Some thrive, others survive as disillusioned little cogs in the vast public sector system. Perks help, like posh diplomatic parties and hobnobbing with the international set. Or the long holidays as work is based on the academic year, like the Lord Chief Justice of England and Wales who earns £247,000. Or the £50,000 per annum (plus salary) awarded to NHS chief executive David Nicholson so that he can rent a London home. Or just the pay itself, like Bank of England governor Mark Carney's £880,000 a year. Yet, even those with a rapidly fading rainbows can still look forward to a pot of gold at the end of it. It's called a cast-iron, defined benefit, career average, inflation adjusted pension - and no penalties for ill health.
UK CPI
Eligible from the age of 50, since April 2015 state employees must contribute 4.6 per cent of pensionable salary for the lowest earners, rising to 8.05 for the top echelons; taking into account tax relief this equates to 3.68 and 4.43 per cent respectively. Employer contributions vary but across NHS, teaching, local government and the civil service average out at 19.4 per cent - unfunded of course and to be paid for by future tax contributions. Not surprising then that this very interesting paper states:
http://www.civilservant.org.uk/information-pensions:html
'The problem for the government is that many civil servants regard their pension as a hugely important part of their overall remuneration package'.
UK house prices
Take ex-chief mandarin Sir Gus O'Donnell, affectionately known as 'God' by his staff, who took early retirement aged 59 after just 32 years in top posts (calculations are based on 40 years); a tax free lump sum of £315,000 and an annual pension of £110,000. At the time (2011) it was estimated that a pension pot worth £2.34m would be needed to generate these amounts. Today it would be far more as market interest rates, on which all calculations are based, have dropped significantly.
Compare this with private sector defined contribution pensions where the best annuity rates for 65 year-olds are £4,650 per £100,000 (after a tax-free lump sum), dropping to £2,600 if linked to CPI inflation - taking a pot of £2.675m to generate £110,000 per annum. The chances of anyone in the UK on the average private sector pay of £26,000 per annum amassing that amount of money is, basically, nil.
30-year gilt yield
Then compare with the new NEST workplace pensions. Employee contributions are currently set at 0.8 per cent of annual salaries over £10,000, rising to 4 per cent after 2019. The employer now pays 1 per cent again increasing to 3 per cent in 2019 making a total contribution towards retirement of 8 per cent including tax relief. This paltry level of contribution, combined with rock-bottom interest rates, will guarantee that this type of pension pot will grow very slowly indeed, that it's not safeguarded from future inflation, and the eventual monthly benefits are paltry indeed.
This was obviously chancellor Osborne's thinking when he stopped forcing people to buy annuities with their pension pots.
Index-linked 4.125% 2030
