How to value a pension?

Money_saving_maniac

I posted my circumstances in another thread on the board but this question is specifically around how to value 2 pensions as part of packages.

I have been offered 2 jobs.

Job A is a NHS job with the pension attached but is .85 FTE and would pay 25 - 26k

Job B pays 8k more than the whole time equivalent of job A, but the pension contribution from employer is 6% and from employee is 4%. (There would also be commute costs)

Given that I am 10 years away from state retirement age,the question for me is how to value the NHS pension properly as part of the package so I am comparing apples.

An approach is to work out the NHS pension output for Job A which I have done, allowing for the 1.5% re-evaluation but discounting CPI as who knows what it will do. Assuming I have done it correctly that projects as a pension (assuming no pay rises) of between £4900 and £5000.

Job B would have around £40000 put into it over 10 years, but I have no clue how that would grow over 10 years.

A calculator says that to get an annual pension of 5k I would need around 100k in a pot.

At this point I am a bit stuck as to how to compare the pension values. I really need to have a yardstick as the salaries and working hours are so different.

Can anyone help?

dunstonh

Broadly speaking, the defined benefit scheme would cost you around 25% of your salary in contributions if you were trying to make it up with a money purchase scheme.

A calculator says that to get an annual pension of 5k I would need around 100k in a pot.

That would be for a level annuity. Not index linked/increasing. £100k would be closer to 3k a year for that.

ffacoffipawb

dunstonh wrote: »

Broadly speaking, the defined benefit scheme would cost you around 25% of your salary in contributions if you were trying to make it up with a money purchase scheme.

With 10 years to go to retirement as stated in the OP that cost is probably understated, probably nearer 35% I'd say.

BobQ

Is the OP considering joining the NHS? Or currently employed in another job in the NHS?

Is the OP retaining the FS pension scheme until SPA? Or is the OP now on a career average DB scheme?

When speaking about 25% and 35%, you need to allow for what contributions are made from salary towards the pension. These are higher than the 4%. They might be as high as 9% in the NHS since the contribution rate is based on FTE salary.

Money_saving_maniac

Holy cow Dunstoh and ffacoff, that is both amazing, and amazingly helpful. Wow I didn't realise it had that kind of value!!

Money_saving_maniac

BobQ wrote: »

Is the OP considering joining the NHS? Or currently employed in another job in the NHS?

Is the OP retaining the FS pension scheme until SPA? Or is the OP now on a career average DB scheme?

When speaking about 25% and 35%, you need to allow for what contributions are made from salary towards the pension. These are higher than the 4%. They might be as high as 9% in the NHS since the contribution rate is based on FTE salary.

I am not employed in the NHS,I am between jobs. I need to choose between a much lower paid NHS job and a much better paid private sector role.

Yes, the contribution I would need to make into the NHS pension is the 9% rate, I looked it up on the tables.

Money_saving_maniac

So, not in terms of % but in terms of absolute money, how much of a pot would you need to buy a CPI index linked 5k pension? And I think there is a survivor pension in the NHS package too?

Stubod

If you join the nhs you have an option to "purchase" additional pension of up to £5k, (may be £6.5k assuming you would have to join the "new" scheme). These are index linked (from the time of purchase..ie you £6.5k will grow from day 1), and offer the option of a survivor pension at an additional cost..the earlier you buy one..assuming you have about 10 years to go the cost for 5k would be about £73k for an outright 1 off purchase, but you can do monthly, or several separate payments...assuming you have the money these seems like reasonable value when compared to annuity rates of £100k + for a similar amount...

http://www.nhspa.gov.uk/PensionCalculators/AdditionalPension/index.aspx

jem16

Money_saving_maniac wrote: »

So, not in terms of % but in terms of absolute money, how much of a pot would you need to buy a CPI index linked 5k pension?

Around £166k.

And I think there is a survivor pension in the NHS package too?

There is.

Money_saving_maniac

Wow 166k....thank you very much Jem and Stubod

audigex

Stubod wrote: »

If you join the nhs you have an option to "purchase" additional pension of up to £5k, (may be £6.5k assuming you would have to join the "new" scheme). These are index linked (from the time of purchase..ie you £6.5k will grow from day 1), and offer the option of a survivor pension at an additional cost..the earlier you buy one..assuming you have about 10 years to go the cost for 5k would be about £73k for an outright 1 off purchase, but you can do monthly, or several separate payments...assuming you have the money these seems like reasonable value when compared to annuity rates of £100k + for a similar amount...

http://www.nhspa.gov.uk/PensionCalculators/AdditionalPension/index.aspx

Can anyone actually get this calculator to work?

If I enter my DoB (22/11/1989) I get an "Invalid DoB" error. If I enter anything else it says "* Please specify your date of birth in format dd/mm/yyyy"

And if I put in 01/01/1970 I get "An unexpected error occured :Conversion from string "70 1" to type 'Integer' is not valid."

Which is annoying, as I'm on the NHS scheme and would really like to buy extra pension (since I'm 43+ years from retirement, I should get a lot out of it)

I can't work out, though if I can actually do this on the 2015 scheme