Civil service job vs private sector

chugh97

Civil service job vs private sector job taking into account pensions

Thrugelmir

Not a straightforward choice. Which would you find the more rewarding. 

chugh97

Hi, I’m currently about mid forties and working for private company who pay me quite well. I’m currently around £65k with 6% pension if I put in 6% from my pay. I get private medical as well. I’m been offered a role in the civil service band 7 and the pay is significantly less £55k with the civil service alpha scheme which is 2.32% pension. I have to pay 7.35% and govt will pay 27.1 % something like that. I quite like the role offered in civil service. Do you think financially it’s a wise move in terms of overall package in terms of salary inclusive of pension. The private sector pay is 64k if you take off the private medical.  Can anyone on this forum please help me. I know I’ll be taking about 10-12k hit on my pay packet but will be slightly more feeling secure in these times. I know no job is for life now a days but just would like to get and idea if it’s worth a gamble with the alpha scheme. The private sector one is a share based scheme so might be worthless or whatever the share price in 20 years time. If anyone can give an idea of say what 65k with 6% pension in private sector equates to in public sector civil service taking into account alpha scheme, I’m looking for a min figure what I need to earn in the public sector equivalent that would be very much appreciated. Thank you

chugh97

Thrugelmir said:

Not a straightforward choice. Which would you find the more rewarding. 

Please see the detail posted below. I actually forgot to post the question sorry

hugheskevi

chugh97 said:

Hi, I’m currently about mid forties and working for private company who pay me quite well. I’m currently around £65k with 6% pension if I put in 6% from my pay. I get private medical as well. I’m been offered a role in the civil service band 7 and the pay is significantly less £55k with the civil service alpha scheme which is 2.32% pension. I have to pay 7.35% and govt will pay 27.1 % something like that. I quite like the role offered in civil service. Do you think financially it’s a wise move in terms of overall package in terms of salary inclusive of pension. The private sector pay is 64k if you take off the private medical.  Can anyone on this forum please help me. I know I’ll be taking about 10-12k hit on my pay packet but will be slightly more feeling secure in these times. I know no job is for life now a days but just would like to get and idea if it’s worth a gamble with the alpha scheme. The private sector one is a share based scheme so might be worthless or whatever the share price in 20 years time. If anyone can give an idea of say what 65k with 6% pension in private sector equates to in public sector civil service taking into account alpha scheme, I’m looking for a min figure what I need to earn in the public sector equivalent that would be very much appreciated. Thank you

The value of alpha ranges from an average of 24.9% of pensionable earnings (valued using SCAPE discount rate) to 47.4% (valued using IAS19 discount rate). The difference between these is that SCAPE assumes a return of CPI+2.4% where IAS19 assumes a return based on high quality bonds. Taking the 7.35% you pay of that from the 2 figures gives a remaining value of between 17.55% and 40.05%. In cash terms, that is £9,652.50 to £22,027.50.

The take home from Civil Service would be £38,118.10 and from the private sector role £44,003.60 with £7,800 going into a pension. So that is just under £5,900 less cash each year, in return for a pension that is between £1,852.50 to £14,227.50 more.

There are two other important things to note. First, you may well get very good terms to transfer your existing pension into alpha. Second, alpha gets more valuable the older you are.

I'd say there isn't a huge amount between the packages right now in financial terms. You can probably look forward to job security but minimal pay increase (frozen or 1% for the foreseeable, 2% perhaps in some years) in the Civil Service, and unless the terms change the pension will get more valuable as you age.

Note that as an external recruit you may well be able to negotiate salary upwards a little if the salary offered is the bottom of a pay band, although that will depend on your employer's policy.

Albermarle

The private sector one is a share based scheme so might be worthless or whatever the share price in 20 years time.

It will be a Defined Contribution ( DC ) pension and it will not be invested in individual shares, but in funds that contain hundreds of different shares and other financial investments like bonds. Apart from a nuclear war or similar mega disaster , there is zero chance it will  become worthless. Many posters on here have large DC pots and rely on them to grow steadily to fund their retirement income .

If you stay in the private sector you should look at increasing your pension  contribution to get maximum higher rate tax relief, which is a huge tax benefit of these types of pensions. By doing this you will actually get in a position closer to the civil service job i.e. less take home pay but a better retirement income to look forward to .

Also if you stay in the private sector job , you should take more notice of the details of the investments within the pensions and maybe even change them . You can always ask questions on here if you are not sure.

chugh97

hugheskevi thanks. So from I have understood I will get net pay difference of £5900? The pension is more from £1852 to £14,000. Why is there such a big range? So from what you say the 2 packages looks almost similar in terms of financial sense and I’ll be okay to take the CS job for all its merits like job security and low pay rises in future which are the negatives. Thanks again for a very detailed answer, very much appreciated. 

hugheskevi

The pension is more from £1852 to £14,000. Why is there such a big range?

The annual pension you accrue per year of work earning £55,000 is £1,276 and this is payable from your State Pension age.

To assign a capital value of how much this is worth requires quite a lot of assumptions. The most important of these is around annual rate of return. You could argue a figure such at 5% annual rate of return may be correct - the sort of return you might expect from a DC scheme. Alternatively you could argue the pension is extremely safe and something more like a gilts rate of return is appropriate. 

Obviously a high assumed rate of return leads to a lower amount of money required now (to invest at that higher rate of return) to meet the requirement to pay a pension of £1,276 from State Pension age. Hence that would lead to a lower valuation of how much the pension is worth.

The range is from the lowest to highest published values, based on the different published discount rates. Even these aren't ideal though, as they are based on the scheme as a whole,  not individual members. But they are going to be about as good as practicable.

Dazed_and_C0nfused

With Alpha you are having £4,042.50 deducted from your salary in pension contributions.

This is only actually reducing your take home pay by £2,425.50 because it all looks to be eligible for higher rate tax relief (through the net pay method).

In return you are getting a pension of £1,276.

An unbelievable return for just £2.4k.

There is obviously more in depth elements which hugheskevi is better placed to comment on but the basic pension seems to be amazing value for money.

Another_Saver

chugh97 said:

Hi, I’m currently about mid forties and working for private company who pay me quite well. I’m currently around £65k with 6% pension if I put in 6% from my pay. I get private medical as well. I’m been offered a role in the civil service band 7 and the pay is significantly less £55k with the civil service alpha scheme which is 2.32% pension. I have to pay 7.35% and govt will pay 27.1 % something like that. I quite like the role offered in civil service. Do you think financially it’s a wise move in terms of overall package in terms of salary inclusive of pension. The private sector pay is 64k if you take off the private medical.  Can anyone on this forum please help me. I know I’ll be taking about 10-12k hit on my pay packet but will be slightly more feeling secure in these times. I know no job is for life now a days but just would like to get and idea if it’s worth a gamble with the alpha scheme. The private sector one is a share based scheme so might be worthless or whatever the share price in 20 years time. If anyone can give an idea of say what 65k with 6% pension in private sector equates to in public sector civil service taking into account alpha scheme, I’m looking for a min figure what I need to earn in the public sector equivalent that would be very much appreciated. Thank you

You will never make as much in public service, but as a civil servant in a finance trade that has a large private sector counterpart, IMHO the job security, culture, work life balance, flexibility, and pension are simply incomparable with consulting/private practice/in-industry - and I think we're more productive for it too. I can't speak to your specific circumstances but I would say in general, https://youtu.be/SwYN7mTi6HM

chugh97

@Another_Saver dies you YouTube video imply jump and take the leap of faith if I understood it correctly