Private sector pension contribution rates

hugheskevi

Since it's a defined benefit scheme the employer's contribution is essentially nominal, since in the end the employer must stump up whatever is required to ensure that your pension is paid. So that 14% could really be 18%, 20% .... or if antibiotic-resistant bacteria have their wicked way with us, 10% or 8%.

Absolutely agree, and something a lot of people are badly misled by when they see the employer contribution figure. To give an illustration of how massively the employer contribution can vary across individual members....

Take a 22 year old male and a 64 year old male in the Civil Service Nuvos scheme, both earning £25,000 and born on 4th May.

Both accrue £575 p/a of pension payable from age 65 from their employment in 2013/14.

Using the Added Pension calculator for Nuvos, £575 of pension is valued at £3,491 for the 22 year old (Added Pension is based on a discount rate of CPI+3% - that is a reasonable figure which makes Added Pension a reasonable but not fanstastic offer).

The employee contribution rate is 5.88% (source here) so the member pays £1,470 and the employer £2,021 of that £3,491.

That makes the employer contribution rate 8.1% of salary for the 22 year old.

For the 64 year old, £575 of pension is valued at £11,016.

Going through the same process, the employer contribution rate for the 64 year old is 38.2%.

FatherAbraham

Jumex wrote: »

Bottom line - are the rates competitive? And do I need to worry?

The private sector rates you quote are not bad for the private sector.

The public-sector defined-benefit pension is not competitive with the private sector: public-sector defined-benefit schemes are vastly overgenerous when this comparison is made.

Ignore the public-sector "employer contribution", it's fictional from your point-of-view, since you're guaranteed benefits.

To make a comparison, go to any online pension calculator for defined-contribution schemes, and see how much would need to be paid into your fund to give you a risky chance of getting similar benefits to the public-sector scheme.

Don't forget to price in the easy early-retirement options of the public-sector scheme to get a true picture of you much you'll be giving up by leaving the elite sector and becoming as poor in the future as those who're financially supporting the nauseating public-sector pensions system.

Warmest regards,
FA

jem16

FatherAbraham wrote: »

Don't forget to price in the easy early-retirement options of the public-sector scheme

In what way is it easy to get early retirement from a public sector pension?

hyubh

Don't forget to price in the easy early-retirement options of the public-sector scheme

E.g.?

you'll be giving up by leaving the elite sector and becoming as poor in the future as those who're financially supporting the nauseating public-sector pensions system.

Those teaching assistants have really got you down, haven't they?

Warmest regards,
FA

I've said it before and I'll say it again - love it!

mgdavid

Jumex wrote: »

.............New Job

First 2 years:
Employee 2%
Employer 6%

After 2 years:
Employee 4%
Employer 8%

So my total pension contributions would take a bit of a hit.
Are these rates fairly normal for private sector companies?....

I'm in private sector IT services and it's 10% + 10% here.
I would definitely ask them to put you on the better rates straight away. If they won't play ball then do bung spare cash into your own pot.

real1314

FatherAbraham wrote: »

T

Don't forget to price in the easy early-retirement options of the public-sector scheme to get a true picture of you much you'll be giving up by leaving the elite sector and becoming as poor in the future as those who're financially supporting the nauseating public-sector pensions system.

Warmest regards,
FA

Can you do me a list of public sector employees who get paid more than £500k pa.
Then do one for the private sector?

You should probably do the private sector one first, In fact you can copy and paste the public sector one from here:- " "

Seriously, if you want to talk about "elite sectors" I don't think a sector where the average pay is less than £30k, where 90% of employees are below £40k and where none get more than £500k is really any sort of "elite".
If anything it's a wage structure that most people paid less than £50k would probably prefer to see in their workplace.

I bet you're on less than £25k though, certainly less than £50k. :cool:

BobQ

Jumex wrote: »

Hey - hopefully this is the right forum...

So I've been offered a new job in the private sector and wonder if the pension rates I'm offered the norm.

Bit of background (skip if you want). I'm currently on ~£40k in the public sector, looking to move to a new job on around ~£45k. The non pay benefits are less in the private sector, holiday 29 days v 25 days.

