Pensions Scheme once they have a GMS list or income. Given the varied path that medical careers can take, it can be a challenge to keep track of the entitlements related to this particular scheme. This can lead to a very specific set of challenges when planning for retirement.
As is the case for most professionals, GPs may have accumulated multiple funds over their working careers. However, the GMS Pension Scheme works differently to commonly held funds and needs to be researched thoroughly and handled in conjunction with any private arrangements to gain maximum entitlements. It is important that whoever is managing your retirement plan knows the scheme inside out and how to combine it effectively with your private pension arrangements.
The General Medical Services Pension Scheme is best described as a type of hybrid where even though the general practitioner (GP) is self-employed, they are part of an occupational pension scheme more akin to large private employers such as Google or Diageo.
As most GPs will know, in addition to the capitation fees, an additional 10 per cent is placed into their Mercer pension account each month. Also, 5 per cent of the fee is deducted from their payment and placed in the same Mercer account on the GPs’ behalf. This 5 per cent is treated by Revenue the same way an employee contribution is made to a company scheme and as a result reduces the amount that a GP can contribute to their private pension to reduce their tax.
All of the contributions that are made to the scheme by the employer and the employee are automatically put into Mercers ‘Main Fund’ unless the GP advises otherwise. The Main Fund itself is made up of a mix of equities, bonds, property, alternatives and some venture capital instruments.
Case Scenario
If a 52-year-old GP has an available allowance of €34,500 to contribute to their pension and receive tax relief, and the GMS has put €5,750 into their pension scheme, they may still be allowed contribute €28,750 to their pension as an Additional Voluntary Contribution (AVC).
In reality, GPs have a much larger variety of options for their AVC than just the Mercer fund. While they can top it up if they wish, they may prefer to broaden their investment horizons and use other options apart from the limited number of options available through the GMS scheme.
A GP can choose another provider and use a PRSA AVC – a pension vehicle held separately from their fund in Mercer. This can provide a much greater choice as to how their funds are invested in comparison to the main fund. The options are pretty limitless and too many to list, but to give an idea I have outlined some of the options below.
Equity funds
These are funds that fundamentally invest in stock markets around the world and go up or down in value in line with the markets the investor chooses. The options would include all of the major world indices such as the S&P in the US, the FTSE in the UK, the Eurotoxx in Europe, Nikkei in Japan, the Irish ISEQ and also the emerging markets. Investors can choose a mix of these if they wish.
Property funds
This covers investment in large commercial properties in major cities in Ireland or the UK. The higher the value of the buildings and rent achieved in them, the better the investor will do. The downside is that they can fall in value as well as rise so a long-term view is important here.
Absolute Return Funds
Essentially a creation as a result of the global crash 10 years ago, these funds attempt to give the investor a diversified and non-correlated collection of investments that should offer a limited downside if we suffer an economic collapse again. They do tend to perform better when Government bonds are yielding a better return than they are at the moment.
Self-Directed Options
These give the investor the opportunity to buy shares in companies such as Google, Facebook, Amazon, Diageo etc. They can also buy property if they wish.
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