As a dentist you are likely to be impacted by the forthcoming changes to the way in which pensions are taxed by the Government.
What are the changes and why are they important? From April 6, this year the amount you can save into your pension with tax relief each year will reduce from £255k to just £50k. This is known as your annual allowance and includes the increase in your NHS Pension Scheme benefits and contributions to any other pensions.
There will also be an increase in the way that pension benefits are valued in defined benefit pension schemes, such as the NHS Pension Scheme, which means an increased likelihood of exceeding the annual allowance and incurring tax charges. Any pension savings above your annual allowance will be taxed at your highest marginal rate of tax.
In addition, from April 6, 2012, the standard lifetime allowance, the total amount of pension savings you can build up tax efficiently over your lifetime, will reduce from £1.8m to £1.5m.
Dentists are likely to be affected with everyone else with high pensionable earnings who is also an active member of a defined benefit pension scheme, especially if they receive significant increases to their pensionable earnings.
Younger dentists should also start thinking about pension planning now as the new rules make it a more complicated process. Careful planning now may help avoid unnecessary tax charges in the future and give you more flexibility in retirement.
It's also important to remember that the Government hasn't announced any plans to review the cap on these allowances until 2016 and even then there is no guarantee they will be raised. This means that over time, taking into account increases in inflation and earnings rises, many more dentists could be hit by the latest changes.
If you exceed the annual allowance, perhaps because you have a sharp increase in pensionable earnings during a particular year or make additional contributions to a private pension, you may be able to offset part or all of the excess against any unused allowance from the previous three years.
The key thing is not to make any knee-jerk decisions if you're worried that you're about to hit the annual allowance limit.
It is likely that some dentists will want to look at alternative forms of long-term saving to work alongside their pension plans. While the pension allowances are falling, the amount you can save into an Individual Savings Account is increasing annually in line with inflation. So for 2011 you can save up to £10,680 free of income tax and capital gains tax.
You could also consider other long-term savings products such as life assurance based savings plans which are often tax free if the saver keeps to certain criteria, referred to as qualifying rules. There are a range of other products available that will help you save flexibly and tax efficiently.