It is advised to read this article in conjunction with https://www.revenue.ie/en/tax-professionals/tdm/pensions/d-appendix5.pdf and file:///Users/seamushanratty/Downloads/chapter-26%202019.pdf
With Summer ending and pay and file deadline fast approaching I felt it may be useful to put together a brief guide to the General Medical Services Superannuation Plan (hereinafter referred to as The GMS Scheme). The GMS scheme is riddled with complications. Essentially it straddles both the Personal Pension Regime and the Company Pension Regime. It is in effect a Hybrid Pension Scheme as you have self-employed people in a pension agreement that to all intents and purposes looks and feels like a Company Pension Scheme.
The confusion is further compounded by the fact that some of the rules that apply are Personal Pension Plan type rules and some of the other rules that apply are Company Pension Scheme type rules. The GMS Scheme is a defined contribution scheme so unlike a defined benefit scheme there is no promise of a guaranteed pension. The member pays a mandatory contribution rate of 5% capitation fees under their GMS number.
The health board also contributes 10% of the member’s capitation fees each year to their retirement account. The health board contribution is not taken into account for the purposes of the member making further pension contributions as it is viewed as an employer contribution. But amount of AVC that can be paid is the difference between % of Net GMS Income and 5% Capitation Fees (see later) If AVC’s paid to the GMS Scheme 2% of contributions are deducted to cover administration charges.
GMS & Private Practice
- In the past, members of the GMS simply calculated their maximum tax relievable contribution and paid it to a personal pension plan
- Revenue issued Tax briefing 11 in 2010 outlining how a new regime applies.
- Now a requirement to look at “tranches of income” either GMS or Private then pension into the relevant products
- GMS Income must be considered first so an example
- GP aged 58 Net GMS Remuneration €100K (€80K Capitation), Private Practice Income (NRE) €100K (assumed expenses, capital allowances have been apportioned appropriately).
- GMS contribution of €4K made (5% of €80K)
- GMS AVC scope is €31K (€100K @ 35% less the €4K GMS contribution).
- Private Practice Net Relevant Earnings of €100K but contribution limited to €5,250 (35% of €15K as €100K GMS Remuneration already pensioned)
- Total funding €36,250 (AVC €31k & PPP €5,250)
What is it?
It is a pension scheme set up under Section 773 of the Taxes Consolidation Act 1997. While the plan is not subject to the Pensions Act or any of the associated regulations, it is the policy of the trustees to broadly follow the provisions of the Pensions Act where practical. A doctor will be included in the plan if they are in receipt of capitation fees from the GMS. Each doctor gets paid a fixed capitation payment per medical card holder associated with them.
How does it work?
The HSE contributes 10% of capitation fees to the scheme while the GP contributes 5% of their capitation fees. The contributions are invested and at normal retirement age (or earlier subject to criteria, see later) can be accessed.
Where are the contributions invested?
The contributions are invested in what is referred to as the ‘Main GMS Fund’. Every year a return is declared into each member’s account, being a percentage of the average amount standing to the member’s credit though the year. The return is calculated by reference to the gains and losses on investments over a period of four years. So, in effect, a level of smoothing is applied to the fund. From the age of 55, there is also the option to invest in a bond or a cash fund.
Can AVCs be made external to the Pension scheme?
Additional Voluntary Contributions (subject to the relevant age related limits based on net GMS remuneration) can be paid to the scheme or alternatively they can be made in to a PRSA AVC.
Doctors may make AVC contributions into PRSA AVCs and reasons typically include a desire to diversify their funds away from the GMS scheme, to have more control as they can pick the PRSA AVC provider and it allows better portability in that funds could be moved from one PRSA AVC to another. In addition a PRSA AVC should provide a greater range of investment options. But there are strict rules re tax relief (see later).
Are transfers allowed?
No – a transfer to or from another pension arrangement is not allowed.
What is the normal retirement age of the scheme?
The normal retirement age on the scheme is 65. A member can retire early at any age between 50 and 65 providing the member is no longer receiving capitation fees. They can also continue and receive capitation fees after age 65 and defer receiving benefits until the date of late retirement.
What are member options on accessing benefits?
Firstly to state that in a relatively recent development the GMS Scheme does allow after 25% tax efficient cash has been drawn the ARF option. But whist GMS rules cite 25% as a maximum tax efficient lump sum the option also exists to take (subject to criteria) 1.5 times Net GMS Final Remuneration of the main scheme fund as a tax efficient lump sum. This arises because as I stated earlier the GMS is in effect a ‘hybrid’ scheme straddling both personal and company rules. However if this route is chosen then the balance of the main scheme fund must be used to purchase an income either from the GMS scheme itself or by an annuity purchased from a life company. Members in this instance could decide to use any AVC funds built up to increase their lump sum from the GMS scheme to the maximum available lump allowed under Revenue rules (see below). Key point is as illustrated below is that at the time of access GMS members have a choice re options and as such need advice.
GMS SCHEME RETIREMENT EXAMPLE
|Age 65 with >20 years’ service Net GMS Final Remuneration||€120,000|
|Lump Sum from GMS Scheme*||€100,000|
|Balance to Purchase an Income**||€300,000|
|Max Lump Sum Entitlement||€180,000|
|Can use AVC fund of €80,000 to top up lump sum from GMS scheme of €100,000 to maximum approvable lump sum under Revenue rules of 1.5 times salary as 20 years service equating to €180,000|
*25% of GMS scheme fund of €400,000
** Balance of GMS scheme must be used to purchase an income
- GMS Remuneration must be pensioned first by AVC
- Include 5% GMS contribution already paid by GP in any calculations.
- If Net GMS Income over €115K no PPP contributions possible
- If retiring from GMS consider all options to include
- Traditional Route, would 1.5 times tax efficient lump sum be more advantageous?
- Could AVC Fund top up the tax efficient cash?
- But Annuity purchase from balance of main fund now compulsory.
- But residual AVC Fund (if any) could purchase an ARF
- The 25% tax efficient route and ARF option
- Careful planning required.
Great care must be taken when providing advise relating to GMS. Particular care must be exercised in advising on the tax treatment of contributions made on the way in and on the choice of options available at the time of access I,e retirement. Of course there also remains the need for ongoing advise in respect of funds already invested. Therefore member of the GMS scheme and those advising these members must be fully aware of the rules of the scheme. To this end they must be familiar with.
1. How the scheme works.
2. If appropriate the making of AVC contributions and attendant tax relief issues.
3. Advise on retirement options, from maximising the available tax free lump sum to the drawdown of benefits and advantages and disadvantages of the options available.
For additional information I have attached a copy of Revenue Pensions Manual GMS Superannuation Plan Appendix V and Chapter 26 Tax Relief for Pension Contributions Application of Earnings Limits. These provide guidance and worked examples. The preceding was a brief overview of some of the issues encountered by Doctors and those advising re The GMS Scheme. It is not, nor was it intended to be an exhaustive analysis but rather an introduction to this area.
While great care has been taken in its preparation, this article is of a general nature and should not be relied on in relation to a specific issue without taking appropriate financial, insurance, investment or other professional advice.
The content of this article is for information purposes only and does not constitute an offer or recommendation to buy or sell any investment, or to subscribe to any investment management or advisory service.
If you have any questions in relation to this article or if you need personal advice and help in solving any other financial problem you are more than welcome to contact me.
Written by James Caron
Financial Consultant at Lucas Financial Consulting Ltd. Specialties: Pensions,Shareholder/Partnership Protection,Investments, Life Asssurance, Providing training and coaching services for Credit Unions, Financial Organisations and Representative Bodies.