New job – new financial decisions
For new associates and Dental Core Training dentists, Jon Drysdale offers independent advice on investing wisely
Many new associates and Dental Core Training (DCT) dentists taking stock of new jobs started in late summer. Getting used to a new practice or department and implementing the skills learned through training, while continuing to acquire new ones, takes a huge amount of effort. There are, however, non-clinical aspects of dentistry which should nevertheless be addressed.
One of the pleasing aspects of career progression is an uplift in income. In many cases, this will be significant and, typically, may be in the region of £20,000 to £30,000 per annum. With this comes added responsibility.
You should put money aside for future payments of things such as tax, National Insurance contributions (NICs) and repayment of a student loan, as relevant. Certainly, if you are a self-employed associate in practice or have any self-employed income (e.g. for facial aesthetics) you will be liable for tax and NICs.
The current rules dictate that self-employed individuals need to pay their tax liability twice a year, in January and July. There is also a requirement to pay Class 2 and 4 NICs and student loan repayments at 9 per cent of your total income.
Your accountant should advise you what you need to pay and when you need to pay it. They can also suggest how much you should save each month to make these payments. This is generally estimated to be about 35-40 per cent of income for an associate earning approximately £60,000pa. The figure varies depending on the exact level of income and factors such as the size of student debt.
If you started your first self-employed job this summer, the first payments of tax and NICs and of student loan repayments may not be due until January 2020. This doesn’t mean you should delay making provision – start saving now!
Those in salaried posts will receive their income net of tax, NICs and student loan repayments – i.e. your employer (NHS or otherwise) will take care of the deductions on your behalf.
Beware of pension mistakes
Unlike tax liabilities, NHS pension deductions for self-employed dentists are made by the practice. These can be incorrect, so it is worth checking the amount now rather than later. Errors can generally be rectified, although if you find out that you have been under-contributing for a long period it can be costly to make up the contributions. The level of deductions is dictated by your income. Check the accuracy of your NHS pension deductions for 2018/19 using this table.
Remember, your NHS pension retirement age is now linked to the State Pension age. For anyone born after 5 April 1977, this will be age 68 or perhaps later
if the State Pension age continues to be increased.
Rarely before has there been a greater reason to make pension savings additional to the NHS pension – usually through a personal pension. After all, do you really want to work to age 68 or possibly older? The current tax system offers an incentive to making pension contributions. Here’s an example of how it works:
Tax relief on pension contributions may not be around forever so make the most of it while you can.
Review income protection
Perhaps you don’t have any income protection cover. Alternatively, you may have signed up to one of the income protection providers while studying, or soon afterwards. This doesn’t mean the policy that you were sold remains the right one for you. Here are the key points to review, now that your job has changed:
- You may be entitled to NHS sick pay even if you are a self-employed associate. Does your current policy take this into account?
- If you have a new salaried job in hospital or community dentistry, does your cover reflect your NHS sick pay?
- Have you reviewed your level of cover in light of your income uplift?
- Does your income protection policy have reviewable premiums? If so, you might want to consider a policy with premiums that won’t increase with your age or claims history.
Remember, it is vital to have an occupation-specific income protection policy otherwise you might not be able to claim if you can’t work as a dentist but are deemed capable of other work. When reviewing your cover make sure you speak to an adviser who is a dental specialist.
A stitch in time
In dentistry, a little effort to fix a small problem straight away prevents it from becoming a larger problem requiring more effort to fix later. Similarly, tackling key financial decisions –with professional advice as necessary – sooner, rather than later, invariably pays dividends – not least interms of peace of mind.
Jon Drysdale is an independent financial adviser for chartered financial planners, PFM Dental. Go to www.pfmdental.co.uk