Public sector pensions far more generous than private sector

by Dr. Ros Altmann

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Comparison of length of time taken by MP, civil servant and private sector worker to accrue different amounts of pension (estimates only, assumptions below)

PENSION AMOUNT	Value of pension if bought in annuity market	No. Yrs Contributions MP Salary £60,675pa	No. Yrs contributions civil servant Salary £25,000pa	No. Yrs contributions private sector worker Salary £25,000 pa Contrib 7% salary**
£30,000 pa	£795,000	20 years	72*yrs	73*** yrs
£25,000 pa	£662,500	16.5 years	60*yrs	69*** yrs
£20,000 pa	£530,000	13.2 years	48*yrs	64*** yrs
£15,000 pa	£397,500	10 years	36yrs	56*** yrs
£10,000 pa	£265,000	6.6 years	24yrs	46 yrs
£5,000 pa	£132,500	3.3 years	12yrs	33 yrs

Memorandum:

* PLEASE NOTE: These figures are theoretical only, since a civil servant earning £25,000 a year final salary could not really accrue a pension of this amount in their final salary scheme

** ASSUMPTIONS USED:

• Both private sector and public sector workers assumed to earn £25,000 per annum
• Private sector worker assumed to contribute 7% of salary per year to their pension
• Investment returns of 6% a year gross
• 3% inflation is assumed for pension conversion

*** NOTE: It is only theoretically possible for someone to contribute 7% of salary for so many years and then still have a further 25-30 years of retirement to live on their pension!

Conclusion:

MPs can accrue a very good pension after only a short time in Parliament. Civil servants can accrue a very good final salary (defined benefit) pension but it takes longer for them than MPs. All public sector workers will receive much better pensions than the private sector worker on average earnings who is contributing the average amount of around 7% of salary to a defined contribution pension scheme.

Civil servants do not contribute to their pension at all (they only contribute 3.5% of their salary but this is for their partner’s pension, not their own and if they are single when they retire the get their contributions refunded!)