24-hour retirement allows doctors to draw their NHS pension and then return to work. Specialist medical accountant James Gransby explains what this means for GP partners.
How it works
For those in the 1995 section of the NHS pension scheme, legislation requires a GP to break their contract for a period of 24 hours (a weekend day counts for this purpose) if they wish to draw their pension and return to partnership.
Normally, they’d then have to perform less than 16 hours of contracted work per week in the next calendar month, although this is currently relaxed as a result of the Coronavirus Act 2020 and the need for more front-line clinical capacity.
This 16-hour rule doesn’t apply to anyone in the 2008 or 2015 sections of the NHS pension scheme.
Those who retire on ill-health grounds are permanently exempted from the 16-hour restriction.
Changes when a GP returns
Looking first at tax, even though the NHS pension will be paid under PAYE with tax collected at source, there’s often a shortfall in tax collected. This is due either to the additional pension pushing income into a higher percentage rate tax bracket, or HMRC applying the wrong tax code. Therefore, planning is required to avoid a shock to cashflow.
Turning to drawings, once contributions stop being paid into the pension scheme (unless the GP was previously a deferred member), the doctor will want to benefit from the reduction in contributions being taken from the practice, by taking higher drawings. The GP must make sure that they put enough aside for the higher tax that will result because they’ll no longer get a tax deduction for the superannuation paid.
Obstacles to avoid
- Form AW8 must be completed and submitted to the pensions agency at least three months prior to the retirement date (preferably six months). It’s only when acknowledgement of this form is received that the GP can be assured that the pensions agency has registered the retirement date.
- Single-handed GP partners must take particular care. The contract will need to be held by someone else while 24-hour retirement takes place. This is a particularly complex area where advice needs to be taken.
- Talk to your LMC to ensure that 24-hour retirement isn’t a variation to the contract and follow their advice.
- Any GP with a tax charge arising from exceeding the pension annual allowance must ensure that they have elected for the NHS pension scheme to pay the tax on their behalf before their retirement date. Otherwise they won’t be able to use this option.
- Make sure there’s a right to return in the partnership agreement – without this the retiring GP may find the locks changed on their return to work. If there’s no such clause in the partnership agreement, then explicit consent to return should be obtained. The GP must also have given sufficient notice to their fellow partners of their intention to take 24-hour retirement.
- Certain benefits, such as “death in service” and “ill-health retirement” reduce after the GP stops contributing to the pension scheme, so they may wish to consider whether they’re sufficiently covered.
- Superannuation contributions may continue incorrectly after retirement. This is quite common and usually gets remedied and refunded a few months later. To prevent this, try to get the GP’s membership record closed.
Further advice can be found at www.bma.org.uk or www.nhsbsa.nhs.uk/
There are some very important points to consider when considering 24-hour retirement and specialist advice from an AISMA accountant can help GPs ensure that the process runs smoothly.