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What’s the true value of the civil service pension though? Rough calculation (probably wrong): 40 years of pensionable pay with an average of let’s say 65k. D

by Tycho 4y ago

What’s the true value of the civil service pension though? Rough calculation (probably wrong): 40 years of pensionable pay with an average of let’s say 65k. Divided by 80. Equals pension income of £32k yearly between retirement and death, inflation protected. To buy an equivalent annuity would cost about £1 million. So it’s like saving an extra £25k per year over 40 years. (Although, I suppose you have the option to grow that more through investment.) So this salary is probably competitive with an 80k private sector total comp package?

SilverBirch 4y ago
We don't have to run the numbers, the civil service publishes what they account for contribuging to the defined benefit pension[1], they're paying in about 27% of your salary. So it's worth about 10-15k on top of the base salary for this job. [1]: https://www.civilservicepensionscheme.org.uk/your-pension/managing-your-pension/contribution-rates/ https://www.civilservicepensionscheme.org.uk/your-pension/ma...
- rpep 4y ago
  It’s worth considerably more than that as an individual since you lose any investment risk, and contributing the same as employer + employee contribution to a pension is unlikely to get you benefits on retirement with the same annual payment.
- Tycho 4y ago
  This seems too low as a cost estimate. Perhaps because they have buying power that a private individual couldn’t match, or a structural surplus due to workforce demographics, or maybe it’s just rosy accounting. Seems the current scheme lets you buy/stack, each year, a recurring annual pension worth 2.35% of your current salary (pays out every year after retirement). So with a salary of 57k, you would pay something like 4k this year to secure £1340 (inflation linked) every year of retirement. That’s insanely good value if you don’t have so many years left. I suppose if you have 20 years left, and you get an extra 10k private sector salary, and invest that for retirement, then it maybe breaks even with 7% compounding growth, but even then you have to contend with inflation and market risk. I think the fair value is more like an extra 20-30k salary.

by Tycho 4y ago

SilverBirch 4y ago

We don't have to run the numbers, the civil service publishes what they account for contribuging to the defined benefit pension[1], they're paying in about 27% of your salary. So it's worth about 10-15k on top of the base salary for this job. [1]: https://www.civilservicepensionscheme.org.uk/your-pension/managing-your-pension/contribution-rates/ https://www.civilservicepensionscheme.org.uk/your-pension/ma...

rpep 4y ago
It’s worth considerably more than that as an individual since you lose any investment risk, and contributing the same as employer + employee contribution to a pension is unlikely to get you benefits on retirement with the same annual payment.
Tycho 4y ago
This seems too low as a cost estimate. Perhaps because they have buying power that a private individual couldn’t match, or a structural surplus due to workforce demographics, or maybe it’s just rosy accounting. Seems the current scheme lets you buy/stack, each year, a recurring annual pension worth 2.35% of your current salary (pays out every year after retirement). So with a salary of 57k, you would pay something like 4k this year to secure £1340 (inflation linked) every year of retirement. That’s insanely good value if you don’t have so many years left. I suppose if you have 20 years left, and you get an extra 10k private sector salary, and invest that for retirement, then it maybe breaks even with 7% compounding growth, but even then you have to contend with inflation and market risk. I think the fair value is more like an extra 20-30k salary.