Recently described by Katie Morley in a Telegraph article as a “chasm” between the private sector and public sector pensions and it is only getting wider.
Whilst the Junior Doctors are currently on strike I think in the not so distant future they will be finding another reason to strike in an attempt to keep their amazingly generous pensions.
The guaranteed pensions in the public sector are linked to employees’ wages and length of service have, to all intent and purposes, been killed off in the private sector.
Analysis by Tilney Bestinvest, a financial planning firm, shows that on average the income provided by public sector schemes is five times more generous than a defined contribution pension in the private sector.
Using the 2015 NHS pension scheme as an example, a fully qualified nurse aged 25 earning £21,692 and joining the pension scheme today, will typically contribute 7.1pc of salary each year.
If they work for 40 years staying in the same earnings band with the 4pc annual increases they would retire on a salary of £45,500 in today’s money. This will amass a pension of £30,700 per year in today’s money and is guaranteed by the state. In today’s economic climate this could easily be seen as unsustainable as the younger generation struggle to pay an increasing tax bill that is being used to fund these pensions, particularly when they are trying to deal with high housing costs, unemployment and student debts.
In the private sector someone would need a pension pot of £2.2m to get this level of pension income in retirement. If the same nurse was in the public sector she would be saving 43pc of her gross salary to obtain this.
There are some people who are starting to say that these public sector benefits are unsustainable and therefore must be reined in. So it will not be so long before the NHS staff are looking at striking to keep these most generous benefits, although by the stage this occurs I think there will be much less support for a group trying to keep something that most of the rest of us lost many years ago.
We would love to hear your comments on this topic – it is written as an information piece as much as to promote discussion, so feel free to let us know what your thoughts are.