1 August 2014

Top Tips for Retirement

In recent times we have seen an increase in the number of GPs retiring, however, the process for retiring from a partnership is unlikely to be as clear cut as one might imagine. One of the first things to consider is whether there is a partnership agreement in place. Although the majority of practices have one, there are still a number of GP partnerships which do not. 

However, an agreement is important because, contained within it, should be numerous clauses that regulate retirement, amongst other things. The presence of an agreement avoids the risk of any uncertainty for all the partners in your practice.
If you are in a partnership and a partner has expressed his wish to retire or you are partner who is thinking of retiring, these top tips below are worth considering before taking any action.

1. Is there a partnership agreement and does it contain a right to retire? If it does, consideration of notice periods and any associated formalities should be taken into account. In circumstances where there is not a partnership agreement in place, notice of retirement is given pursuant to the Partnership Act 1980. Importantly, this will result in dissolving the partnership. In the alternative, a partner may always retire with the consent of all other partners.

2. Why is the partner retiring? Always ensure that you are not in breach of any discrimination regulations and that there is no possibility of the outgoing partner making a claim against the practice for any unfair treatment.

3. Will the remaining partners continue the practice and if so, on what terms? This should be agreed and information included in any Deed of Retirement or equivalent document prepared as a result of the retirement.

4. Whose name is the legal interest in the partnership’s property held? It is sensible to identify all of the property held by the partnership from the outset and establish whether any consent is required to transfer the property from the outgoing partner to the remaining partners. Where the property is subject to a third party charge, it is usual to release the retiring partner from this liability.

5. Will the outgoing partner cover any liabilities for a period following retirement? In the majority of circumstances the partners will indemnify the retiring partner from future liabilities from the leaving date. Although the partnership agreement may provide for indemnification, this does not exclude renegotiation of the terms. Be aware that in order for a partner to be considered discharged from liability, notices will need to be placed in the London Gazette (or equivalent) and local newspaper.

6. How and when will payment be made to the outgoing partner? Does the partnership agreement include provisions for entitlement to capital and shares of profit? Where the retirement does not coincide with the partnership’s financial year, accounts will need to be prepared to establish the amount due to the outgoing partner. You may also want to consider making payment in instalments.

7. Does the partnership agreement place restrictions on the outgoing partner? It is common to restrict the geographical area of an outgoing partner’s future employment for example, but be wary of over cumbrous clauses which may not be considered enforceable. Importantly, it is worth remembering that additional (or perhaps less restrictive clauses as the case may be) can be included in a Deed of Retirement.

8. Do you need to give notice of the outgoing partner’s retirement pursuant to an NHS contract? The GMS contract, for example, provides that NHS England is given three months’ notice of a partner terminating their contract. Ideally, notice requirements will be provided for in the partnership agreement to avoid any uncertainty as to the succession of the contract.

9. Is the partner simply wishing to take advantage of the “24 Hour Retirement” scheme? If the partnership agreement does not provide for this, agreement must be met by all partners with regard to the returning partner working an aggregate of 16 hours per week for the first month, the entitlement to profit and the entitlement to sums which would previously have been paid as superannuation. For the sake of clarity, we would advise our clients to include a “24 Hour Retirement” clause in their practices partnership agreement should they consider it to be a potential issue.

10. How will the partnership record the retirement? There are a number of options in this regard, including a Deed of Retirement. However, you may consider that a technical dissolution of the partnership is a better option in order to implement a fresh partnership agreement.

Finally, although not a legal issue, we recommend all practices take accountancy and tax advice when any Partner retires and that the advice includes pensions.

It is important that the above points are all taken into account on the retirement of a partner. Failing to deal with the retirement correctly may disastrously impact the practice and/or outgoing partner.

Partnership agreements are there to record the terms agreed between the partners of your practice and ensure that any issues regarding the running and management of the practice, can be dealt with smoothly.

The retirement of a partner, and therefore, of course, potentially, an incoming partner, is a good opportunity to refresh the partnership agreement of your practice and certainly, if your partnership agreement has not been updated in a number of years, a new agreement will ensure the practice meets all the latest laws, regulations and general good practice expected in the private medical sector.

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About the Author
Robert Capper, Partner, Head of Commercial Team and Sectors
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