Man, Incorporated

I realise now that my last post ended with the promise of a Part 2 and that was several months ago.

Well, you know what they say- time flies when you're having fun!

But, that brings me neatly to the point of this post. If you have read my previous posts, you could say that they could all be summarised thus: How to have fun. How to enjoy your working life, how to have a better work/life balance.

And, hence the pause; I was merely working on a unifying theme!

So, going back to basics. How do GPs earn money? And is there a difference between them and hospital consultants?

To my mind, in UK as an NHS GP even though we are called independent contractors, GPs are firmly tied into the health Ecosystem controlled by the Govt. Earnings may vary but the percentage spread is actually very narrow all things considered.

Working hours (core hours)  are  dictated by NHS as is prescribing & referrals. Add in the NHS pensions, retirement rules, Rent control on premises etc and you realise that you are at best a mere cog in the huge NHS wheel- toiling away and putting in your best years for the Govt Machinery.

This is true for the vast majority of people in developed countries. The carrot is Universal Health Care and good standards of living.

Contrast this with Consultants. Paradoxically, they would class themselves as NHS employees and not independent. But, most have a private practice and have much more leeway in practicing/prescribing etc atleast in their private line of work.

So, moving to Australia I have realised that this is the biggest change. I am no longer a cog in big wheel. There is no capitated patient base. There is no guaranteed income.

This could be a big pitfall. But, if you consider yourself as a GP Consultant just like an NHS Hospital Consultant, things become clearer. You can work for a 'hospital', i.e the surgery you work for (and that will earn you a steady income) but what you need to do to establish yourself is to market yourself and find your niche. Just like a hospital cardiologist for example. They all do general cardiology in hospital but in their private practice they all have special interests- one does Echos, another electrophysiology and so on.

Once, we find our groove not only in relation to our personal goals and aspirations, but also the right fit for the community we serve, we can be truly independent masters of our destinies. No one can then dictate income, retirement, working hours etc. I am still coming to grips with this and not to put too fine a point on it I consider this to be a paradigm shift in not only our thinking but ultimately in the way we practice medicine.

So, that brings me to the title of this post. If, we as GPs or Drs can choose to exercise control over our working lives in this fashion, why does it have to stop there? Is there a need to accept the convention of working your whole adult life, putting money into a pension, paying into income protection etc etc and merely existing as a 'productive unit' for someone else? Even independent contractors, like GPs in Australia are working units for the govt.

Just as we should become Consultants based in the community if we want to exercise autonomy in our working lives, we should be our own consultants for retirement planning, social security and tax planning. Do you have to put your pension fund in the country of your residence? What if you incorporated yourself as a company? Not so strange after all.

 Someone did the same back in 2013 : http://www.wired.com/2013/03/ipo-man/

Cost of Living in Australia- The Big Question

When all is said and done, what everyone wants to know is this- just how expensive is it to live in Australia?

Well, here's my take on this issue and that's an important point- this is my take on it and not a scholarly article

Nonetheless I'd like to lay some ground rules:

1) this is mainly comparing costs when moving from UK to Australia

2) I was a GP Principal in UK in a PMS practice and lived and worked in Coventry and in Australia I live in Wollongong and have only been here for 3 months or so

3) If you're looking for price comparisons for groceries etc read no further and more importantly reconsider your decision to emigrate!

4) Applies to people with 6 figure incomes in either denomination

Look at points 3&4. If you are on low incomes and emigrating, sure the price of your weekly shop is very important. In these situations I'm told a rough rule of thumb is to multiply your UK income by 2.5 rather than the exchange rate which is around 1.8 and then you should be fine. However, if you earn a million pounds in UK you clearly don't need 2.5million AUD to be able to afford groceries!

So, I've looked at what's really important. In my view gross earnings mean nothing- you want to know what you take home at the end of the day. This depends on several factors- income tax being the most obvious. 

But there are other factors- pension contributions, Health Funds, Debt servicing, property appreciation etc.

This is what I'm looking at right now in this blog.

Income tax- broadly speaking comparable in the 2 countries but on closer scrutiny not so. Australia is favourable because you don't loose the tax free personal allowance here unlike UK where you loose above 110K/year. Child care benefits are means tested in both countries but again I think for comparable incomes in both countries you might get benefits in Australia and not in UK (more later as to why)

Pensions contribution: This is responsible for a big chunk out of your gross earnings in UK. Of course as a partner you pay both Employer's and Employee's contribution in UK and combined this can be more than 20% (and rising). You do get a nice pension at the end of it and the NHS pension scheme is described as amongst the best in UK. but again there is a big caveat here. The govt can and has twice in recent past changed the regulations around NHS pensions. So, that nice pension I talked about is not a certainty. In fact everyone I spoke to before leaving was certain that in few years' time the tax free lump sum will become taxable and this will be huge dent in your pension. In Australia you pay into a superannuation; 9.5% minimum and upto 30K a year. But you pretty much invest where you like. Most people invest in property. Contributions are tax deductible and then you have the property to own (or shares or whatever) at the end. Policy may change but they can't take away your property! So, more to take home each month as less deducted at source and chance of having a better pension fund at the end (or of screwing it up as well!). But, once again, most GPs will invest wisely and be better off here in Australia I think.

