Many GPs are in their mid-to-late-20s before they complete their training and receive a salary to reflect the position. With this long-awaited salary comes other life decisions, such as buying their own home and starting a family. Many feel this is too early to begin to plan for retirement and will park that decision for another few years. However, a pension plan is one of the most important financial decisions to make and should be made sooner rather then later.
If you are just looking forward to living and existing on the State pension when you retire, then do nothing.
However, if you want to retire and enjoy this time in your life with some travel, activities, and the financial freedom to do that, you should consider starting your pension soon. Life expectancy has increased considerably with modern medicine, better lifestyle decisions and it’s not unusual now to expect to retire at 65 and have an active life for 20 year after this.
To plan to have adequate funds available to you at 65 for these golden years, some financial planning is needed to make this become your reality. Typically, a GP will have two sources of income: Their private income and the income they receive from GMS or medical card holders. Based on a GP’s current age, they can contribute a percentage of their total earnings and enjoy full tax relief on these contributions.
For a GP who is 30-years-old, they can contribute 20 per cent of their income into a pension. If 5 per cent of this is contributed to the GMS scheme, there is still 15 per cent available to a GP to invest in a personal pension, a personal retirement savings account (PRSA) or an additional voluntary contribution(AVC).
A point to note for GPs who are earning two forms of income are the dual income rules, which are related to the tax relief that GPs can avail of. It’s worth noting that any income earned by a GP more than €115,000 may not actually be entitled to tax relief on contributions to a personal pension plan or a PRSA as their GMS income will be above this threshold. If that should be the case, a GP can contribute their pensionable income to an additional voluntary contribution or a standalone PRSA AVC .
These options are very much recommended as all charges are clear. There can be flexibility of the contributions and there is excellent fund choice available depending on your age and attitude to risk. Making these contributions might seem like an additional expense at this age and could always be justified in being spent elsewhere. But to avail of even €100 extra in net income, income tax and PRSI will have to be deducted from the gross amount.
Remember investing in a pension from an early age with as little as €100 per month will only cost you €80 as you can avail of tax relief on your contributions. All growth in the fund is tax-free and upon retirement, you can avail of a 25 per cent tax free lump sum up to maximum of €200,000.
It is easy to associate retirement planning with something to add to the end of your ‘To Do’ list. It might not be viewed as urgent and is often not prioritised, especially as all GPs are dealing with an unprecedented pandemic. However, move this up the list of priorities, book your appointment with your financial advisor and start the journey. It’s never too early and can often be left too late. A financial advisor will have access to the top pension providers in Ireland and should be able to advise you of many options available.
A risk profile will be determined and this will vary upon age and your attitude to risk. The younger you start, the more risk averse you may be, with that decreasing cautiously as you approach retirement. Remember, these funds can be altered along the way and your annual review with your financial advisor will be crucial to managing this risk.
Mr Paul Redmond (CPA,QFA, FAIA) is Managing Partner of RDA Accountants Limited. He is a member of the Institute of Certified Public Accountants. He is also a Fellow of the Association of International Accountants and a qualified financial advisor.