Dentists’ finances can get complicated, but with careful planning and high-quality advice, you can look forward to the future with confidence
Dentists understand the value of specialist expertise. And just as you provide your patients with high-quality care based on your knowledge and experience, so you may need professional help to make the best financial planning decisions. By reviewing your finances regularly over time, particularly as your circumstances change, you will put yourself in a stronger position later in life.
There are no one-size-fits-all solutions. All of us have different aims and ambitions and start from different points according to our current circumstances. Your family situation impacts greatly on the level of financial protection you require. Where you are in your career will affect your ability to save for the future and provide that security for you and your family. The most important element of providing this financial security is planning ahead as soon as possible and then continually revisiting your plans on a regular basis.
NHS benefits are only one part of the story
The good news for dentists is that the NHS offers a range of excellent financial benefits. The NHS Pension Scheme offers guaranteed benefits in retirement related to your pensionable salary whereas, most occupational pension schemes, by contrast, deliver pensions dependent on investment returns. You also qualify for life insurance, providing important financial protection for your family if the worst were to happen. Accident and sickness benefits, payable if you are unable to work because of ill-health, complete the picture however rarely are these benefits sufficient for the average dentist.
Until you review what you have in the context of your personal situation, you cannot be confident that you are in the best possible place.
It may be, for example, that your pension savings are not on target to deliver the level of retirement income you hope for. The protection benefits on offer from the NHS are unlikely to be sufficient for your family should the worst happen. If you were to die, say, would your mortgage be paid off – and how would your family cope financially in the subsequent years?
The impact of private work
Over time, moreover, the value of your NHS benefits may diminish. Many dentists increase the amount of private work they do as their career progresses; in some cases, they may stop doing NHS work altogether. This can be lucrative in terms of your income, but it will reduce the NHS benefits for which you are eligible. If you move outside of the NHS altogether, you may lose these benefits completely.
This is why dentists taking on more private work need help to understand what this means for their finances and what action they need to take. For example what would be the most effective way to save for retirement if the NHS Pension Scheme is no longer an option, or most of your earnings are not relevant to it? What sort of protection benefits do you need to buy separately to make sure your family is adequately covered? How are the benefits you have built up so far affected as you move into private work?
Focusing on the bigger picture
Dentists also need to think about their broader financial situation. For example, you may need help securing the best mortgage – if your income is less predictable because of the private work you do, conventional mortgage products may not be the right option; you may even struggle to borrow what you need.
You also need to think about challenges such as saving on behalf of your children – how will you cover the cost of their education, for example, and might you want to build up a nest egg for them as they move into adulthood.
Another issue that concerns many dentists with their own practices is how this might fit in with their financial planning. For example, do you see the sale of your practice as a central part of your future financial provision? If so, do you understand the practicalities of realising this value, including any tax considerations?
In addition, dentists will need to think about how their different financial arrangements fit together, particularly as they consider NHS benefits and plans made privately. Moving into retirement, for example, it may make sense to draw on private pensions before your NHS benefits, or vice versa, depending on a number of issues. These includes the personal financial objectives a dentist may have but also consideration needs to be made to their current and future tax status.
Estate planning is also something to think about. As you amass wealth over your lifetime, have you thought about how to pass it on to your heirs in the most tax-efficient manner possible? Planning ahead can help reduce or wipe out what might otherwise be a substantial inheritance tax bill.
In need of support
All of these issues require careful consideration – and while dentists may have similar questions about their finances, the right answers will vary enormously. You need a plan that achieves the best outcomes for you and your family, reflecting your objectives, your appetite for risk and your timescales.
This is why getting professional financial advice makes sense. An adviser cannot make these choices for you – but they can help you weigh up your options and arm you with all the facts, so that you can take decisions with greater confidence.
The Financial Conduct Authority does not regulate tax advice.
Content correct at the time of writing and is intended for general information only and should not be construed as advice.