Is it worth me leaving the Civil Service?

Beartricks

I've been a Civil Servant for approximately three years. I am at the top of my pay band although my role in my current department is paid less than the same role in others.



I feel like I'm at the point where I need to move on. I do a specialised role but opportunities for promotion are limited locally. If promoted I would likely have to commute to the nearest city centre which means I'd be worse off, despite the pay rise, due to travel costs. The same is true if I did a level transfer to a department that pays more for the same services.



Private sector roles offer more money however I am worried about the pension. For example, the next grade up in my own department would offer a £2000 pay rise with the additional responsibility of being a higher grade. I have seen equivalent roles to what I do now in the private sector offering anywhere between £5000 and £20,000 more than my current salary.



Currently I pay 5.45% in to my pension. According to my payslip, my employer pays in 27.1%. I know private sector pensions are nowhere near as generous, and the job security isn't there (Although with Brexit and the GE on the cards my own role probably isn't as secure as it could be).


In all honesty I don't know too much about pensions. I have just paid in whatever I pay in without really questioning it in the past.



Is there a scenario where it is worth me leaving the CS or have I got it good with my current pension? I'm aware that CS pensions aren't as good as they used to be but a quick look online and the alternative seems much worse.


Any advice?

BoxerfanUK

For what it's worth I did 35 years in the CS and although I didn't think about it at the time I am now (having retired) VERY grateful for the pension and have no regrets about staying in. Yes maybe I could have sought another career with more money, who knows, but I have no regrets.

The experts on here will no doubt be along to tell you some facts and figures but don't forget that although CS pensions are not perceived as being as generous and no longer final salary based, career average is still very closely linked to your earnings. Final salary only really benefited significantly those people who achieved substantial promotions in the few years prior to their retirement. In the private sector most are DC pensions and although most may be good they are always at the whim of the markets whereas your 'Alpha' pension is not, It's guaranteed and would enable you to plan your retirement with at least some degree of certainty

You don't say how old your are or give any salary details but it's your call, only you can decide what you want in your life based on your hopes plans and aspirations for the future and yes if you can earn substantially more elsewhere then it may well be worth it...... but think very carefully before you jump, which you are clearly doing by posting your question on this forum.

Good luck.

Edited

JoeCrystal

Yes, the alternative pension provision in the private sector is much worse. The minimum contribution mandated by the auto-enrolment is 8% overall, 5% from the employee and 3% from the employer. It can be even worse than that as some employer like my only does it over £6,136 only. It is generally said that your pension is worth about a third of your salary on top so bear that in mind. CSPS is one of the more generous pension schemes compared to others within the public sector since you got a higher accrual rate of 2.32% (corresponds to the Teacher's 1.75% or NHS's 1.85%). It is also cheaper for civil servants in term of contribution as well. Assuming you are at £24,000, you pay 5.45% while the Teachers pay 7.4% and the NHS folks pay 7.1%. So basically, you are paying a quarter less to get almost a third more than others in the public sector pension schemes.

If I want to move to the private sector as the Civil Servant at £24,000, I would prefer to have at least salary of £38,000 to compensate losing the access to the Civil Service pension scheme.

Beartricks

BoxerfanUK wrote: »

For what it's worth I did 35 years in the CS and although I didn't think about it at the time I am now (having retired) VERY grateful for the pension and have no regrets about staying in. Yes maybe I could have sought another career with more money, who knows, but I have no regrets.

The experts on here will no doubt be along to tell you some facts and figures but don't forget that although CS pensions are not perceived as being as generous and no longer final salary based, career average is still very closely linked to your earnings. Final salary only really benefited significantly those people who achieved substantial promotions in the few years prior to their retirement. In the private sector most are DC pensions and although most may be good they are always at the whim of the markets whereas your 'Alpha' pension is not, It's guaranteed and would enable you to plan your retirement with at least some degree of certainty

You don't say how old your are or give any salary details but it's your call, only you can decide what you want in your life based on your hopes plans and aspirations for the future and yes if you can earn substantially more elsewhere then it may well be worth it...... but think very carefully before you jump, which you are clearly doing by posting your question on this forum.

Good luck.

Edited

Thanks for your reply.


I'm a bit reticent to post personal details on here but I'm in my late 20s and make slightly less than the national average salary. I know that's a respectable amount of money, but I had some personal issues in my mid-20s that left me less financially well of than I would have liked so am currently rebuilding; my credit is fine and I have had no legal issues but my outgoings were far more than I would have liked and it couldn't be helped.


This might be obvious but I'd appreciate as much money as I can get. What I'm trying to balance is more money now, or more money later.

Malthusian

Work out how much you would have to pay into a pension to have a decent chance of getting the same pension benefits. Then you will know if the extra money on offer in the private sector is fair.

Don't forget to factor in any pension offered by the private sector job. JoeCrystal refers to the auto-enrolment minimums but many companies will offer more than the minimums to skilled professionals. And / or salary sacrifice which boosts the pension more than a standard pension contribution (as the employer may pay in the NI they save on the sacrificed salary).

There are various ways of doing this depending on how much of a head you have for figures, and it's not possible to give an indication from the limited information in your post.

