Understanding civil service pension employer contribution

hugheskevi

I am currently paid £2750 gross per month and currently in the Alpha scheme I pay approx £137 per month, with my civil service employer paying approx £685 per month (representing 27% of my gross).

I am looking at an external job advert with a salary band between £27k and £33k and an offer of 6% employers pension contribution. This is a non-civil service job.

For arguments sake, if I took the job on the same salary I am on now, is it a shut and closed case that I would be technically worse off per month? (I.E. they are not meeting the current pension I am accumulating).

Yes you would be worse off.

Whilst it can be debated what the value of the alpha Civil Service pension is (and in particular how it will be worth much more to older members than younger members), for all members it is worth more than a 6% employer contribution.

I thought it was a case that the CS pension at 27% was simply untouchable, but reading how the employer % is effectively meaningless has me wondering.

You are very unlikely to get a pension in the private sector that is as generous as alpha. Perhaps for very young individuals who get offered a generous contribution rate it may be close, but for the vast majority alpha will be significantly better than anything offered by the private sector.

Hence to find a private sector job attractive, you would expect to have higher pay to compensate for the lower pension, which could be put into a pension if you wished.

If I took a job at the same salary with an employer contribution some 21% lower, will that tangibly affect my pension?

Yes, the pension provision is far inferior. The difference will grow over time - if you only had a year left to retirement the difference wouldn't be huge, as you would already have accumulated the vast majority of your pension. But if there are 20 years to ago, the final outcome would be significantly different.

Dazed_and_C0nfused

The 27% is completely irrelevant.

As is your £137/month really.

With Alpha you are getting a guaranteed, inflation proofed, pension of £765 in return for your contribution of £1,644*

*If this is pre tax relief the real cost may only be £1,315.

Breadbin76

hugheskevi said:

I am currently paid £2750 gross per month and currently in the Alpha scheme I pay approx £137 per month, with my civil service employer paying approx £685 per month (representing 27% of my gross).

I am looking at an external job advert with a salary band between £27k and £33k and an offer of 6% employers pension contribution. This is a non-civil service job.

For arguments sake, if I took the job on the same salary I am on now, is it a shut and closed case that I would be technically worse off per month? (I.E. they are not meeting the current pension I am accumulating).

Yes you would be worse off.

Whilst it can be debated what the value of the alpha Civil Service pension is (and in particular how it will be worth much more to older members than younger members), for all members it is worth more than a 6% employer contribution.

I thought it was a case that the CS pension at 27% was simply untouchable, but reading how the employer % is effectively meaningless has me wondering.

You are very unlikely to get a pension in the private sector that is as generous as alpha. Perhaps for very young individuals who get offered a generous contribution rate it may be close, but for the vast majority alpha will be significantly better than anything offered by the private sector.

Hence to find a private sector job attractive, you would expect to have higher pay to compensate for the lower pension, which could be put into a pension if you wished.

If I took a job at the same salary with an employer contribution some 21% lower, will that tangibly affect my pension?

Yes, the pension provision is far inferior. The difference will grow over time - if you only had a year left to retirement the difference wouldn't be huge, as you would already have accumulated the vast majority of your pension. But if there are 20 years to ago, the final outcome would be significantly different.

Thank you very much for such a fast and very informative answer.

It did seem logical that I'd have to be in the negative somewhere with such a deal, but reading some of the information regarding %'s had me doubting my own logic.

I'd have to have a salary rise of £6,700 per year just to break even if I was making up the pension deficit myself, so yes this certainly demonstrates the difference between public sector and private sector pensions.

Thanks again.

Breadbin76

Dazed_and_C0nfused said:

The 27% is completely irrelevant.

As is your £137/month really.

With Alpha you are getting a guaranteed, inflation proofed, pension of £765 in return for your contribution of £1,644*

*If this is pre tax relief the real cost may only be £1,315.

Thanks also, it's the 27% that causes the most confusion I think.

I know no details about the scheme offered by the job I am looking at, beyond the 6% ERS contribution, but assume (on the same salary) it can't equal or better my current CS pension.

Dazed_and_C0nfused

I don't suppose Alpha is necessarily the best pension scheme there is but you would need to invest an awful lot more than £1,315/£1,644 in a DC pension to achieve an inflation proofed annual return of £765!

Marmot

Can I also ask a Civil Service pension related question...?

Is there a minimum number of years that you need to be a member contributing to the CS pension to make it worthwhile...

So I am 50 and was very late to the pension building game (started at 37, then had 4 year gap/minimum payments).  I'm now playing catch-up and contributing 26% a month (12% from employer) with my employers salary sacrifice scheme...

I've looked at and interviewed for Civil Service jobs a couple of times but I was just wondering if I've only got 17 (or in an ideal world only 14) years of working life left would I actually accumulate enough for it to make sense....?  I guess any DB pension is better than none but I just wasn't sure whether it would be worth jumping ship from my fairly generous employers DC scheme to a Civil Service scheme at this late stage...

Thanks & apologies if I'm hijacking this thread - can post separately if so!

p00hsticks

Marmot said:

Can I also ask a Civil Service pension related question...?

Is there a minimum number of years that you need to be a member contributing to the CS pension to make it worthwhile...

So I am 50 and was very late to the pension building game (started at 37, then had 4 year gap/minimum payments).  I'm now playing catch-up and contributing 26% a month (12% from employer) with my employers salary sacrifice scheme...

I've looked at and interviewed for Civil Service jobs a couple of times but I was just wondering if I've only got 17 (or in an ideal world only 14) years of working life left would I actually accumulate enough for it to make sense....?  I guess any DB pension is better than none but I just wasn't sure whether it would be worth jumping ship from my fairly generous employers DC scheme to a Civil Service scheme at this late stage...

Thanks & apologies if I'm hijacking this thread - can post separately if so!

The accrual rate for the Alpha scheme, which is the CARE defined benefit scheme for the civil service is 2.32%. So, assuming you remain on the same salary for 17 years, you'd end up with an annual pension paying just under 40% of that salary.

Marmot

Fab, thank you, that's really helpful info  

QrizB

Marmot said:

Can I also ask a Civil Service pension related question...?

Is there a minimum number of years that you need to be a member contributing to the CS pension to make it worthwhile...

So I am 50 and was very late to the pension building game (started at 37, then had 4 year gap/minimum payments).  I'm now playing catch-up and contributing 26% a month (12% from employer) with my employers salary sacrifice scheme...

I've looked at and interviewed for Civil Service jobs a couple of times but I was just wondering if I've only got 17 (or in an ideal world only 14) years of working life left would I actually accumulate enough for it to make sense....?  I guess any DB pension is better than none but I just wasn't sure whether it would be worth jumping ship from my fairly generous employers DC scheme to a Civil Service scheme at this late stage...

Thanks & apologies if I'm hijacking this thread - can post separately if so!

If you took a CS job on £10k pa for 17 years you'd accrue £3900 pa in pension. To get the same pension from drawdown you'd need around £100k in a DC scheme, which (assuming 5% pa growth) would cost £325 gross / £260 net per month, 39% of your salary.

(Calcs not checked, so don't make any employment decisions based on them!)