Civil Service or Private

mrkjd

I’m trying to decide between 2 jobs. I’m 7 years from retirement and so the pension I take away is important to me. 

Civil service are offering £35k. I will contribute 5.5% and CS contribute 27%.

Private job pays £43k. I will contribute 8% and employer will match that 8%.

I’m trying to look beyond the headline salary and weigh against the CS offer properly but I lack the maths skills! 

Dazed_and_C0nfused

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

Pat38493

… whereas the amount that you would be putting into the pension fund on the £43K job, you will be contributing more but the amount you accrue in 1 year won’t buy you much more than £100 pension - no contest I guess.

theoretica

Civil service pension also gives certainty - which I would perhaps value most if my other pension had the uncertainty of investments behind it.

mrkjd

Dazed_and_C0nfused said:

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

So does that extrapolate to £8120 over 10 years?

p00hsticks

mrkjd said:

Dazed_and_C0nfused said:

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

So does that extrapolate to £8120 over 10 years?

Yes, if your salary remains unchanged. 
The CS Alpha Scheme is a CARE (Career average) Defined Benefit scheme. 
Each year 2.32% of your annual salary is added to your accumulated yearly pension amount.   

Dazed_and_C0nfused

mrkjd said:

Dazed_and_C0nfused said:

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

So does that extrapolate to £8120 over 10 years?

Assuming no pay rises (quite realistic 😳) then sort of.

Each April the pension accrued gets a revaluation increase to account for inflation.

So say you earned £812 in the year to March 2023.  In April 2023 it would actually be increased by 10.1% to £894.

Then say you accrue another £812 so by March 2024 you have £1,706.  And in April it might get say 3% added (previous September inflation rate is used I think) so you now have £1,757 after two years.

And so on.

george_jetson

p00hsticks said:

mrkjd said:

Dazed_and_C0nfused said:

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

So does that extrapolate to £8120 over 10 years?

Yes, if your salary remains unchanged. 
The CS Alpha Scheme is a CARE (Career average) Defined Benefit scheme. 
Each year 2.32% of your annual salary is added to your accumulated yearly pension amount.   

I think it’s also adjusted for inflation. 

There is an actuarial reduction if you take it before state pension age…

mrkjd

p00hsticks said:

mrkjd said:

Dazed_and_C0nfused said:

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

So does that extrapolate to £8120 over 10 years?

Yes, if your salary remains unchanged. 
The CS Alpha Scheme is a CARE (Career average) Defined Benefit scheme. 
Each year 2.32% of your annual salary is added to your accumulated yearly pension amount.   

Sorry about struggling to get my head around this - so I will draw an annual pension of £8120 after the 10 years - and that is adjusted for inflation. Plus any salary increases etc may move it upwards (live in hope!).

whereas the private (invested) scheme I’m putting in nearly twice as much but would only end up with circa £1k a year after my 10 years (really that low?) plus the investment is uncertain? Even earning £8k a year more doesn’t seem to compensate for this. 

Dazed_and_C0nfused

mrkjd said:

p00hsticks said:

mrkjd said:

Dazed_and_C0nfused said:

In my opinion the civil service contributions are utterly meaningless.

Your pension is based on the scheme rules, how much is contributed is irrelevant.

Assuming that you would be in Alpha and have no other taxable income of note then this would be your pension position after a year.

Pension contributions paid £1,925 (real cost £1,540 after tax reduction from being net pay contributions).

Pension earned £812.

So does that extrapolate to £8120 over 10 years?

Yes, if your salary remains unchanged. 
The CS Alpha Scheme is a CARE (Career average) Defined Benefit scheme. 
Each year 2.32% of your annual salary is added to your accumulated yearly pension amount.   

Sorry about struggling to get my head around this - so I will draw an annual pension of £8120 after the 10 years - and that is adjusted for inflation. Plus any salary increases etc may move it upwards (live in hope!).

whereas the private (invested) scheme I’m putting in nearly twice as much but would only end up with circa £1k a year after my 10 years (really that low?) plus the investment is uncertain? Even earning £8k a year more doesn’t seem to compensate for this. 

I don't think its quite that simplistic.

Assuming the 16% of £43,000 is the actual gross amount going into the pension then you will be adding £6,880 each year.

So after 10 years you would have fund of £68,800.  Plus or minus investment returns.  Less provider costs.

But say your investments did ok and you ended up with £100k.

Current wisdom is you could safely take ~4%/year without running out of money.  So £1k is almost certainly too low £3-£5k might be more realistic.  But not £8k (or more likely closer to £10k the DB pension would be with inflation increases included).

Even if great investing trebled your DC fund value to £200k you would struggle to (safely) match the DB scheme.

There are wider considerations, remaining DC funds can be inherited for example.  And the DB scheme will likely provide a spouses pension on your death.

Pipthecat

Civil pension wins.  However you also need to factor in the cultural differences between working in and out of the Civil service.  Many of the stereotypes still apply.  Civil Service Jobs tend to be more stable but at the cost of being more bureaucratic and less flexible in terms of career progression and wage growth. From the outside perspective of a Contractor working with a large public sector department they seem to treat their staff very well.