Who Has the Best Pension?

Bankers’ pension deals have been banded around the press recently. Eye-popping six and seven figures sums seem almost immoral to the average person who has virtually nothing stashed away, or who has saved for years to retire on a modest defined contributions based scheme.

Sir Fred Goodwin is a case in point here. As former head of RBS, his £350,000 per year pension (cut from £703,000) is amazing in an environment where the rest of the public is just grateful enough to hang on to their jobs. Whilst the details of the award may well have been agreed in more prosperous years, it’s still out of kilter with the fact that he left RBS under a cloud. Indeed, taxpayers are rightly furious that their taxes (in the form of government bailouts) will be keeping Sir Fred in the manner to which he is accustomed.

However, according to further disclosures, it seems that such high pension figures are not unusual in the banking world. Sir James Crosby, former head of HBOS, is known to have amassed a pension pot of £10 million. So while banking directors have risked and lost billions of pounds belonging to the average person, their own gains have been safe. Given that there are other banking executives who are earning significant salaries, we may never know what their pensions amount to, given that they are not directors and therefore not subject to public disclosure requirements.  

Pension Scandals

Other pensioners who left their employment under a cloud include Michael Martin, the former Speaker of the House of Commons. At £77,000 per annum, his pension is not quite in the same league as Sir Fred’s , but he will still be approximately seven times better off then most pensioners.

Thanks to the expenses scandal, MPs have suffered a reduction in popularity, with the press crawling all over their expenditure and entitlements. MPs are entitled to a comfortable final salary scheme, which, it is estimated, would put their annual retirement income at around £40,000 per annum on the basis that this would be two thirds of their final salary.. But the Association of Consulting Actuaries has demanded that MPs’ pensions are drawn in line with other professions of a similar level, and realign themselves around a career average structure.

Schemes

But what about the pension schemes whose members do not hit the headlines? It’s a common presumption that the public sector are paid less favourably than the private sector, but make up for this in better working conditions, job security and boosted pension funds.

After all, even in today’s straitened times, what could be safer than a final salary pension fund backed by UK plc? Public sector pensions also have the benefit of being index linked rather than relying on investment returns, so the monies paid out will be a fairer reflection on the member’s true, rather than their estimated, cost of living. However, not all public sector pensions are created equal. There is a hierarchy within the public sector.

Apart from the Armed Forces, who generally make no monetary contributions to their pensions, public sector employees contribute between 6 and 11 percent of their salary to the funds. The remainder of the bill is picked up by the British taxpayer. The Pensions Policy Institute, an independent research charity, estimates that the total annual bill is £16 billion.

The Government have taken some moves to reduce this burden. For example, for civil servants, teachers and NHS workers the retirement age has risen to 65. However, this does not have retrospective effect: the five million people who currently qualify for a public sector pension are bound by whatever age the scheme originally set. 

For private sector workers, 80% of final salary schemes are closed to new entrants. Further, even those in existing schemes are not safe, with defined benefits schemes being wound up on the grounds of lack of affordability, and being transferred into defined contributions schemes. So while there may be higher wages in the private sector, it seems that public sector employees get a better, safer, pensions deal.

If you are not prepared to change career or sector to secure a better pension, what can you do to make yours work as hard as possible?

• Take professional advice about the correct product for you.
• Contribute as much as you can.
• Start as early as you can.

To help you to decide whether a QROPS is correct you, contact us today using the form on the contact Qrops Adviser page or email us direct at info@qropsadviser.com