Civil service job vs private sector

Another_Saver

That's my view. Personally I think the non-financial benefits of the civil service far outweigh the slight take home pay cut. It's impossible to calculate the exact difference for an individual, I've given a general example below. I think the extra pension benefits, and that you won't be expected to work more than your contracted hours (i.e. working extra for free) more than offset it.

As for the pension, right now you're paying 6% £65k gross which is doubled by your employer, so you pay £3.9k gross into a DC pot, and at a moderate/pessimistic real growth rate 3% over 22 years (45- state pension age, the age your CS Alpha benefits are linked to) that's about £15k, probably between £10k-£20k, in today's money.
In the CS Pension, you pay 7.35% of £55k gross so £4.04k, slightly more, for a guaranteed inflation linked income for life of 2.32% of your salary from state pension age, 67 for you, £1.28k pa, with surviving partner and death in service benefits.
Comparing £15k in a DC pot at 67, with a £1.28k pa income for life - the latter offer is equivalent to buying an index linked life annuity at a 8.5% yield. This number improves the closer you get to retirement. E.g. if you were 66, you basically contribute £735 of gross pay for every £232 of pension income - that's like buying an investment with a 31.6% index linked yield for the rest of your life. Most stock markets generate a long term average real total return of 4%-6%.

This is extremely rough maths, just using it to compare the CS Pension. Ive used 67 because I cba calculating early pension actuarial reduction.
I would keep whatever pensions you have accrued separate because you can use DC pension pots to bridge the gap from starting retirement to hitting state pension age/taking DB pensions.

IvanOpinion

A friend of mine was a life long civil servant. He retired at 55 with a great pension and as he said "it was much better than having to work for a living"

Andy_L

Another_Saver said:

That's my view. Personally I think the non-financial benefits of the civil service far outweigh the slight take home pay cut. It's impossible to calculate the exact difference for an individual, I've given a general example below. I think the extra pension benefits, and that you won't be expected to work more than your contracted hours (i.e. working extra for free) more than offset it.

.

Sure about that?
IIRC grade 7s are the first grade that doesn't get paid for over time and

"Civil servants ‘work more unpaid overtime than private sector staff"
https://www.civilserviceworld.com/professions/article/civil-servants-work-more-unpaid-overtime-than-private-sector-staff

really?

I'd just like to find out if you went to the CS?
I'm in a similar quandary in that I earn the same amount as yourself and am supposed  to get a 5% pension which hasn't materialised yet (one of the reasons I want to leave). I also get a fully fuelled company van which complicates things.

Personally I'd take their hands off for your CS deal and am actually giving serious thought to a role at £40k and another with a band between £38k and £47kplus 21% and 5 or 6 percent personal contributions. Which I believe equates to £800 annual pension income for every year accrued. (I'd say I have minimum of 30 years of work ahead of me fwiw) so should be left with a minimum of £24,000.00 p.a pension.

If I live for 20 years post retirement: in order to build a similar income I'd need to get my hands on £480k in retirement and would have work out what I'd do if I lived longer. 

I also have a young kid with another on the way and think the work life balance would be a lot better as my work certainly comes home with me at the moment. Paternity pay, more holidays etc all these things certainly add up.

Sorry to resurrect an old thread but thought (given the similarities) I'd get my some of my thoughts in writing.

chugh97

Hi “really” I did take the plunge for a lower salary as pension was unbeatable. It’s 27.5 percent from employer end. It’s works out at £1100 per annum. To get that in private sector it’s like 30% saving which isn’t possible. 

really?

Thanks for the reply. How are you finding the contrast from the private sector?

I'm leaning the same way. I'm currently scrutinising the finer details of an offer. The c.30% employer contribution for what is effectively a defined benefit scheme truly unbeatable. Seemingly it does have its caveats in that should I die in retirement my wife would only receive  33% of the pension I accrued. I think there are alternatives to taking the guaranteed annual amount e.g. transferring to a DC on retirement or taking a lump sum payment which the actuaries calculate (I've seen 12 times annual pension as being an example). These outcomes clearly aren't just as good as me living until I'm 90 plus.
We will be mortgage free long before then however and we do have a relatively large amount accumulated in my stocks and shares isa which I'm considering optimising for dividend income (as opposed to the growth I sought and may not need due to the strong civil service pension). This should hopefully supplement both near term and long term income and provide an added safety net for the wife and kids should the worst happen.

edit: thanks for the replies on here, particularly hugheskevi, really useful for opportunity costing.

hugheskevi

The c.30% employer contribution for what is effectively a defined benefit scheme truly unbeatable. 

