Public v Private Sector Pensions

spock007

This has probably been discussed to death but a friend of mine is on a fairly low salary, £23k, and he reckons over his lifetime of work in the public sector with his Nuvos pension scheme, he'll be looking at around £22k per year in pension.

Despite being on a much higher salary in the private sector, I would absolutely struggle to put enough into my pot to be able to afford the same thing. It's nigh on impossible.

So even with the change from final salary to career average, I just don't see how we can afford public sector pensions. The whole thing seems unaffordable and to be honest, pretty unfair! Now I see why I pay so much council/other tax - to help fund pensions (and also home-buying schemes) that I couldn't afford myself! Should private sector workers really be paying toward this - I think we should be taxed less than our public sector counterparts, if anything! Or maybe I should try my hand at the public sector (if you can't beat them, join them). On my street are a retired teacher couple and one fireman right at the end of the road and let me tell you, they are WELL off.

Does anybody know if it is the same in other countries? Germany, France, USA etc?
(Found this:
http://en.wikipedia.org/wiki/Pensions_in_Germany)

PeacefulWaters

It's part of the package for the job. If you don't like it, change employer.

jem16

spock007 wrote: »

This has probably been discussed to death but a friend of mine is on a fairly low salary, £23k, and he reckons over his lifetime of work in the public sector with his Nuvos pension scheme, he'll be looking at around £22k per year in pension.

I can't see how he would get that. Even with 40/80ths (ie full service) he would get £11.5k based on his final salary.

How does he get to £22k?

BillJones

Public sector workers get something of the order 20% more in salary and benefits than the equivalent level of role in the private sector. If you are in a role with an equivalent public sector job available, then it makes sennse to consider this, and look at a public sector job.

On the flip side, public sector jobs tend to be more heavily clustered at the lower end of the scale, so it's close to impossible to find an "equivalent" job if you are a high-flying professional. A friend has just moved from barristing to public prosecuting, and sespite an appparent large pay cut, will be far better off when the overall package is lokoed at. His wife is staying in private practice in a similar job, so that they staill have the possibility of one of them earning very serious money, while the other is guaranteed a pretty decent level and security of job.

Alex444

22k seems an awful high amount, by the way Firefighters pay 11% of their wages towards their pension, soon to be increased to 13%+ with lower benefits and working to 65.

dunstonh

He has got his figures wrong. As Jem points out, 40/80th is half. So, £11k is more like it. However, add on the state pension and the pension lump sum and he could well end up better off in retirement.

dunstonh

Alex444 wrote: »

22k seems an awful high amount, by the way Firefighters pay 11% of their wages towards their pension, soon to be increased to 13%+ with lower benefits and working to 65.

Lucky them. If only it was so cheap in the private sector.

uknick

If you assume earnings increase of 2.5% per year and then accrue 1.5% each year of his salary under the new average career earnings system you do get to about £23k. I've used 1.5% as this is about a 60th each year, the rate used for new starters prior to the career average coming in. The 80th scheme finished some years ago.

And, his salary in 40 years will be about £60k; so his final pension is about 30% of his final salary.

But, don't forget he will also be paying about 5% per year of his salary as pension contributions. So he might have a"fund" of about £120k built up after 40 years if you assume growth of 2.5% per year.

All figures are very rough and ready, and don't take into account tax relief on the contributions etc. etc. And more than likely or not won't withstand close scrutiny, but you get the idea.


Op, how much are you paying into your current pension scheme?

beecher2

My local authority pension forecast states I'll get around 50% of my pay so that does seem high. Maybe he's thinking that his pay will have increased to £46k by then, due to cost of living increases?

tgon

I'm in Nuvos and your friend is significantly overestimating. And if he thinks Nuvos will stay static for the length of this working life then he's very much mistaken - I've seen changes to mandate increases to my contribution % twice already and without % increase return. Governments always play with CS pensions - its their vocation

rpc

tgon wrote: »

I've seen changes to mandate increases to my contribution % twice already and without % increase return. Governments always play with CS pensions - its their vocation

And if you are in the private sector, the employer plays with your pension to keep it solvent.

Actuarial valuation shows a deficit - better increase contributions. Oh dear, the deficit isn't getting smaller, better increase contributions again.

DB pensions are expensive. Unfunded schemes don't reveal how expensive they really are - the private sector is forced to with periodic valuations.