My current pension contribution rates are:

Employee 6.7%
Employer 14%

New Job

First 2 years:
Employee 2%
Employer 6%

After 2 years:
Employee 4%
Employer 8%

So my total pension contributions would take a bit of a hit.

Are these rates fairly normal for private sector companies?

I'm only 26 and have been paying into a pension for 5 years, but I'm a long way from retirement so I'm not overly concerned right now, but I'd like to still build up a good pot.

I have access to a low annual management charge pension from a private pension firm (I used to work in their call centre years ago and you retain good terms as an ex employee). I can use this to top up more into my pension if needed.

Bottom line - are the rates competitive? And do I need to worry?

What this demonstrates is that public sector worker is paid significantly less in salary for a comparable job (12%) but gets this paid into a better pension. Were the OP to use the extra £5K to pay extra pension contributions he might get a comparable pension in the private sector.

The future public sector pension schemes are career average schemes (like the existing civil service Nuvos scheme) and still have reasonable accrual rates.

If you think the public sector jobs that interest you will continue through your working life you are comparing a DB pension with what appears to be a DC scheme that will do nowhere near as good unless you project exceptional investment returns or make significantly more contributions from salary. But there may be other benefits of moving to the private sector.

The rates are typical however.


.

FatherAbraham

jem16 wrote: »

In what way is it easy to get early retirement from a public sector pension?

Here's one example, relevant to several LGPS members I'm acquainted with, whose jobs were declared redundant last financial year: those over 55 were granted additional years of pension rights, in addition to the cash compensation for having lost their employment.

Here's a Unison (a public-sector trade union) briefing note for local negotiators:

Service enhancements
Under regulation 12 of the LGPS (Benefits Membership and Contributions) Regulations 2007 (as amended), an employer in England and Wales has the discretion to increase service by up to 10 years, up to six months after leaving employment. This is a general power that can be used to award added years on redundancy or leaving for other reasons. As an alternative, under regulation 13 of the same regulations, the employer has the discretion to also award up to £5,000 a year extra pension before the member leaves.

(Taken from http://www.unison.org.uk/acrobat/18124_FightingRedun_Pack_LGpensionScheme.pdf)

This is an extremely generous payment to an employee, which is not commonly found in private-sector, defined contribution schemes. It means that far more public-sector employees are able to retire early than would be expected.

Furthermore, early retirement on ill-health grounds is found across public-sector defined-benefit schemes. The concept doesn't even exist in most defined-contribution schemes -- if you become too ill to work, then you have to stop working, and stop accruing benefits in those schemes.

Supporters of public-sector defined-benefit schemes often point to high rates of ill-health-related early retirement in specific profession (for example, in teaching) -- but such arguments rarely seem to take account of the massive financial incentive that such DB schemes offer for becoming "to ill to work". It's difficult to tell whether it's the job which makes the member ill, or the pension scheme.

Warmest regards,
FA

FatherAbraham

real1314 wrote: »

Can you do me a list of public sector employees who get paid more than £500k pa.
Then do one for the private sector?

You should probably do the private sector one first, In fact you can copy and paste the public sector one from here:- " "

Seriously, if you want to talk about "elite sectors" I don't think a sector where the average pay is less than £30k, where 90% of employees are below £40k and where none get more than £500k is really any sort of "elite".
If anything it's a wage structure that most people paid less than £50k would probably prefer to see in their workplace.

I bet you're on less than £25k though, certainly less than £50k. :cool:

This would be funny, if it weren't so sad.

If your argument for supporting the excessively generous public-sector pension scheme is that it helps the lower-paid, then why aren't you supporting its replacement with a defined-benefit pension scheme for all lower-paid workers, which excludes the better-off?

Instead, you're supporting a pension scheme which excessively rewards anyone in the public sector, compared to someone doing an equivalent job outside. (Did you notice what this thread is about, at all? It was started by someone who wanted to compare remuneration in a specific public-sector job with a presumably similar or slightly more senior private sector job?)

