The pensions consultancy LCP compared four public sector workers in different schemes with a private sector worker who contributed the statutory minimum of 5 per cent of their salary into a defined contribution (DC) pension and whose employer contributed 3 per cent. With DC pensions what you get back in retirement depends on how much is paid in and how well your investments perform, whereas with public sector pensions, an income based on your earnings is inflation-proofed and guaranteed for life. The analysis assumed workers had a salary of \u00a325,000 at the start of their working lives.<\/p>\n
The former pensions minister Steve Webb, now a partner at LCP, said: \u201cIn most cases, as you might expect, the public sector worker is doing better. What happens to the private sector worker depends hugely on investment returns.\u201d<\/p>\n
\u2022 Jeremy Hunt: We need to kill off gold-plated public sector pensions \u2014 here\u2019s how<\/a><\/p>\n The consultancy calculated the value that each scheme would generate for every \u00a3100 invested and multiplied it to cover a 20-year retirement. It found that the outcome for private sector pensions has improved slightly since 2021, when savers could expect as little as \u00a33.32 per pound invested.<\/p>\n This is largely because rates on annuities, which savers can buy to convert their pension pot into an annual income, are at their highest level for 20 years. Annuity rates fluctuate in line with interest rates and yields on government bonds so there is no guarantee that they will stay high.<\/p>\n Why are public sector pensions more generous?<\/p>\n Taxpayers will fork out \u00a357 billion this year to fund the pensions of retired public sector workers<\/a>, according to official figures.<\/p>\n Public sector pensions are defined benefit (DB), which guarantee a fixed pension amount after retirement, based on salary and years of service. These used to be \u201cfinal salary\u201d schemes, which promised a retirement income based on a set proportion of a worker\u2019s salary when they retired. But in 2015 these changed to a \u201ccareer average\u201d, meaning that payments are based on the worker\u2019s average earnings over the length of their career. <\/p>\n This can result in a lower pension for employees who have enjoyed significant promotions towards the end of their careers.<\/p>\n Most private sector pensions are DC schemes, where you build up an investment pot to provide your retirement income. You can then use this pot to buy an annuity or take an income from the pot through what is known as drawdown. <\/p>\n Under the salary sacrifice scheme, employees can make pension contributions from net pay, so that they don\u2019t pay income tax or national insurance, which helps to offset their costs. <\/p>\n Traditionally public sector pensions were more generous to make up for lower wages, but the average weekly pay for a private sector worker now is \u00a3717. For someone in the public sector, it is \u00a3730, according to the Office for National Statistics. <\/p>\n What a difference contributions make<\/p>\n A teacher earning \u00a330,000 would contribute 7.4 per cent, or \u00a32,220 a year, into the Teachers Pension Scheme, and their employer would pay 28.68 per cent. If they worked for 35 years, that would give them an annual pension starting at \u00a318,410, because for each year that they work they accrue 1\/57th of their salary.<\/p>\n However, someone in the private sector earning \u00a330,000 would save 8 per cent on anything above \u00a36,240 \u2014 around \u00a31,900 a year. Adding in basic tax relief, the cost of pension saving is just over half what a public sector worker has to pay.<\/p>\n Over one year, a private sector worker will have saved enough to buy an annuity worth \u00a3112 a year, while a public sector worker will have added \u00a3526 to their annual pension income \u2014 although it has cost them more to do so.<\/p>\n In reality, the private sector worker should benefit from investment growth on their pot, but even with bumper growth, they are unlikely to catch up with the teacher.<\/p>\n
![\"Black](\"https:\/\/www.newsbeep.com\/ca\/wp-content\/uploads\/2025\/11\/\/0ff56181-7ffc-4c07-aa3b-944892cadcf1.jpg\")
<\/p>\n