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How does your pension deal compare?
The MPs expenses scandal resulted in decreased popularity and the press scrutinizing their spending and entitlements. MPs are now permitted to an annual retirement income of around £40,000, calculated on this being two thirds of their final salary. So, what about the rest of us, who has the best deal?
Well, let’s look at the public sector first. It’s a widespread belief that the public sector are paid less than the private sector, but make up for this in better working hours, job security and boosted pension funds. On balance, even in today’s uncertain times, what could be safer than a final salary pension fund backed by UK plc? And add to this the fact that they are index linked – the monies paid out will be a fairer reflection of the member’s true, rather than their estimated, cost of living. Unfortunately it’s not as straightforward as it would seem as not all public sector pensions are created equal.
Armed Forces personnel, on the whole, make no financial contributions to their pensions, however the rest of the public sector workforce contribute six to eleven percent of their salary, the rest being made up by the British taxpayer. It has been estimated, by The Pensions Policy Institute, that the total annual bill is £16 billion. The Government have taken steps to lessen this amount; by raising the retirement age of civil servants, teachers and NHS workers’ to 65, but this does not affect those already qualifying for a public sector pension as they are bound by whatever age the scheme was originally set.
For private sector workers, 80% of final salary schemes are not available to new entrants. More worryingly even those in active schemes are not secure, with defined benefits schemes being changed on the grounds of lack of affordability, and being transferred into defined contributions schemes. So it seems that public sector employees may get a better arrangement after all despite the lower wage than their private sector counterparts.
Therefore if you are not willing or able to change career to safeguard a better pension, what can you do to make yours as fruitful as possible? Number 1. Take professional advice about the correct pension for your circumstances 2. Arrange it as soon as possible and finally 3. Contribute the maximum you can.
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