The finest public sector pension schemes revealed

In most jobs it takes an entire career of careful saving to scrape together a respectable pension that will see you through retirement.

But there are some lines of work where you can bag an enviable retirement fund in no time, and where the pensions are so generous you’ll be set for later life.

An estimated 14.6million people are already saving too little for retirement, alarming figures from the Government show. So if you are over 50 and concerned your pension pot is looking a little thin, it may be worth going after work that will turbo-charge your retirement savings.

There’s one particular job in which you can bag an extra £10,000 a year of income in retirement in just 12 years of work, our analysis found.

We asked experts to assess all the different types of pension schemes to find the single most valuable pension in Britain. Here’s what they discovered.

Britain’s most gilded pension

It’s no secret that public sector workers receive generous pension benefits. But what is less known is quite how extraordinary they are when compared with the pensions of private sector workers.

Most of those working in the public sector – be it as a teacher, doctor, civil servant or in local government – will save into what is known as a defined benefit pension scheme.

These gold-plated pensions promise to pay a guaranteed income based on your salary, which rises with inflation, from the date you retire until you die. In most cases, surviving spouses will then also get a lower payout until their death.

In contrast, most people dependent upon a private workplace pension – usually a defined contribution pension – have no such protection from inflation and are not guaranteed a certain income in retirement.

The size of pension income they receive will depend on the whims of the stock market and how their invested pot of money built up from their own and their employer’s contributions.

Among the bountiful public sector pensions, the civil service pension scheme is the most generous in the country.

Civil servants can amass £10,000 a year of income in retirement within just 12 years of working for an average £35,000 salary, according to wealth manager Quilter Cheviot.

That is a staggering 27 years quicker than a typical worker in the private sector on the same salary – who would need to put in 39 years of work to reach this goal.

This is based on the assumption that the private sector worker contributes 5 per cent of their salary, while their employer pays in 3 per cent under automatic enrolment rules.

In order to achieve £10,000 in annual retirement income, a civil service worker would need to contribute just £23,462 of their own money over the years.

Meanwhile a private sector worker would have to put aside £89,731 on top of their employer’s contributions – nearly four times more – to have a pension large enough to buy an annuity that guarantees £10,000 a year and rises by inflation each year, Quilter estimates. 

This is because employers in the private sector typically make far smaller contributions than the public sector, which means workers must pay in far more to achieve the same payout.

These calculations shine a light on the shameful chasm between generous public sector pensions and the meagre schemes in the private sector.

The enormous disparity between the two is largely due to the way that the pensions are accumulated.

Most workers in the private sector save into modern defined contribution pensions, where the responsibility for turning a pension plan into retirement income falls on the individual, rather than the company for whom they work.

Workers must contribute at least 5 per cent of their annual salary to their pension under automatic enrolment rules. Employers are obliged to pay the equivalent of just 3 per cent of their staff’s salaries into these retirement funds each year. Many will agree to pay above this minimum, typically at a rate of 5 to 8 per cent, which is considered generous.

Those in the public sector contribute a higher proportion of their income into their pensions each year but are rewarded with bumper contributions – and ultimately payouts – from their employers.

In the case of the civil service, workers enjoy a bumper employer contribution of 28.97 per cent – nearly ten times the minimum required by private sector firms.

To get this they must also make contributions, which vary depending on their earnings. 

Up to £34,799, a civil servant’s contribution is 4.6 per cent of salary, this rises to 5.45 per cent up to £56,000, 7.35 per cent to £150,000 and 8.05 per cent above that. 

It is for this reason that it is the most gilded pension scheme in the country. Workers receive as much as £10.63 in pension benefits for every £1 they save at the start of their careers, calculations from Quilter reveal.

In contrast, most workers in a typical private sector pension get as little as £1.75-£2.18 for every £1 they set aside for retirement.

Quilter’s analysis assumes that workers start to save at the beginning of their career until they retire at the age set by their pension scheme.

The figures also take into account tax relief on pension savings, employers’ contributions and investment returns.

Ian Cook, a chartered financial planner at Quilter Cheviot, says: ‘This highlights just how valuable defined benefit schemes are. They provide a guaranteed income that rises with inflation and lasts for life. Most private sector workers simply do not have access to that level of security any more.’

Teachers score high

Education is another line of work you could consider if boosting your pension is a priority.

Workers saving into the Teachers’ Pension Scheme receive more than three times as much income in retirement as their private sector counterparts who have paid in the same amount.

Teachers earning £35,000 can get £10,000 worth of yearly retirement income within just 16 years – 23 years faster than in the private sector – and would need to contribute £50,765 themselves.

This is because teachers see 28.68 per cent of their salary paid into a pension by their employer. For every £1 they set aside, they receive £9.24 in retirement. 

Teachers themselves pay in different amounts, depending on income, with the lowest earners contributing 7.4 per cent of salary and the highest earners 12 per cent.

Anyone on the NHS pension scheme will also bag a generous pension deal.

Healthcare workers receive £5.57 for every £1 they save, with a contribution of 23.7 per cent paid in for them, in England. Their contributions range from 5.2 per cent of salary for the lowest paid to 12.5 per cent for the highest earners.

Meanwhile, police officers receive 35.3 per cent of their salary paid into their pensions. They contribute 12.44 to 13.78 per cent.

Note that these public sector pensions are all ‘unfunded’, which means payouts don’t come from a scheme pot but are mostly funded by the taxpayer.

