Whats considered a "good" employer pension? Me 5% employer 3%?

Robwales

jimi_man said:

The disparity between private and public is enormous. That's not a complaint (wife has many years of public DB as well) more of an observation. 

Yes - i have been talking to a Dr Consultant mate of mine...im squirelling away like made into my DC, and not sure he has even thought much about it.   I guess at one stage Private Salaries were X % greater to offset the delta, but im not sure thats the case any more...and with parity in terms of Salary but a meagre 5% employers contribution, the difference looks stark....will remind the kids in terms of the Career advice!

Terron

Robwales said:

jimi_man said:

The disparity between private and public is enormous. That's not a complaint (wife has many years of public DB as well) more of an observation. 

Yes - i have been talking to a Dr Consultant mate of mine...im squirelling away like made into my DC, and not sure he has even thought much about it.   I guess at one stage Private Salaries were X % greater to offset the delta, but im not sure thats the case any more...and with parity in terms of Salary but a meagre 5% employers contribution, the difference looks stark....will remind the kids in terms of the Career advice!

Back in the 80s when I first started making pension contributions, my sister - a teacher - said that her lower salary compensated for her better pension. Then we compared salaries and hers was slightly (£200pa) higher than mine, even including the overtime I was getting.

StephenM_2

I'm one of those rare beasts, an active member of a private sector final salary scheme. Sadly it will close to new contributions at the end of the year. I'll have about 42 years worth of membership by then so I won't be too badly affected. For those in the DC scheme, the employer pays 10%, regardless of employee contribution.

Malthusian

Alexland: You seem to be working with a compound investment growth rate of 3% above inflation and fees to calculate that example - do you really expect the average workplace pension to achieve that going forwards with current asset prices etc? I would expect a rate of 1% real growth might be more realistic in which case for the £23k earner their total SP and workplace pension even at 4% drawdown would give just over £12k around 55% in retirement.

I should have stated the assumption and forgot. It was 2% after inflation and costs, which is considered a reasonable "middle ground" assumption by the FCA. People can and should use more conservative assumptions for the retirement planning, but for the purpose of national policy it's reasonable to take a middle ground.

Most people investing in sensibly diversified funds have experienced historic investment returns of more like 5% per year above inflation. It is sensible to assume future growth rates will be lower (law of diminishing returns + better to be pessimistic and pleasantly surprised than optimistic and disappointed) but people have been saying that it's folly to expect more than 1% real growth for the past 10 years (ever since the economy recovered from the credit crisis and it was no longer tenable to say that we were heading into a decade-long recession) and the economy has continued to prove them wrong.

Pension default funds do indeed tend towards the conservative side but not to the extent that assuming more than 3% nominal growth is unreasonably optimistic.

There will be a group of people who feel they have been making 'maximum' (as they understand it) pension contributions from a lifetime of work and didn't realise it was their personal responsibility to check that they were on target for what they thought was reasonable for those contributions to achieve.

People who just pay what the Government says they should pay without thinking about it don't have targets. You're still thinking from within your own head instead of putting yourself inside the head of someone who doesn't think about the future.

The Government's aim is to ensure everyone has enough of a pension fund to afford a minimum standard of living and reduce the need for means-tested benefits. Not to ensure everyone can afford the same lifestyle in retirement as in their working life. Auto-enrolment achieves that, as confirmed by illustrations showing that someone living on minimum wage - the defnition of the minimum acceptable lifestyle - would still be able to afford that lifestyle in retirement with their AE pension fund plus the UK's age-limited Universal Basic Income (aka the State Pension).

It could have been phased over several years and it would have only affected employers who were making minimum contributions.

Which is a lot of them. As widely predicted, auto-enrolment resulted in a lot of employers "levelling down" (reducing pension contributions to the auto-enrolment minima). A 7% pay increase in a few years' time is still a 7% pay increase.

thickasabrick

Just remembered I'd bookmarked the ONS survey "Public and private sector earnings in the UK: 2017".
Auto-enrolment phased in at the beginning of October 2012 so should have some effect by the time these stats were compiled.
See "Table 2: Median employer and employee contribution rates to workplace pensions by pension type and sector, 2014, Great Britain"
Also links through to a spreadsheet "Public versus private sector earnings in the UK: 2011 to 2017" for more analysis about renumeration.

Little bit of digression and some entertainment:
We also have to remember that between 2011 and 2018, most public sector pay was either frozen or capped at 1% as part of the government's austerity measures.
This article from George Gammon  "How The Government Can Steal Your Money Through Inflation!" (11 minute youtube video), US based but applies equally well to the UK situation.  Despite his shock jock style of presentation explains the effect of pay freezes and inflation on living standards in an easily digestible manner.

If you have been employed in the public sector grab your P60 from 2010 and put your annual income and previous year as 2010 into the iCalculator "Salary Inflation Calculator" . Compare it to your current earnings.