If you can get £20,000 more in the private sector then it sounds like there's a decent chance this could compensate for the lower pension benefit if you paid some of this into a pension. But it depends on how much you are earning now.

The 27.1% contribution is not really relevant, it's the government shuffling taxpayer's money from one government pot to another. You need to look at how much of your extra private sector salary you would have to pay into your pension to have a reasonable hope of getting a similar level of pension income, bearing in mind there aren't any guarantees (assuming the private sector job doesn't offer a DB pension, which is likely) and you will have to make some assumptions about how your private pension will grow and what level of income will be sustainable.

There isn't any such thing as a job for life, not even in the public sector. If your position is that secure you could give the private sector a go for a few years and then go back. If the civil service wouldn't rush to embrace the prodigal child and their highly specialised skillset, your job isn't that secure right now.

kinger101

The low cost (to yourself) and predictability of a DB pension are major advantages.

If some stayed on say £25,000 for 40 years, at 1/80 pension they know they'd get £12,500 plus £37,500 lump sum at the end of it.

For DC, assuming a growth rate of 2.5% after inflation and charges, one would need to put away 20% of their salary to achieve a similar pension (more if they start saving later). Historically, growth rates have been better than that, but with DC, the risk of under-performance is all yours.

By all means consider a move to the private sector (where there's perhaps the possibility of cash or share bonuses), but factor in the amount you'll need to put into a pension when negotiating your pay.

Malthusian

Beartricks wrote: »

I know that's a respectable amount of money, but I had some personal issues in my mid-20s that left me less financially well of than I would have liked so am currently rebuilding; my credit is fine and I have had no legal issues but my outgoings were far more than I would have liked and it couldn't be helped.

These factors make a guaranteed gold-plated pension more valuable vs. money in your pocket, not less.

If things go wrong again and you ended up declaring bankruptcy, whatever index-linked pension you have earned will still be waiting for you when you reach pensionable age. If you have sacrificed the pension for the sake of more money in your pocket, you have more to lose.

Just another thing to consider.

You earn slightly less than £35k (assuming full-time) and could get £55k in the private sector? If you wanged £20k into a pension every year then I would be astonished if you couldn't do better than a civil service pension based on £35k pensionable earnings when you reached civil service retirement age. But nothing is guaranteed.

hugheskevi

The 27.1% contribution is not really relevant, it's the government shuffling taxpayer's money from one government pot to another.

A very key point - the 27.1% includes notional past service deficits, administration charges and allowance for cost cap remedies that have been suspended so bears little resemblance to actual cost of pension being accrued.

I'm in my late 20s and make slightly less than the national average salary.

Alpha is relatively less generous for younger members. This is because accrued pension only increases by CPI. If you are 60-something this doesn't matter much, but 20-something means decades of low increases compared to other public service pension schemes which have much higher increases (eg CPI+1.6 or average earnings growth).

Assume that you are age 28 and earning £29,000.

You accrue £673 p/a of alpha pension. To purchase £673 of alpha Added Pension would cost £5,280. Added Pension is calculated actuarially, so represents the actual cost of the pension you are purchasing.

Your annual pension contribution is £1,580 so the value of the employer contribution is 12.8%, based on the cost of purchasing Added Pension.

Note Added Pension isn't quite the same as main scheme pension, but it is the best way to get a decent idea of what the employer contribution is actually worth. The calculation is also very sensitive to the discount rate used - currently the discount rate is CPI+2.4%.

CSPS is one of the more generous pension schemes compared to others within the public sector since you got a higher accrual rate of 2.32% (corresponds to the Teacher's 1.75% or NHS's 1.85%).

The higher accrual rate largely reflects the lower in-service revaluation in the Civil Service compared with Teachers and NHS which have much higher annual increases for in-service revaluation.

snowqueen555

Seems like your career is better off in the private sector with a large scope for salary growth that will overcompensate the benefits of the pension. The pension alone isn't a good enough reason to stay.

You can always change your mind, people dip in and out of the civil service/local government.

swanny65

While the CS is good the 1/80 calc mentioned earlier is no longer appropriate. You will be in alpha and 2.32% of your earnings every year are put in a pot. When you retire that pot is your annual pension. If you want a lump sum then you will get £12 for every £1 you give back.

The scheme is good but unlike the previous 1/80 scheme the faster you get promoted (earn more) the better.

jerrysimon

Left CS at 56 with 40 years service two and half years ago. I took a hit of about 3K on my pension but have not regretted it at all.

I was often tempted to leave CS, given I was in IT and could probably have earned another 20-30K in London. Having said that I joined at 16 and by the time I started thinking about pension in my late 30s, I already had my non contributary pension built up.

Of course it's different now, as you have to pay a lot more in (at one time I only contributed 1.5% for Widows and Orphans) and retirement date has moved etc


As I was on a DB pension my final salary of around 42K was sufficient, though I never managed to get promotion in the last 18 years. I had a great boss who got two promotions in the last five years of his work life and as you can imagine this greatly helped his final pension!


Lots of good advice here but I am not sure if any of us could predict what is best for you. I guess the best thing is to work out your actual salary including the CS contribution to your pension, work/life balance i..e flexible working hours, sick pay, leave etc and then make a decision if jumping ship to the private sector is worth it.

For me the figures and change in work/life balance never added up, so I stayed.