Public sector pension

[savyusername]

Can anyone explain what is so good about the public sector pension scheme?

I think the benefits used to be due to final salary pension but it is now average salary I believe.

How does the pension in public sector compare to an average private sector company?

An average salary pension is still a defined benefit pension, so you know you will get a certain £ amount every year until you die (with inflationary increases).

The vast majority of private sector pensions are defined contribution, so money is put into a pot for you which can be drawn down at retirement. This is exposed to investment risk and can go up or down, so there’s no guarantee it will last until you die. There are some advantages in that you can take it flexibly … but most private companies will put a much lower % of your salary into this arrangement than the civil service spends on their pension.

Is the percentage that the public sector put in the same regardless of salary?

So if I'm paying 5% and they pay 20% is that 20% the same for all staff?

Is it about 20% that they put in?

There are a few different public sector schemes, which one in particular are you interested in?

It depends on the scheme and the employer. I’m in LGPS which is asset backed and my employer’s contribution depends on a triennial valuation of assets against forecast liabilities. My contribution depends on my salary. I wish it was only 5%. It’s no longer final salary but career average works out just as well for me because of a higher accrual rate. And as pp has already explained, the main thing is it’s defined benefit not defined contribution.

But yes something like 20% sounds like the right ballpark. They aren’t putting it into a pot specifically for you in the public sector but a pot to fund all of the pensions due in the scheme so while a pension for someone with a higher salary might cost more as a % of salary that’s not an especially helpful way of thinking about it. I understand that I’m the NHS pension for example member contributions increase with salary bands, so if you fall in a higher band you would pay a higher %.

For reference, my private sector company pays 10% into my DC pension and that’s considered not bad.

I don't know about average but none of the private sector companies I've worked for ever offered a pension until the auto opt out one came in.

If you’re in the LGPS you need to forget about how much is going in, it’s basically irrelevant to what you will get out at the end, it’s more of a membership fee.
Your pension is worked on a 1/49th of your annual pensionable pay. Each year you will accrue a slice of pension which is added to the total and increased by CPI.

For every £1k per annum you'd receive from a Defined Benefit scheme you would need around £30-40k in a DC scheme to create an equivalent guaranteed index linked amount I.e. an annuity.

But that's not how all people plan nowadays for various reasons.

The percentage that employers put into a DB scheme are largely irrelevant and not comparable to DC contribution rates. DB scheme contribution rates are more an indicator of how much trouble the scheme is in against its planned liabilities