Pension gap exposed: how you could pay SIX times more to get the same pension as a civil servant

It appears that Treasury officials, tasked with guiding the Chancellor through the budget, have whispered in her ear suggestions that she should exclude their pensions from her whopping tax raid.

And is it any wonder that they and other public sector workers are part of Britain’s most gold-plated pension schemes?

For every £1 they put aside during their career, civil servants receive a pension income six times greater than that of private sector workers.

For years, the British workforce has been jealous of gold-plated public sector pensions, which pay out a guaranteed income at retirement that is protected against the ravages of inflation.

Today, with the help of industry experts, we are exposing the embarrassing gap between generous public sector pensions and paltry private sector schemes – and how much wider it could grow after this week’s Budget.

On Wednesday, Ms Reeves is widely expected to impose a new National Insurance (NI) levy on the contributions employers make to workers’ pensions – which will raise an estimated £15.4 billion for the Treasury.

But last week it emerged that public sector workers are likely to be shielded from this raid, leaving those in the private sector to bear the brunt of the huge tax burden.

Leaders in the pension industry agree that this would inevitably result in lower retirement incomes for those working in the private sector. Meanwhile, workers with the most generous pensions, who are eligible for a much more comfortable retirement – ​​usually at taxpayer expense – would be unaffected.

An exclusive analysis carried out for The Mail on Sunday by asset manager Quilter confirms the size of the large gap.

Civil service and local government workers receive £10.63 and £9.24 respectively in pension benefits for every £1 they save early in their career. Meanwhile, healthcare workers in the NHS receive £5.57 for every £1 they pay.

By contrast, in a typical private sector pension, most workers get just £1.75 to £2.18 for every £1 they put aside for their pension.

State-backed schemes, known as ‘defined benefit’, promise to pay a guaranteed income that rises with inflation from the date you retire until your death. In contrast, most people who rely on a private employment pension have no such protection against inflation – and are not guaranteed any income in retirement. The size of the retirement income they receive will depend on the vagaries of the stock market.

Most private sector workers save in modern ‘defined contribution’ pensions, where the responsibility for converting a pension plan into retirement income lies with the individual, rather than the company they work for.

Employers are required to pay the equivalent of just 3 percent of their staff’s salaries to these pension funds every year. Many will agree to pay above this minimum, at a rate of 5 to 8 percent, which is considered generous.

Baroness Altmann, a former Pensions Minister, said: ‘Forcing all taxpayers to pay employer contributions to these already hugely generous pension schemes is grossly unfair to private sector employers and employees.’

But this is a far cry from the effective rate that employers pay into the pensions of public sector workers.

On average, civil servants enjoy a hefty employer contribution of 28.97 percent, while police officers receive 35.3 percent. Doctors and healthcare workers receive a generous 23.7 per cent of the NHS pension scheme, and teachers see 28.68 per cent of their salary paid into their pensions.

Please note that these pensions are all ‘unfunded’, meaning they are largely funded by taxpayers.

And the already enormous difference in employer contributions could become even greater.

Experts have warned that if employers are forced to pay NI on contributions to employees’ pensions, they could make their schemes less generous, or curb pay rises to offset the costs.

Almost half of employers who pay their staff more than the minimum pension will consider reducing their contributions if the Chancellor introduces NI on pension payments, according to a poll of business decision makers by the Association of British Insurers and the Reward and Employee Benefits Association.

This means that private sector workers who today consider themselves lucky to receive, for example, 8 percent from their employers, could see this reduced to 3 percent – ​​the minimum allowed.

Workers in a typical private sector pension, where employers pay a 5 per cent contribution, currently receive £2.18 for every £1 they put aside for their pension.

But if their employer reduces this to just 3 per cent, they will get just £1.75 for every £1 they save for their pension, Quilter’s analysis shows. That is 20 percent less pension income.

Jon Greer, head of pensions policy at the asset manager, said: ‘This move effectively creates a dichotomy of ‘good’ and ‘bad’ wealth, suggesting that it is acceptable to tax private sector workers while taxing their public sector counterparts protect the sector.

‘If public sector workers were not protected from this change, they would face similar impacts to those in the private sector, such as higher costs to their existing pensions and potentially lower pay increases.’

Calculations by investment platform AJ Bell show that someone earning £35,000 and whose salary increases by 2 per cent a year would be £177,000 worse off after 35 years if their employer reduced the amount they pay into their pension from 8 per cent to the minimum. of 3 percent. Someone earning $60,000 today would be $303,000 poorer at retirement.

If this happens, workers will receive even less for every £1 they save into their pension, and their money will no longer work as hard.

For a long time, the generosity of public sector pensions was justified by the suggestion that staff would receive lower pay during their working lives.

But official profit figures show this to be a myth.

According to the Office for National Statistics, average earnings (including bonuses) in the public sector were £698 per week, while private sector workers were paid £669 per week.

Baroness Altmann, a former pensions minister, said the move would be “indefensible” and would “wreak havoc” for British pensions.

She added: “Forcing all taxpayers to pay employer contributions to these already hugely generous pension schemes is clearly unfair to private sector employers and workers, and further entrenches inequality in pension provision for the workforce.”

Tom Selby of AJ Bell says: ‘The fact that these types of pensions have virtually disappeared from the private sector shows how generous – and expensive – they are.

“They cost so much to administer that only the state thinks it has the ability to offer them to staff because there is an entire country supporting the costs.”

jessica.beard@mailonsunday.co.uk