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Public v Private: the £23,300 gap in retirement deals
Evening Standard25 Mar 2009
Public sector
Council officer
She joins London local authority aged 30 on a salary of £25,000. Gets promoted and retires at age 65 on a salary of £70,000, at current prices.
Local government final salary pension is calculated by dividing her salary at retirement by 60, then multiplying the resulting figure by the number of years' service.
For 35 years' work, her pension is guaranteed to be £40,800 - paid from a pot of about £800,000 funded partly by staff but mainly council contributions.
Private sector
Company executive
He is recruited by “Widgets plc” aged 30 on a salary of £25,000. Same promotions as council officer, and retires at 65 on salary of £70,000. But the employer only offers a money purchase pension scheme with six per cent contributions each from worker and company, making 12 per cent in total.
The contributions are invested and his pension will depend on how well the investments perform — no guaranteed minimum. If investments grow at six per cent a year, his pension at 65 will be about £15,000. At seven per cent, it will reach £17,500.
Reader views (3)
There is a flaw in this comparison though: salaries in the private sector tend to be a lot higher generally.
To retire in local government on a salary of £70,000 is pretty rare I would think.
- Nick, London, 25/03/2009 12:16
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The pension contributions of the council worker are worth far more because they are risk free. If the private sector worker invested in risk free investments he would net growth of 1% a year - the only guaranteed investment is index linked government bonds - this is what they yield.
I don't begrudge the council worker their pension, but lets see fair contributions - the 6% or so they contribute is quite honestly a joke!
I've invested in a personal pension over the last 10 years - growth has been more like minus 6% per year not plus 6%!
- P Hall, UK, 25/03/2009 11:52
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Says it all. In Third World Countries everybody wants 'the Government job'. Draw your own conclusion in regard the U.K.
- Phil Jones, London UK, 25/03/2009 10:27
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