Civil Service or Private

Albermarle

Pat38493 said:

… 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.

This is too pessimistic, more like £300 pa, so after 10 years with a bit of growth and keeping up with inflation, could £3,500 pa ( in line with what Dazed and Confused also calculated)

OP - With the increased salary, you could add more to the workplace DC scheme of your new employer , over 20% and still have the same take home pay. With 30% pa going in , you could expect after 10 years, to have a pot big enough to generate an income of  £6K to £7K pa. This could be more or less depending on how well the investments/markets perform, but is getting closer to what the CS pension would be. Although the CS pension is guaranteed, the DC pension would be more flexible in when and how you could take it.

One point is what pension provision do you already have ? A mixture of a guaranteed income pension and a more flexible DC pot can be a good position to be in .

michaels

Why don't you model it as making extra contributions to your DC pension in the private sector job to the point where you have the same after tax take home as you do in the CS job.

Then you can compare the CS annual pension earned (£812) with the amount paid into the DC pension (I guess of order 10k).  Then you could assume real growth of the DC pot of say 2% per annum to retirement age and see what withdrawal/annuity rate you would need to have the same monthly pension.

NedS

mrkjd said:

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! 

In past calculations, I have always calculated the CS pension to be worth around 1/3 of the salary, so I'd calculate a £35k salary to equate to a total package of approx £46k.

The private job at £43k plus 8% employer conts can be calculated to be a total package worth around £46,440.

So I'd say they are comparable in terms of total package.

Next up I'd compare what sort of pension you'd receive from both on a like for like basis. The CS job has a salary of £35k with 5.45% conts, so £33k after pension conts and gives you a guaranteed gold plated pension of £812/year upon retirement.

What sort of pension would the private sector job give if you contributed £10k into the pension taking the salary down to a comparable £33k, plus the employers £3440 (total £13,440 contributions per year). Can those contributions get you a guaranteed inflation-linked income of £812/year upon retirement? That's a 6% guaranteed return required but doesn't factor growth between now and when you retire or inflation over that period. A comparably annuity would cost you more.

I'd say the two offers are not a million miles apart, but the CS pension is guaranteed and fully inflation-linked which would sway my decision in favour of the CS pension.

r6mile

I am a civil servant, and as a broad rule of thumb I would give a 20-25% premium to CS salaries versus private sector salaries. This is factoring the DB pension (and related things like death in service payments) but broader benefits like work/life balance, etc. By my very unscientific rule of thumb, the two offers are pretty close.

Keep in mind that you will only get an Alpha pension if you are in the scheme for 2 years minimum. If you will be in it until your retirement in 7 years - and assume your salary remains flat - you will receive 5.7k per annum in real terms (as the pension is inflation-linked which is very valuable).

Not quite sure how much you would get via your DC pension in the private sector jobs (others are more expert) but it's probably about half of that at most.

ChocolateWombat

Agree it partly depends on what other pension provision you already have.  If your earlier provision is all private sector DC pension, getting in 10 years of DB pension which gives you guaranteed, inflation linked income in retirement seems worthwhile.  It’s why loads leave the private sector to do their last 10 years in the civil service or similar.

On one level, it’s jam today or jam tomorrow.  It might also depend on whether you need that extra salary from the private sector job today.  However, if you take the higher paid job and then put all of the extra into the DC pension to make it. Loser to what the DB pension provides, you actually don’t have anymore jam today anyway.

I think that especially if you haven’t had DB public sector pension before (and you sound like you might not have, given you started with a focus in the contribution levels, which actually isn’t  the key thing in DB pensions) then getting the security of a DB pension of around £10k or more, can be very reassuring as you approach retirement.  You won’t have to worry about how the markets  are performing etc.  That £10k plus state pension will make up a good pension and assuming you also have previous pensions, you should be in a good position.

What prior pension provision do you have and how much?

michaels

When comparing DC and DB income, is it correct that all the DB will be taxable whereas 25% of the DC income will be tax free?

Dazed_and_C0nfused

michaels said:

When comparing DC and DB income, is it correct that all the DB will be taxable whereas 25% of the DC income will be tax free?

Not really.

The DB could well have an automatic (tax free) PCLS.

r6mile

The Alpha scheme - which the DB scheme for all new CS entrants - has the following rules for a lump-sum.

How much lump sum do I get for my pension?

You get £12 of lump sum for every £1 of pension you give up.

What is the maximum lump sum I can get?

There are limits set by HM Revenue & Customs; this is currently a lump sum of 25% of the total value of your pension benefits.

Your maximum lump sum will be shown on any quotes you receive when you start the process of claiming your pension.

I have just looked at my 'retirement modeller' on the Civil Service pension website, the maximum 'annual pension' I can forego is 

JoeCrystal

Civil Service pension also got Ill health retirement along with potential to buy extra annual pensions within one year starting the role with transferring in along with options to buy additional pensions and EPAs as well.

mrkjd

A big Thank You to all for these very helpful replies. Very much appreciated. 

Some have asked what other provision I have. The answer is none beyond the state pension, £40k savings and a house worth £400k (no mortgage).

We have no kids or dependents so plan on downsizing or equity release at some point. Would be great if there was some way to draw down on a chunk of the value of the house as an income, say £200k giving £8k per annum but I’m not aware of a product like this.