Public v Private Sector Pensions

Andy_L

jem16 wrote: »

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?

Nuvos is the career average scheme.

I suspect he's multiplied the annual 2.3% by 40 years of service & assumed that means he gets a pension by 92% of his current salary, rather than uprating each years 2.3% "chunk" by inflation

jem16

Andy_L wrote: »

Nuvos is the career average scheme.

Yes but it was a final salary scheme which is what I was thinking - ie friend is at the end of his lifetime service as opposed to the beginning.

Your_Hero

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.

As others have pointed out this is clearly incorrect. He's probably been looking at a future pension projection based on assumed salary rises until he retires. This does not account for the effects of inflation.

I.e. If he is say 30 years old now, it's probably looking at when he reaches 65 and assuming his £23k salary increases each year at 2.5% in line with inflation, then his income when he retires will have reached £54,583 per annum. This is of course not the same as £54k in today's term (£54k in 35 years' time is of course a lot less). And assuming he gets 35/80th of the pension this will give him something like £23,880, which again does not factor in inflation.

It's probably the equivalent of 35/80th of his current salary which is more like £10k p.a.

So your friend probably isn't lying but he's just read it wrong.

CLAPTON

rpc wrote: »

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.

defined contributions schemes can't be insolvent and so never need topping up.

jamesd

spock007 wrote: »

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.

I don't think that £150 a month is nigh on impossible.

If you put after inflation numbers into a regular savings calculator for say £100 a month of pension contributions you get: monthly payment £125 (includes tax relief), duration: 50 years to state pension age from 18, interest rate 5%, long term FTSE rate less 0.1% fees, after inflation. Pot size in today's money: £333,581. 4% drawing rate provides an income of £13,343 a year, 6% of £20,014.Increase the £100 to 150 and that takes the low end up to £20,014. In reality there will also be employer contributions so the actual personal cost will be less than that.

It gets harder if you give it only 30 years instead of the full 50. Then the pot size would drop to £104,032 for £100-£125 a month. That reduces the 4% income to £4,161 and raises the cost to more like £400-£500 a month.

Give it only ten years, perhaps for committed early retirement planning or a really late start, and the cost jumps to more like £2,500 a month.

rpc

CLAPTON wrote: »

defined contributions schemes can't be insolvent and so never need topping up.

Which is true but has nothing to do with this thread.

CLAPTON

rpc wrote: »

Which is true but has nothing to do with this thread.

your post didn't, (in my opinion) make it clear you were referring to private sector defined benefit schemes only and not private sector schemes in general.

katejo

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.

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)

Definitely sounds too high. Mine is a final salary scheme but I will only get around 50% of this plus a lump sum. Also is he allowing for it being taxed when he gets it after retirement?

Moby

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.

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)

I'm in the public sector on about 3 times your friends salary and my projected pension is nowhere near what your friend gets. I think he's fibbing to you but perhaps you want to believe him and have a pop at the public sector workers anyway ?

Drp8713

We dont know his age which is going to be a huge factor (or ive missed the post about it as im on my phone) But it sounds plausable to me.

E.g i am 26, i have 42 years til 68, my LGPS CARE NRD,

If i put my situation into a calculator i would get 42/49ths of my salary, plus any salary increase assumptions, plus any inflationary assumptions and the compounding effect of those.

Would definately come out higher than my current salary