Taxpayers have been left to plug the multi-billion-pound gap left by these gold-plated public sector pension promises, which experts have warned are unaffordable.

The total cost of all public sector promises for retired and existing workers has ballooned to almost £6trillion this year, according to analysis by former Bank of England economist Neil Record.

That equates to an average cost of £203,000 per household, up from £173,000 last year.

Record puts the overall projected cost of current and future inflation-linked public sector pension payouts at £5.8 trillion this tax year, up £900 billion on the previous tax year.

These figures have been disputed by the Treasury. A Treasury spokesman said: ‘We do not recognise this figure. It is inaccurate to suggest that unfunded Public Service Pension Schemes are unaffordable.

‘The latest Whole of Government Accounts put public service pension liabilities at £1.3 trillion, a figure which reflects the discounted present value of future payments.’

Whatever the true figure, experts have long been united in warning that these public sector pensions are too generous and place too large a burden on taxpayers.

Three former pensions ministers have openly declared that they are unaffordable and unsustainable.

Guy Opperman, Britain’s longest-serving pensions minister, admitted during his term in 2022 that his own gold-plated defined benefit public sector pension and others like it are ‘not sustainable for this state, or any state, on a long-term basis. It is a practical reality’. He said that future governments would have to reform it.

In the past, many private employers also offered similar defined benefit pensions, but over the past two decades most have been replaced by modern defined contribution schemes due to their expense, says Cook.

He adds: ‘This shift means the responsibility for retirement income has moved from employers and the Government on to individuals.

‘Public sector workers still benefit from certainty in retirement, but private sector savers must take a much more active role in planning their financial future.

‘If they do not start early enough or pay in enough, they may end up with a much lower standard of living in retirement than they expect.’

Private sector pain

It is perhaps then no surprise that Treasury civil servants – the very people tasked with guiding the Chancellor through the Budget – successfully steered Reeves towards a tax raid that does not impact their own pensions.

In her Budget, the Chancellor launched an attack on salary sacrifice schemes used by private sector workers to build pension pots.

Salary sacrifice sees workers swap wages for money paid directly by employers into their retirement fund. 

This enables workers to save on tax and National Insurance (NI) and boost the amount invested in their pension pots, while employers save on their own NI contributions.

From April 2029, workers will face a new £2,000 annual cap on the pension contributions that can be made using salary sacrifice without incurring NI. 

This means that anything above £2,000 will be treated as ordinary employee pension contributions in the tax system, and therefore subject to both employer and employee NI.

There are concerns a decline in salary sacrifice will lead employers to become less generous with pensions, as they face higher costs. 

Middle class workers will typically be more than £37,000 poorer in retirement, in terms of the size of their total pension pot, according to estimates from investing platform AJ Bell.

Money that employees had once earmarked for their pension will be handed over to the taxman.

How much do I need?

How much you will need for retirement is largely determined by what kind of lifestyle you want in later life. The earlier you retire, the more you will need to save to maintain a good standard of living.

As a rule of thumb, a single pensioner needs about £31,700 a year after tax to lead a moderate lifestyle, according to pension industry guidelines. 

A couple would need a combined £43,900. This would afford you a two-week holiday in Europe every year and a replacement car every ten years.

You may need to save more to achieve this income post-tax, but don’t forget, the first 25 per cent of your total pension savings can be withdrawn tax-free.

Pensions UK’s Retirement Living Standards figures are widely used by the pensions industry as a measure of how much money people need in retirement to maintain their spending habits. 

For a comfortable retirement you will need £43,900 a year after tax if you are single, while a couple needs a rather sobering £60,600.

This affords you a two-week holiday in the Mediterranean with about £100 per person spending money and three long weekend breaks in the UK.

All these figures presume a home owned outright and so don’t include housing costs. If you rent, then you will need more.

Private pension boost

A career switch is not for everyone, so how do you boost your pension in the private sector?

There are tax-efficient ways to do it. You can save up to 100 per cent of your earnings – capped at £60,000 a year – into a pension and receive income tax relief.

The cap includes money you and your employer pay in and tax relief. Consider increasing the amount you pay into your pension to make up for any losses under the new higher NI bill on salary sacrifice schemes.

The new £2,000 cap will come into effect in April 2029, which means you still have time to make use of the existing tax break.

Consider increasing your pension contributions in the meantime to max out the savings you can make on NI while you still can.

The minimum pension contribution through auto-enrolment is 8 per cent of your salary (5 per cent from you and 3 per cent from your employer). However, estimates suggest you need to save closer to 15 per cent for a decent retirement.

Some employers are willing to contribute more than the minimum if you do the same, matching your savings up to 6 per cent or more. Some go even further, offering contributions of 15 per cent.

This is known as the employer match and can significantly boost your pension pot over the long run.

If you receive a bonus, consider making a one-off payment into your pension to replace any lost savings. Similarly, if you get a pay rise, you could ask your employer to increase the amount you contribute each year before you begin to notice the difference in income.

Another savvy move is to make sure the fees you are charged on your pension are as low as possible. Fees on newer pensions are capped at 0.75 per cent, but older pots may charge more. Consider moving your money if you think you are paying too much.

Where your money is invested will also make a huge difference over the long run. Most pension savers automatically save into a default fund, a generic investment option chosen by their employer, designed to grow their money without taking too much risk.

As it’s a one-size-fits-all type of pension fund, it is unlikely to be a top performer. If you are still a long way from retirement, a higher-risk option that invests a larger proportion of your pot into the stock market is more likely to grow your money faster.