Say you’re in a private sector job with a final salary pension and youre looking at moving to another private sector job with higher pay (but still basic rate) and a defined contribution pension. Everything else being equal, how much more does the new job need to pay to compensate for loss of the final salary pension?

It will depend on how old you are & the terms of the final salary pension.
My guess is 25-30%.

More than they will…

Since what your DC pension will payout has pretty much halved over the last few years, its a lot.

Depends how old you are too, plus how many pension years you’ve already got, and and and.

There is no simple answer, except, a lot – say +30%?

so many variables, but it could be huge if you had 40 years service with a final salary pension

say you are lucky and manage to get 40 years contributions into one and your salary was £60k when you retire – you would need a defined contribution pension fund of at least £1m to get near the final salary pension one

About 20% I think, based on what my employer is contributing

About 20% I think, based on what my employer is contributing

Its at least that, because they’ll have to top up the fund later if/when it doesn’t provide enough.

Sadly they don’t have to top up. They can just declare the scheme underfunded and move the assets to a defined contribution basis. Happened at ACI Worldwide when I worked there.

Yes, very true b r

As said before, it depends on circumstances. Is it really final salary or has it (like most defined-benefits schemes) gone to career-average? If it’s really final salary and you stand any chance of getting promoted during your career then it’s probably worth more than 30%, but that assumes the scheme stays the same for the rest of your career.

It’s final salary, not career average and it was closed to new entrants about 18 months ago.

I’m currently accruing 1/60ths for a 9% contribution, but you can drop to 1/80ths for a lower contribution.

I am 33 and I have been in the FS scheme for 2 years so not a huge amount accrued so far!

if it’s index linked it can be as much as 40% of salary in equivalent contributions that would need to be made towards a money purchase scheme.

Many factors that can change over the life of a pension make it a difficult comparison, IMO. Will the FS scheme still be open when you retire? I’m 29 and on a FS scheme, but I don’t expect to still be on it forever, chances are it will be closed before then (it’s already closed to new members)

I’d estimate how much you expect to be on when you retire on should you stay in the scheme ( in today’s money) then work out the size of pension pot to guarantee that income via annuity? It’s probably a pretty eye watering sum.

Also worth considering, could you reasonably stay at this company for the rest of your career without getting bored?

its worth a shit-load,

but not worth sitting in a job you don’t enjoy for 30 years.

I left my job at the police with its final salary pension, although it was good I just couldn’t have seen myself working there forever and remaining sain!
lazy and imcompetent describes about 50% of the worker bees and 90% of the management.
another 5 more years and I’d have be deskilled and worthless in the IT market, so I got out when a good opportunity came along. now my pension won’t be as good but my CV is much stronger and the work is much more interesting/challenging.
may regret it is 20 years time but that’s a long time to be say around reading the metro!

I worked in a company where the company contribution was 28% and that will continue to grow.

That said to echo what has been said you see people vegetating in a job they hate because of the pension. They may as well have a screen saver with a countdown to retirement.

Also add in ‘future certainty’ to calculation, something I suspect that you’ll find more appealing when you’re 50 plus.
1 – Amount
– you can compute the worth of your final salary (*and it probably takes into account inflation as part of the deal), given this you can plan your retirement
– you cannot compute what a DC one will be worth (*poss further complicated as if you want to realise it when market is on its erse etc) and also how it will deal with inflation, this makes planning harder.
2 – timing
-final salary pensions are paid until you are dead, and you(re pensions) don’t care when you die or managing your pension
-with a DC system (*unless you go annuity – which are crepe just now) you need to make sure that you die on the day that you use the last of your fund up, as otherwise that might be an issue

I’ve lost a load from my final salary scheme. Nortel UK folded with a billion pound fund deficit. The pension fund was so large it instantly swamped the Governments rescue fund scheme, so hasn’t yet been accepted. Unclear if I’ll ever see any payout as deferred members are at the back of the queue and current pensioners are still getting paid a percentage of their pension.