Public v Private Sector Pensions

jem16

Drp8713 wrote: »

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

I think the point is that we aren't comparing like with like. There is little point in comparing the value of a pension today with the value of a pension in 40 years time.

I'm retiring next year after a lifetime in the public sector. I am absolutely positive that my pension is way higher than my first annual salary and I would sincerely hope it would be considering what I started on - no management salary by the way.

Drp8713

I agree that inflation will have an effect on the spending power of the pension.

Its that everyone was questioning how somebody on 23k could end up with a 22k pension, but with the CARE schemes linked to CPI and probably with a salary increase assumption in the estimate, it is possible if you are young enough

jem16

Drp8713 wrote: »

Its that everyone was questioning how somebody on 23k could end up with a 22k pension, but with the CARE schemes linked to CPI and probably with a salary increase assumption in the estimate, it is possible if you are young enough

Yes but the inference I took from it was that the OP's friend was just about to finish work after a lifetime's public service on a pension that was just less than his current salary.

I would actually be very disappointed if my pension was just less than my salary when I started considering it was approximately £4k.

Drp8713

Nuvos only opened in 2007 so he could have only done just under 7 years.

hyubh

rpc wrote: »

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

Although, it's not actually true that average DB employee rates in the private sector are higher than those for large public sector schemes like the NHS scheme, TPS or LGPS. That said, whether private or public sector, if you are lucky enough to be in a DB scheme then your employee rate is very likely to be 'low' relative to the value of the pension.

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

Public sector schemes have 'periodic valuations' too. Admittedly, in the unfunded schemes' case the government can pretty much ignore the results, however they are taken seriously in the LGPS, which is funded (roughly speaking, there's one pension fund per county, administered locally). The most recent LGPS valuations were done last year - https://www.google.co.uk/search?q=LGPS+valuation.

hugheskevi

I think the calculation is simply salary of £23,000 with an accrual rate of 2.3% in nuvos meaning £533.60 pension accrued per year of work which is then uprated each year by prices (currently CPI).

Over a 40 year career that is £21,344 pension p/a. This figure is in today price (CPI) terms, as accruals increase in line with inflation.

Over those 40 years salary will have probably increased by rather more than CPI inflation, so as a % of his final salary the amount will be much lower than £22,000/£23,000=96%.

On the other hand, salary escalation is quite low if an individual doesn't receive any promotions in their career so it might not be too unrealistic in such a circumstance. Also if they join at 18 and work to State Pension age of 68 or more, that is more like 50 years of accrual.

So I think the figures are fine, but heavily dependent on assumptions.

I also think that considering a pension of £22,000 'nigh on impossible' shows a dearth of ambition. With an early start, decent contributions and a bit of planning anyone with a half decent salary can easily achieve that.

amandajc

Just to add to the list of actual public sector pensions received rather than projections:

My husband retired this year after 35 years in the civil service, his final salary was £33,000, pension £11,800 pa, lump sum £63,000.

I am hoping to take early retirement at 60 in 5 years time after 20 years in the LGPS, my final salary will be around £32,000 (full-time equivalent), my pension is predicted at £10,500 (so long as I defer until 66 so as not to be subject to actuarial reduction), my lump sum £13,400.

We know that we are very lucky to have index-linked DB pensions but they have followed long service in professional roles at fairly modest salaries.

Thrugelmir

hugheskevi wrote: »

I also think that considering a pension of £22,000 'nigh on impossible' shows a dearth of ambition. With an early start, decent contributions and a bit of planning anyone with a half decent salary can easily achieve that.

At 4% drawdown rate that's a final pension pot of £550k. How many individuals build a pot that size? Let alone have it index linked with no risk,

Just had my NUVOS statement for last year and accrued pensions have been uprated by 2.7%! A nice bonus in this low interest rate environment.

No complaints about my employers contribution of 26%.

Realise that it's not going to last so have been buying additional contributions while maintaining investment in my SIPP.

hugheskevi

At 4% drawdown rate that's a final pension pot of £550k. How many individuals build a pot that size? Let alone have it index linked with no risk,

With following assumptions:

3% salary growth p/a
2% CPI
5% nominal return
£20,000 starting salary at age 21

Then to get £550,000 in today's CPI terms a contribution rate of 25% (employer, employee and tax relief combined) is needed.

Those assumptions are quite pessimistic - £20,000 starting salary is fairly low for someone starting out at 21, 5% nominal return is historically low, and a lifetime of salary growth only 1% above CPI (so pretty much flat relative to RPI) is unlikely. If salary sacrifice is available it gets even easier.

Despite the extremely cautious assumptions, the contribution rate needed is only 25% of salary. If the employer sorts out 10% of that, then an employee contribution of 12% is needed, plus basic rate relief. That is very achievable.

Just had my NUVOS statement for last year and accrued pensions have been uprated by 2.7%! A nice bonus in this low interest rate environment.

Kept its value relative to CPI, eroded in value relative to RPI, enhanced its value relative to earnings.

But far, far behind the returns from vast majority of DC pensions in recent years - presumably your SIPP returns are much better.

No complaints about my employers contribution of 26%.

That rate is for Prison Officers with reserved rights (pre-Fresh Start), but I didn't think any of them were in nuvos?

BobQ

jem16 wrote: »

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.

Several posters on here seem to be under the same illusion. NUVOS has NEVER been a final salary scheme. It was introduced in 2007 and is a Career Average Scheme (CARE).

So if he is on Nuvos he must have joined the civil service post 2007. Those employed in the civil service before that date remained in a final salary scheme (Classic or Classic Plus or Premium). This will change next year for most who are not close to the retirement age of the scheme. As I recall only about 50% of civilservants are on 1/80 final salary pensions and that will be down to about 10% next year and continue to decline.

It may be that the OP's friend is calculating on the basis of remaining in the scheme until State Retirement Age which could be 70 by then.

The Pension Calculated does seem high but whatever the calculation it not based on 80ths of FS. The benefits accrue at 2.3% of salary revalued by CPI.