For doctors, dentists, and other high-earning healthcare professionals, pension planning is about more than preparing for retirement. It can also be an effective way to manage a growing tax bill, particularly as frozen tax thresholds mean more people are paying higher rates of income tax.
As specialist medical and dental financial advisers, we regularly see how pension contributions can play a valuable role in a wider financial plan. The key is understanding how the rules apply to your individual circumstances and making the most of the opportunities available.
Important information
This does not constitute advice and advice should be sought in all instances before acting on it.
The value of investments and the income from them can fall as well as rise and investors may not get back what they originally invested.
Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.
Making pension contributions count
Pension contributions generally qualify for tax relief at your highest marginal rate, making them particularly attractive for higher and additional-rate taxpayers. Depending on your circumstances, the benefits can extend beyond the relief claimed on the contribution itself.
For example, if your income falls between £100,000 and £125,140, you gradually lose your Personal Allowance. This tapering creates an effective income tax rate of 60% on part of your earnings in England, Wales, and Northern Ireland. Making pension contributions can reduce the income used to calculate this taper, potentially restoring some or all of your allowance.
Contributions may also help higher earners avoid the additional-rate tax band or reduce the High Income Child Benefit Charge. For clinicians with substantial earnings, the combined effect can make pension planning particularly worthwhile.
However, the rules are not always straightforward. The standard pension annual allowance is £60,000 for the 2026/27 tax year, but this can be reduced for those with higher adjusted incomes. For consultants and other NHS staff in defined benefit schemes, additional pension accrual can also trigger an unexpected tax charge, even without a corresponding cash contribution.
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Don’t overlook unused allowances
If you have not made the most of your pension allowances in previous years, the carry-forward rules could offer another opportunity. Subject to eligibility, you may be able to use unused annual allowances from the previous three tax years, alongside your current-year allowance.
This can be particularly useful for practice owners, private clinicians, or professionals whose earnings fluctuate. A year of strong practice profits or additional private work may provide an opportunity to make a larger pension contribution and reduce your taxable income.
Salary sacrifice is another option worth considering for eligible employees. By exchanging part of your salary or bonus for an employer pension contribution, you and your employer may save National Insurance contributions. However, the impact on mortgage borrowing, salary-related benefits, and insurance cover should be assessed before making any changes.
Choosing the right pension strategy
If you have substantial pension savings, a self-invested personal pension (SIPP) may provide greater control over investment choices. Depending on the provider, options can include investment funds, shares, cash, and commercial property.
A SIPP is not automatically the right choice for everyone. Charges, investment risk, and any valuable guarantees attached to existing pension arrangements need careful consideration before transferring funds. Your pension investments should also complement your wider portfolio and reflect your retirement goals, investment timeframe, and attitude to risk.
Planning how to access your pension is equally important. You can normally take up to 25% of eligible pension benefits as a tax-free lump sum, subject to the applicable limits, with most subsequent withdrawals taxed as income. The timing and size of withdrawals can influence your tax position and the income available throughout retirement.
Plan to avoid paying more tax than necessary
Pension rules and tax legislation continue to evolve, including announced changes to the treatment of unused pension funds for inheritance tax from April 2027. Reviewing your arrangements regularly can help you understand what these developments may mean for your family and your long-term plans.
At Dental & Medical Financial Services, we work with medical and dental professionals to develop financial strategies around their earnings, pension arrangements, business interests, and retirement ambitions. Contact the Dental & Medical Financial Services Team to discuss how tailored pension planning could help you manage your tax liability and build greater financial security for the future.