Who do you think pays for the over-generous public-sector pension scheme, the Tooth Fairy? No, it's the equivalent private-sector workers, who both have to fund their own retirement pots, and carry the burden of relatively overpaid public-sector workers too.

At every income level, there are people in the private sector being paid much less overall, when we account for pension benefits. The situation has become much more extreme in the last decade, as public-sector pension bennies have hardly reacted to the changing investment landscape, and the economic reality of the outside world.

Arguing for the continuation of public-sector defined-benefit pension schemes, on the grounds that many members are low-paid, is contemptible sophistry. Such arguments merely demonstrate how little understanding of pensions costs, of social justice, and of economic solidarity their makers have.

Warmest regards,
FA

jem16

FatherAbraham wrote: »

Here's one example, relevant to several LGPS members I'm acquainted with, whose jobs were declared redundant last financial year: those over 55 were granted additional years of pension rights, in addition to the cash compensation for having lost their employment.

Yes it does happen but more often than not it's only for those in higher salary related roles where it would actually be cheaper to enhance the pension than continue paying them a salary. Usually, if they were in a comparative private sector job, their redundancy payment would have been far higher.

This is an extremely generous payment to an employee, which is not commonly found in private-sector, defined contribution schemes. It means that far more public-sector employees are able to retire early than would be expected.

Only if redundancy and enhancement is offered. Those in DC schemes normally have more flexibility in their retirement age as it's not dependent on their employer agreeing to it. The last time my council offered early retirement to the normal chalk face teacher was 10 years ago.

Furthermore, early retirement on ill-health grounds is found across public-sector defined-benefit schemes. The concept doesn't even exist in most defined-benefit schemes -- if you become too ill to work, then you have to stop working, and stop accruing benefits in those schemes.

Ill-health retirement is not as easy to get as you seem to be inferring. It's not simply a case of stopping work and saying you are too ill to work any more. Many have had to stop work and been refused access to their pensions as medical opinion states that whilst they may be unable to work at the moment, they cannot say for sure that they will never be able to work.

Supporters of public-sector defined-benefit schemes often point to high rates of ill-health-related early retirement in specific profession (for example, in teaching) -- but such arguments rarely seem to take account of the massive financial incentive that such DB schemes offer for becoming "to ill to work". It's difficult to tell whether it's the job which makes the member ill, or the pension scheme.

Please explain that to my colleague who has been unable to teach for 3 years and has been turned down for ill-health retirement. Currently she has no income and at the moment still unable to return to work. Please also explain that to another colleague who had to fight for over 3 years to finally get access to her pension a year early despite her consultant stating that she was unfit to teach.

Also in most cases, there are different tiers of ill-health retirement with the most common one offering no financial incentive never mind a "massive" one.

FatherAbraham wrote: »

Instead, you're supporting a pension scheme which excessively rewards anyone in the public sector, compared to someone doing an equivalent job outside. (Did you notice what this thread is about, at all? It was started by someone who wanted to compare remuneration in a specific public-sector job with a presumably similar or slightly more senior private sector job?)

Yes I did notice that the OP is thinking of moving to a job with a 12% higher salary. If this 12% was paid into his pension this would amount to an employer contribution of 20% after 2 years. So 4% from him and 20% from the employer - sounds pretty comparable in terms of what would be needed.

Who do you think pays for the over-generous public-sector pension scheme, the Tooth Fairy? No, it's the equivalent private-sector workers, who both have to fund their own retirement pots, and carry the burden of relatively overpaid public-sector workers too.

This seems to be the argument trotted out over and over again by those not in the public sector - ie we're paying for your pension.

What seems to be forgotten is that the same is true for every occupational pension scheme. They are all paid for by people buying/using the services of the firms.

At least with public sector pensions you are not paying at the same level as those who paid for Fred Goodwin's massive payout and pension from RBS.

Arguing for the continuation of public-sector defined-benefit pension schemes, on the grounds that many members are low-paid, is contemptible sophistry. Such arguments merely demonstrate how little understanding of pensions costs, of social justice, and of economic solidarity their makers have.

Warmest regards,
FA

So let's all unite and have a race to the bottom - see who gets there first!