For partners another factor comes into play and that is how payments are made in the NHS. QOF payments don't come till Sept or so the following year and several items have to be claimed for afterwards (imms and vacs etc). This means a sizeable portion of your income is tied up at any given time and you don't see it till you retire or leave partnership- the so called 'working capital'. My practice still owes me more than 40K. That means I earned 40K in the last 4-5 years, paid NI and tax on it but am yet to see it! 

In Australia I get 100% of what I earn every 2 weeks. Therefore, cash flow is much better and improved cash flow equates to better affordability for most things. I haven't got a credit card here and don't miss it!

Health Funds- In UK obviously there is universal coverage with NHS. But, you do pay a hefty price for it. Until recently, I thought it was good deal as literally everything was covered. But, with more and more cuts and stringent low priority procedures (varicose veins only if ulcerated, really??) I wonder if its a good deal anymore. For someone in good health like myself it means a lifetime of contributions with an uncertain benefit at the end or buy private cover on top. A double whammy! In Australia there is Medicare which is pretty basic compared to UK but so are the income contributions. The money saved there can be utilised to buy private health cover. This allows much greater flexibility. If you are young and single with no problems even no private health cover will do- ergo more to spend when you need it. But even a good level of cover for a family of 3 will cost about $4k/year here for me. This has some added benefits compared to NHS- I can get prescription lenses/glasses or remedial massages for example and I can see Consultants almost straight away, and for my situation this again works out better than it did in UK. There are tax benefits in having private health cover too so the final figure will be lower still.

If you have multiple long term conditions then the NHS may be better at least for now. Also note the difference between a health insurance (NHS) vs a Health Fund. Basically, in a health insurance scheme you make regular payments and only get something out if and when you need it and that is always decided by other people (NICE, EBM etc etc) In a health fund by contrast you get entitlements which you can use annually- prescriptions, visits to opticians, remedial massage etc. So you start seeing benefits of having a Health Fund from day 1

Debt Servicing- this is the next biggie and often overlooked I feel. By definition it just means the amount you pay (interest + principal) to pay off your debt. But, actual figures or even rates mean nothing by themselves. What I feel is more relevant is the difference between what the Banks pay you when you put your money in with them v/s what they charge you when you take a loan (mortgage, car, personal loan etc). Here, the UK loses out spectacularly. The base rate of the bank of England has been 0.5% for many years now and getting cheap loans should be easy. But based on the the BOE rates Banks have slashed the rates of interest they pay you- the Best buy ISAs only pay 0.5% or so after the initial headline grabbing introductory rate finishes. Some pay 0.1%. (see here and here to compare) Yet, the lending rates are still at the same levels as what they were when the BOE was was much higher (2.5% if memory serves me correctly). So, to get a mortgage at the best rates you need either 40% down payment or you pay around 4-5% interest and much higher if you buy to let. Car and other personal loans run around 5-6.5%. Clearly the difference in interest paid and earned is huge.

Neither is property appreciating in UK. I bought a house for 370K around 5 years ago. I'd struggle to sell for 400K now. Taking into account the land registry, interest paid and other charges if I were to sell now I'll have made a loss. It is equally hard to rent. I know of several GP friends who emigrated to Australia and had their houses lying empty for months. So, we pay high cost for servicing our debt and our assets are in a negative equity

In Australia, even high street banks are paying 2-5-3% interest on easy access savings accounts and a car loan I took out is 5.25%. The difference in interest paid and earned is much smaller. Similarly to buy a house you can do so with 10% equity (or even lower for GPs) and if you buy to let the rates are not higher! With ability to invest your superannuation in property it is quickly evident that debt servicing is going to be much cheaper in Australia and developing a property portfolio much easier. Less cost to service debt and assets appreciate

Lastly, I'd like to go back to income tax. I said the rates are broadly similar but in our situation not the effective tax rates. This is because unlike the NHS more or less all GPs here are independent contractors and work under an umbrella company and pay themselves a salary from this company. Apart from other benefits as far as I can see now this has 2 immediate effects- a) your own taxable income is lower (NB about child benefits above) and b) the taxable profit the company makes is taxed at corporate rates (30%) and not personal rates. So, in effect the effective overall tax rate works out to be less than in UK and you don't loose out on personal allowance either.

Time will tell how much (or how little) this works out to be in 1-2 years time but I feel confident that I'll be better off here and therefore when people talk about cost of bread or eating out in Australia I tune them out!