Alpha is a Defined Benefit scheme, not just 'effectively.' The employer contribution figure is irrelevant, as it includes things such as amounts for notional past service deficits, administration costs, and allowance for the cost of implementing the cost cap breach which has not happened.

The value of newly accruing pension is calculated as 24.9% of pensionable earnings, of which members usually pay either 5.45% or 7.35%. However, the cost of newly accruing pension is significantly higher for older members than younger members.

Seemingly it does have its caveats in that should I die in retirement my wife would only receive  33% of the pension I accrued.

If you die 5+ years after taking the pension, it would be 37.5% of the pension in payment at time of death, payable with indexation for the remainder of the spouse's life. If you die sooner than 5+ years after taking pension there would be an additional lump sum. If you died in service there would a lump sum and spouse survivor benefits would be enhanced.

If you wish to enhance survivor benefits in the event you pre-decease your spouse you can 'allocate' pension when you retire, which involves reducing the pension you take in return for higher survivor benefits, the cost of which is calculated on an actuarial basis.

I think there are alternatives to taking the guaranteed annual amount e.g. transferring to a DC on retirement or taking a lump sum payment which the actuaries calculate (I've seen 12 times annual pension as being an example). These outcomes clearly aren't just as good as me living until I'm 90 plus.

You can choose to accrue pension in the Partnership Defined Contribution scheme instead of alpha. You cannot transfer to DC on retirement.

Annual pension can be exchanged for lump sum at a fixed factor of 12:1 (for every £1 reduction to pension a tax free lump sum amount of £12 is paid). This is not calculated by actuaries, and does not represent the value of the pension commuted, which is much greater. For people in normal health, it is very likely that taking taxed income will result in a better outcome than a tax-free lump sum. If a lump sum is desired, building up DC provision in addition to alpha would probably result in a significantly better outcome than commuting pension into lump sum.

really?

The plot thickens I've received an offer at the high end of the scale I previously mentioned and my current manager has now returned with an offer of a £10,000.00 bonus to entice me to stay. This I believe equates to £4900.00 net or c.£408 per month. 
It's getting harder to justify from a purely financial persepctive I think.

Prior to the addition of bonus the difference in net pay was £774 per month. I calculated that I'd need to contribute £300 per month to my employer pension to match the civil service pension (assumed 7% growth rate per year- possibly wildly optimistic). Leaving £474. I will also qualify for child benefit if I take the pay cut which adds £160 per month which leaves £314 if deficit. This I found easy to justify given the work life balance, flexitime, stability, life assurance, extended sick pay etc.
The bonus adds imbalance to the equation as the deficit is now £722.00 （￡314 ＋￡408） which is nearly 9k a year or £270k over 30 years or ￡844k at 7%. 
This is clearly just a projection based on my current wage which will undoubtedly increase in either scenario.

Most people would probably say I'm mad to still be considering the civil service offer but I do think softer factors have to be assessed for example potential for burnout in current role, the bonus getting retracted once the boss can hire another suitably qualified individual, the impossibility of valuing work life balance in a purely mathematical projection and the fact that I like the prospect of the new role rather than my current role.

Decisions decisions.

MaxiRobriguez

£10,000 one of bonus is nice but it's a one off and will get taxed to the pointwhere by amortised over a long enough period the difference it will make to you as someone well into the HRT band is quite small.

If it were me I would choose the job based on non-financial decisions. 
- Which one do you want to do?
- Which one gives you more flexibility as you age?
- Can you work from home in one more than other, if you so wish?

etc.

Ultimately as a higher earner you can end up with a decent pension whatever role you do, with a bit of thought. You might end up working one or two years longer based on what job you pick but if you pick it for the right reasons is that a bad thing?