Disparity between public and private sector pensions

[dingdong]

In all the debates about pay for public sector workers I don't think enough consideration is made of their generous pension entitlements. The cost to the taxpayer of these must be insane.... indeed NHS pension liabilities have increased from 390 billion in 2016, to 870 billion last year

I've just been looking at my sister's NHS pension....

- She is retiring this year on a full average salary pension aged 55 (thanks to working in mental health)
- The NHS pension increases by CPI inflation PLUS 1.5% every year
- She can continue working flexibly for the NHS after 55 and get both her pension benefits and salary

Meanwhile to get an annuity in the private sector you'd need one million in pension savings to get about 35k a year (and you certainly wouldn't get CPI plus 1.5%)... accepting that annuities aren't the best idea for many but its the closest thing to the certainty of a defined benefit pension.

It does make the LTA tax seem unfair given the benefits people are getting from their DC schemes are nowhere near as valuable as those on defined benefit schemes.

[Tedx]

Can't disagree with any of that - and it's been discussed many, many times before.

The thing is, most of them have no clue (or at least they pretend they have no clue) of how much their pension benefits actually cost the tax payer.

It must be great investing for your retirement knowing you have the sucure underpin of a final salary pension. Most of us just have to hit and hope.

[Adamski]

Agree with all you say except LTA effects DB schemes as well as DC schemes.

[Tedx]

Agree with all you say except LTA effects DB schemes as well as DC schemes.

It does, but it seems just a bit more generous with a DB scheme.

[Adamski]

To play devils advocate, a teacher or doctor may forego some basic salary by taking public sector job, as believe they'd earn more in the private sector. Also nhs jobs less likely to have a company car. And inherited DB pensions are 50%, whereas DC schemes your beneficiaries get the lot subject to tax.

Just some counter arguments. But on the whole public sector jobs do seem to offer a better deal since private sector closed their DB pensions.

[DrFfybes]

Agree with all you say except LTA effects DB schemes as well as DC schemes.

It does, but it seems just a bit more generous with a DB scheme.

As discussed before, the multiple a Local Govt DB scheme counts towards the LTA is is nothing like the actual multiple you'd need to buy an annuity at the same level.
For someone taking a pension, CPI linked and a spouse pension of 60%, the LTA calc is "20x pension plus 1x lump sum". Increase is CPI in Oct (IIRC) which is 10.1% this time.

Irritatingly, in the first year you take benefits the increase is pro-rata for how much of the year you've been takng the pension. So my increase will be 2/12th of the 10.1% . Had I taken it 10 months earlier I'd have had a further 3% reduction for early benefits, but then a full 10.1% increase. So always retire in April

Paul

[XFool]

In all the debates about pay for public sector workers I don't think enough consideration is made of their generous pension entitlements.

No?

From what I see it's commonly number one on the comment thread of any right wing newspaper's financial article - just ahead of that old favourite: "Gordon Brown stole my pension!"

It is certainly one of the well worn sections from the: " 'snot fair! " brigade's list of Gripes & Moans. Along with whining about why the DWP is "stealing" money from their State Pension ('stealing' the part they didn't pay for, that is). i.e. They want to have it without paying for it, while whining about lazy no-good benefit claimants/immigrants getting benefits/full pension for nothing. etc. etc. (And ignoring the fact that if they have lost some SERPS they must have been contracted out into a generous contracted out employment pension...)

The "Politics of Envy" is alive and well in the UK - Just not living where you expect it to.

Just my take.


PS. I've said it before, I'll say it again:

"If all the stupid things said about pensions were gathered together in one place, we'd need a bigger universe."

[Lootman]

I've just been looking at my sister's NHS pension....

- She is retiring this year on a full average salary pension aged 55 (thanks to working in mental health)
- The NHS pension increases by CPI inflation PLUS 1.5% every year
- She can continue working flexibly for the NHS after 55 and get both her pension benefits and salary

Meanwhile to get an annuity in the private sector you'd need one million in pension savings to get about 35k a year (and you certainly wouldn't get CPI plus 1.5%)

So was her average salary £35,000 a year, and now her pension is £35,000 a year? If so that is very generous (of the rest of us!).

How much did she have to contribute from her income to get that?

[XFool]

So was her average salary £35,000 a year, and now her pension is £35,000 a year?

I was wondering about that... It certainly isn't the way 'Gold Plated DB Pensions' usually work.

I expect something else was meant. i.e. "On a full (average salary pension) pension".

[JohnB]

And the Civil Service bashing continues. As someone who did the same job (with the same login to the same systems) in both private and public sectors. I can tell you I was paid vastly more in the private sector, and made vastly greater pension contributions, than when I was in the public sector.

[thebarns]

Dingdong,

I have observed and commented on this for years and indeed posted on here a number of times about it.

Depending on the different schemes in place you can broadly add on anything from 25-40%, and perhaps more in some of the now admittedly rarer most generous type of schemes, such as the one that exists for Scottish MSPs, to the salary levels of someone in a public sector defined benefit scheme when comparing them to the similar individual in the private sector on the same salary, if attempting to level up the financial effects of their respective pension schemes.

Living in Scotland I see the SNP government have stated that a teacher, one year out of university after completing their initial probationary year, will see an increase in salary of 30% from January 2018, as a 22/23 year old Scottish teacher will be offered a starting salary, one year out of university of £37.7k !

