How do I compare pensions as part of my overall benefit package?

[Givemestrengthorvodka]

I've been offered a new job. I'm currently in public sector and new job is private sector. The benefits package is different and I'm not sure how to compare it all so that I know overall if I would be better off or not.

Current package - £57K pa plus a civil service pension where they contribute 27%.

New package - £60K, plus £6K in benefits like private health insurance etc, plus bonus of around 10% pa, but it's a 10% non contributory pension. So gains in some places, but a drop in pension contribution. How do I figure out what deal overall is better? Can any greater minds than mine help me figure this out?

You have to be very careful about the benefits package because of the tax that will be due. So if you have 2k worth of private insurance you’ll likely have to have to pay £800 in tax for the privilege. Don’t assume those benefits are straight forward.

it sounds like you might be on older t&cs of your on 35 hours - you won’t get that back again if you come back. Assuming alpha you’d be accruing £1311 a year in pension that is then inflationary linked. Your 10% contribution would get you £6k. taking out inflation, your civil service one is likely to be better assuming you live 5 years from retirement. But if the new job is right I wouldn’t be trapped by the pension. If you’ve got 14 years of service you’ll be in a better position than most re retirement already.

I completely agree it's a much bigger decision than best package financially. Op needs to decide what kind of career she wants and remuneration is only one part of that

However, I do think it is helpful to know how to compare public and private packages properly as part of that decision making

I’d also say look at the accrued benefits for pension and not the employer contribution. The 27% is irrelevant in lots of ways as you don’t ever see that specific chunk of money. It’s just a government accounting quirk. The older you are the more valuable that defined benefit pension is. Eg if you’re 21 - a private pension might actually grow to be worth more than the accrued pension- not guaranteed obviously but not impossible. If you’re 60 it will never catch up and the public sector pension would absolutely win.

Thanks everyone! I've looked at accrued benefits and this is what is says about Alpha, my current scheme: "You build up alpha pension by adding 2.32% of your actual Pensionable Earnings from each scheme year to your alpha pension." I assume that's still decent but no idea really, finding it really complicated!

@Bunnycat101 I did wonder about the actual value of the benefits package. I've found a document online and it sound like some are compulsory to take...like health insurance / disability cover and one other thing I can't remember. After paying for that and any tax I'm not sure how much of thr £6k benefit would be left for me to spend on stuff I actually want. E.g there is a shopping card you can buy for sainsburys etc which would be good.

Also, I guess the bonus would also be subject to tax and so not as big as it seems.

If its helpful, the new job is a digital role (same as the one I'm doing now in civil service) with a large banking organisation.

@Givemestrengthorvodka as I understand it, it means for each year you work (on current salary) you would get £1300 guaranteed annual pension (index linked)

So 10 years at that salary would give £13000 per annum (index linked) when you retire

So to work out annual value you are getting you need to work out what it would cost to buy a pension pot that would give you £1300/year when you retire (and then deduct your contributions from that). I make it, very approximately, £30000.

Someone else was right when they said about future career progression too though, it depends whether you want further progression and if so where it's more attainable

Ignore the employer contributions on your current DB pension. Instead you need your employee contribution that you currently pay(for £57k I've assumed about 8.5%).

Then if you were to continue contributing at the same rate in the new job along with the employer contributions you'd be putting 18.5% into your DC pension.

So based on what others have said you currently accrue about £1300 of guaranteed DB pension vs c. £11k of DC contribution that is then invested.

Other things like bonus, you would be taxed if you took it as income, lots of companies also allow you to sacrifice it into a pension negating that tax if you choose, some also increase it if sacrificed due to the Employer NI savings they make I.E. our company increase the bonus by 10% if it's diverted into a pension rather than taken as salary

Then it's the trickier calculation to work out which pension is putting you in a better position, one is guaranteed and will increase over time at certain rates and maybe have other benefits like a spouse or dependents pension.
The other will potentially increase over time based on how the markets and investments perform, it isn't guaranteed but it could produce a return that is greater or lesser than the other pension, also consider things like inheritance, a DC pension can be passed on to spouse or dependents whereas a DB pension isn't a pot of money

On the face of it, moving for £3k seems a risky decision. Moving jobs is the one time to really maximise your earning potential and that will ultimately determine when you can eventually retire and the lifestyle level you want. Bonuses aren't guaranteed and can fluctuate or disappear completely. I'd be negotiating for a higher starting salary with the new employer on the basis of the pension rights alone for now. If you got £7-10k more than your current role I'd say it would be more worth it maybe

That sounds about right to me. Also civil service and I was told the pension is worth about 50% of salary on top.

The 2.32% is misleading as you get far more pension in the civil service scheme than you would if you just put that percentage of your money into a private pension. You need to look at the yearly amount accrued and work out how much it would cost to get that amount per year from a contribution based pension.

@WrongSwanson suggests that you would need to invest £30,000 per year which accords with my vague recollection of being told the civil service pension is worth 50% again on top of salary.

If so, your new employers will be putting 10% (£6,000) into the scheme. You will no longer be contributing the 2.32% of your current £57,000 salary (£1,322.40) and you will get a £9,000 pay rise (very generously counting the benefits as pure income).

That’s a total of an extra £16,322.40 in the new job.

Providing the £30,000 figure is correct (and it sounds right to me), at best you will be £14,500 a year worse off. Taking into account tax, how much use you will get from the benefits etc., I suspect this figure will be significantly higher.

That doesn’t mean you shouldn’t take the job - there may be much better progression, more interesting work etc. but you need to be aware you will be taking a significant cut in pay.

Crabbies 2.32% isn’t the contribution rate she’s paying into the civil service scheme - that’s the amount of her pay she builds up as pension each year. Her contribution rate is likely to be something like 6 or 7%.

So 7.35% contributed (I checked the civil service pension website) is £4189.50 so roughly £3000 extra saved each year in the new scheme over my previous calculation.

The pay cut (again treating the benefits as income which they aren’t and not taking into account tax) is still over £10,000.

This threads been really helpful in crystallising my thoughts , I think for me on £70k in public sector I would want to be being offered at least £100k in private sector (plus 10% employer pension contributions) before I'd see a private sector package as financially equivalent. And tbh I'd only jump for more than that (or better scope for career progression) as I do like the security of the sick pay and the Flexi time, and the job satisfaction of feeling I am making a difference.

(I rarely take a sick pay, but the peace of mind of knowing it wouldn't be an instant stress if I was seriously ill is good)