Help understanding pension/salary best option

[ColouringPencils]

I am probably being really stupid, but have always had a crap pension so have buried my head in the sand about it for as long as I can.

I am currently in a small company, top of my pay band and nowhere to move in the company (only 2 roles senior to mine, and neither I would want/ be able to do). Pay is £39k with 3% employer pension contribution. I feel the pay is fair for my job, but obviously the pension is bad. In addition, I have been there a long time and feel ready for a change.

I have an interview for a job with the civil service on £33k, with 29% employer contribution. So I think the overall package is slightly better with the civil service role, by about 2k, but I am not sure if it as simple as just adding salary and pension together. Hopefully the new role would also offer more room for progression. However, I think my take home pay would be about £400pm less, and that might feel hard, especially as one child will be going off to uni soon on a minimum loan. So there is a temptation to stick with the higher salary, but I want to do the right thing for both long term and short term me. I think that is lower salary, better pension, more room for progression, right? I have tried for more senior jobs in the civil service but not got anywhere.

I am 42 and currently have only about £18k in my pension. Still paying off my own student loan too! 😔

so your net wages monthly on £39k is £2556.36 without pension contributions

so your net monthly wage on £33k is £2213.86 without pension contributions

so a difference of £342.5

will your drop in income also reduce the amount of student loan you are paying? Which loan scheme are you on?

If there is room for progression, now is the time to take it and work on that. Also id be increasing my own pension contributions, which will reduce the amount of student loan.

How will your lower wages affect your dc going to university?

Thanks @MikeRafone. I think I am on the 1st student loan, started uni in 1999.

My DC would still be able to go to uni, and would still receive the minimum loan if I earned less. My DH is on about 42k, so we would be over the min loan threshold.

The big difference with the pension is that when you retire you won’t have to manage it.You will simply get a decent lump sum tax free and then an annual income index linked for ever. Long term it’s a no brainer to take the civil service job but that’s easy for me to say because I don’t face the drop in current income. If you are any good at the job and hard working you will also rise up the ladder pretty quickly so soon catch up salary.

A defined benefit pension scheme works differently to how much contribution you put in. You get a factor of your salary put in your scheme each year and that is paid every year you retire. Defined contribution schemes (must private sector ones) are basically made up of just the contributions. It's a no brainier pension wise but depends how you feel on the salary.

The civil service pension is likley to be a final salary arrangement, which is calculated by an accrual rate x pensionable service x final pensionable salary. These schemes are much better than the money purchase/defined contribution you currently pay into, so definitely a plus. .
I assume you are currently paying 5% of your salary to your pension with the employer paying 3%. Do you know if the Civil Service also require a contribution from you?

Sorry just to add is likely to be CARE scheme (career average) which is done per year, final salary I believe went from most schemes 2015 (if I remember correctly!).

Thanks for the help thinking about this.

It looks like there are currently two options for civil service pension, Alpha and Partnership. Alpha is a defined benefit career average scheme and Partnership is a defined contribution scheme. Alpha seems to be the main one. I currently pay in 5% to my workplace pension and with Alpha would need to pay in a similar amount. With Partnership there is no minimum amount to pay in. I don't really understand it, if I am honest.

Private pensions and civil service pensions are very very different. You can't compare the employer contributions like for like. Saying this 3% is abysmal so of course the civil service pension is better.

Alpha accrues at 2.32% per year, uplifted for inflation the next year. There is no automatic lump sum but you can convert pension for lump sum. It's payable in full at state pension age. You can take it from 55 (I think and that will probably change upwards) but you lose about 5% for every year below SPA that you take it early. Premium is a standard defined contribution scheme, I think.