Employer Pension Contributions

[RememberDecember]

What is a typical decent employer pension contribution these days? I currently get 10% (maxed out as I put in 5% plus AVCs although these aren’t relevant to er contribution).

I’m looking at other companies, considering moving but often they seem to be more like 6-8%. I just asked ChatGPT for UK avg and it said 3-6% which seems v low? Looking at professional roles.

If you salary sacrifice you will get all of the gross pay you choose to put into your pension fund with no deductions for tax or NI.

In your case you will get the income tax relief at 20% + NI at 8% on the amount under c50k along with 40% + 2% NI on the amount over 50k.

The NI tax relief is what makes salary sacrifice much better than investing in a SIPP.

The employer also doesn’t pay employee NI on the amount you put into the pension meaning both parties benefit from the arrangement. You can sometimes use this as leverage in salary negotiations.

This is v true, presumably a reason why companies still keep them even if they no longer offer company cars, it saves them a significant amount in bonus and pension vs putting it on base salary. Quite sneaky really!

Plenty of people where I work don’t even have a car with the allowance, so it really is just an excuse to get round the additional contributions. Presumably they would be lower % if they had to factor in bonus and pension contributions on top.

I get 12% from my employer, if I put in 8%. That’s the max employer contribution, although obviously I can increase my %.

Good point, I should have said I am 1 day a week (in a senior role) so nmw is exceeded.
though I am moving to 2-3 days so shsll recalculate it.
i assume nmw is a monthly calculation or possibly I need to calculate hourly. One to double check!

Public sector is the best 28% teaching, 21% local government etc

Thank you @Sienna61

So does this mean if I SS £15k then there will be an extra £4900 going into my pension?

Plus whatever my employer pays in.

This is a DB scheme, though, not DC. These contributions are not going into your personal pension pot, they are in a central fund that is attempting to sustain the final salary/ average salary pensions that have been promised. It makes no difference whether your employer pays in 4% or 26%, you will still receive the same pension. The reason the employer contributions are so high is because the scheme (like many other DC schemes) are becoming unsustainable. If you are working in the state sector, you are likely to be okay for the time being. In the independent sector, a lot of schools have left the scheme, because they can no longer afford the employer contribution and they are allowed to opt out. This will impact on the scheme as a whole, though, as with less schools contributing, the investment income from the scheme as a whole will be less, which will just force the contributions higher still, until it reaches breaking point.

I’m in the civil service and when I’ve been looking elsewhere I find anything under 10% to be disappointing, the salary would have to be significantly higher to justify such a small pension contribution. People say CS pay is rubbish but when I crunched the numbers my overall package was very much in line with industry expectations across the board, it’s just more is tied up in pension. So I’ve not taken the leap to leave yet because the salary jump would have to be massive for a lot of the companies I’ve been looking at. Especially as I only have to pay in 7.35%

That may be true for a lot of junior roles but definitely not the case for senior roles.

I work in a highly regulated industry and earn more than the chief executive of the regulator. I’m not even in the top 25 earning employees at my company.

I’d estimate the private sector roles in my industry pay around double the base salary that equivalent public sector roles pay. They also come with car allowances and bonus schemes that aren’t offered in the public sector roles.

You do of course have to factor in the pension differences however the other factors outweigh that difference many times over.

If you took the 15k chunk of income as taxable pay you would receive 10.1k cash after tax and NI.

If you put it into a pension via SS you get the full 15k added.

The 4.9k that you would normally have paid in tax/NI is retained and added to your pension pot.

For those in DC schemes getting over 8% or 10% employer contributions, I'd be interested to know what sort of companies you work for. A couple have mentioned financial services...?

I've only worked in a few companies but inlcuding large, listed corporates and haven't ever seen double matching - even in very senior roles.

@HouseHelpRequired DH gets that in a big law firm.

Yes sorry I should have stated not all roles, I’m in a specialist role and at a high grade with no managerial responsibility which is quite unusual in the CS (though we are seeing it more in digital in order to try to match salaries to professions and be more competitive)

Most companies offer the lowest rate they're required to by law.

It’s only since 2016 or so that employers had to pay into the pension (auto enrollment)
ours still does the minimum (and capped at £50k salary) but at least rebates the ni saved by extra payments into the pension.

That's why it makes me laugh when you see posters say today's young people will be better off pension wise because of auto enrolment. So many don't seem to realise how so many schemes are less generous now and how little many employers have to contribute.

These are arbitrary figures. In a defined benefit pension, it doesn’t matter if your employer contributes 1%, 10%, or 100% - it has no impact on the ultimate pension you will receive.

@windandrainy what do you mean it has no impact? Are you saying public sector pensions aren't better than private ones?

The fact it's DB is a major impact!!!

DB schemes such as final salary were not widely offered. Most people didn't have pensions, especially women who returned to roles after raising children.

At least there is a commitment to pensions so would advise everyone starting work to contribute, rather than opt out. Time in the market will build a pension so starting early is key.

@Pleasealexa there were more DB schemes than there are today and final salary schemes don't really exist anymore.

Plus many of today's young opt out as housing is so prohibitive.

You could look at it another way. You always have the option to invest in your own pension. The private sector's increased salary level, allows you to choose between pensions, saving (for a mortgage for example) and spending - the Civil service make that choice for you - flexibility to make choices is a benefit for a lot of people. Very few employees even ask about pensions when negotiating salary - we match pensions up to a certain level but people choose not to take advantage of this - they'd rather have the choice to take the cash.

Be aware that bonus payments often do not attract pension contributions.

13% from employer,6% from me. I also pay additional AVCs as I'm only a few years from retiring.