On top of that, their employer will contribute a further 23% salary pension contribution, which in itself had to be raised 4 basis points few years ago, due to ongoing shortfalls and is due to be reviewed again….and most teachers are required to contribute less than 10% of their own money.

Go figure how expensive all of that is and compare that to a typical youngster one year out of university in the private sector.

The public sector just rips the taxpayer funding for pension benefits, with 80% of the income tax payers coming from the private sector.

[XFool]

Dingdong,

I have observed and commented on this for years and indeed posted on here a number of times about it.

The public sector just rips the taxpayer funding for pension benefits, with 80% of the income tax payers coming from the private sector.

Whereas we all know, all private sector pensions are, magically FREE - nobody at all ever pays for them. Certainly not the private individuals (and taxpayers) who pay for goods and services that provide the source of profit private companies use to pay the salaries, wages and pension contributions of their employees.

"Dingdong" indeed.


I think we're gonna need a bigger Universe...

[thebarns]

Ehhhh ?

Private sector pensions are “magically free” ???

Aside from a year book ended at the beginning, where my employer contributed 3% towards my pension, and 6 months at the end, where 22 years apart, different employers were also still contributing only 3%, the only person that contributed to my non final salary, non index linked, non risk free guaranteed pension, was myself.

Often requiring substantial contributions which I earned out of working in the private sector, dealing with other private sector individuals, worrying about generating income, bad debts and overheads and all the other private sector insecurities that do not come with a public sector remuneration.

The public sector is always on the news bleating about this or that but very rarely make the point that some of their salaries stand very well when put against others in the private sector, and for sure virtually all of them do exceptionally well in pensions when compared to the vast majority of private sector individuals.

Sure the top 5-10% in the private sector earn significant amounts of money in salaries, but the remaining 90% do not and it is a convenient choice that the 5-10% in the private sector are used as the comparison when the 90% in the private sector struggling with their own pension provision will receive nothing like the same pensions compared what someone earning the same salary in the public sector will receive.

[ayshfm1]

As the go to pension "expert" in my company I was often quizzed by my colleagues.

One lady talked to me about her pension, what she should do and if she should accept a job offer in the NHS. She had about 100K in the private pension and maybe 20 years left to go.

The pay was slightly lower, but the pension was career averaging and the transfer of her private one bought a lot of years.

The NHS pension alone was worth a small fortune and would provide a comfortable retirement guaranteed. Conversely the private one would require huge additional contributions and the outcome would by no means be certain.

I told her if she wanted a good retirement take the job. Broadly I think that's sound advice to anyone, get out of the private and into the public sector, even if it means a slightly reduced salary.

[Lootman]

I told her if she wanted a good retirement take the job. Broadly I think that's sound advice to anyone, get out of the private and into the public sector, even if it means a slightly reduced salary.

But how many people choose one job over another based on pension?

I do not recall ever thinking about pensions until I was about age 40. And yet I retired before I was 50. This was mostly because of provisions made outside of work and pension plans i.e. BTL properties, ISAs and other stock market activities.

I never bothered with a SIPP and only had two occupational plans, one DB and one DC. Those together with my state pension will get me about £50,000 a year when I finally take then all.

I would have hated a public sector job and cannot imagine ever doing one. One year in the NHS was enough for me. Took the DIY route to pensions, and so I do struggle a bit sympathising with those who expect others to pay for theirs.

[thebarns]

Lootman,

For someone who never really bothered that much about pensions, £50k a year is very impressive, albeit £10k or so I’m guessing is state pension.

[Lanark]

It does make the LTA tax seem unfair given the benefits people are getting from their DC schemes are nowhere near as valuable as those on defined benefit schemes.

If you look at the NAO figures from this report, page 15 has a summary
https://www.nao.org.uk/wp-content/uploa ... nsions.pdf

If you divide this years payments by the number of pensioners, the average payout in 2021:

NHS £3,623
Armed Forces £4,133
Civil Service £4,145
Teachers £4,949

All schemes £4,138

This is an average so some will get less and I'm sure a few doctors get a lot more.

It is interesting that the average job duration/career in the NHS seems to be significantly shorter than Teachers or the armed forces. Probably more women who quit to have families.

Average length of service seems to float around 10 years
https://www.nuffieldtrust.org.uk/resour ... ocial-care

Everything I have read indicates that UK public sector pensions are OKish, nothing like as generous as many countries in Europe have.
The real problem is that UK private sector pensions are uniformly terrible and it will need legislation to change that so we don't have millions of pensioners almost entirely dependent on the state.

[thebarns]

Lanark,

What a lot of absolute manipulated tosh those figures are……

I’ve said before that the figures spouted out are often utter rot and manipulated to suit agenda.

I personally know what my in laws pensions are and were, one alive, one fairly recently deceased.

Both teachers, rising through the ranks in their 30 odd years of teaching.

Both on pensions on a multiple of those quoted figures.

You want to look at those that are retiring after a normal length of service and compare that to the same private sector person providing their own defined contribution pension for a similar length of service, say 30 years.

[Lanark]

I think the National Audit Office will have the right figures.

If the average tenure is around 10 years, then for someone who worked 30 years, then yes they will get a multiple, its simple arithmetic.

[Lootman]

Lootman,

For someone who never really bothered that much about pensions, £50k a year is very impressive, albeit £10k or so I’m guessing is state pension.

A good part of that is deferring receipt of payments until age 70. And yes, including the SP, which I am not deferring, and is a bit over 10K a year, 11K or so as of April.