Doctors Retire Early To Avoid Pension Tax Problems

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Doctors are taking early retirement in a bid to avoid tax penalties for breaking strict pension saving rules.

Researchers found almost a third of family doctors who retired last year gave up work before they were 60 – double the number who retired early in 2012.

The rising trend for doctors to retire early mirrors the fall in the lifetime allowance – the amount anyone can accumulate in pension savings during their working life.

The allowance reached a high of £1.8 million in 2010 but has steadily fallen since. The ceiling now stands at £1 million and will increase in line with the cost of living from April 2018.

Pension pots that breach the limit face tax penalties from HM Revenue & Customs.

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Plans backfire

Many doctors are retiring early as their pension pots already stand at £1 million and they were fed up with working for the National Health Service.

The research was carried out by Pulse, a specialist magazine for doctors.

The magazine suggests government plans to recruit and train an extra 5,000 family doctors by 2020 are likely to backfire as numbers have already fallen by 1,300.

In 2017, 721 family doctors below the age of 60 drew their pensions – compared with 513 in 2012.

The age doctors first draw their pensions is also falling, from 60.4 years in 2012 to 58.5 years old last year.

QROPS solution

The magazine quotes British Medical Association GP committee pensions lead Dr David Bailey, who said: “If you draw your pension before 60 there’s a significant [financial] hit, so I can’t see why you’d want to do that, rather than wait until you can draw it unreduced, unless you’re actually retiring.”

“A few people are coming back and doing locum work but a significant number of them are just retiring because, apart from anything else, the indemnity costs involved mean a small amount of part-time work is just no longer a feasible option.”

One way for expat doctors to avoid the lifetime allowance restrictions is by transferring their funds to a Qualifying Recognised Overseas Pension Scheme (QROPS).

Although the lifetime allowance is applied to the transfer value of the UK pension moving to a QROPS, once in the offshore pension, the allowance no longer applies.

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