The civil service has been criticised for the “misleading” way it displays pension contributions in job adverts, with experts saying applicants may wrongly assume the money is going into a pot for their retirement, rather than to fund the pensions of existing retirees.
On civil service job adverts, applicants are told they will get a pension “with an employer contribution rate of 28.97 per cent”.
Experts say some prospective employees “may wrongly assume the contribution is being paid into a pension pot in their name” when the money is not going into their pension at all, but is being used to fund the costs of running the scheme and paying pensions of current retired civil servants.
Civil servants get so-called “gold-plated” defined benefit (DB) pensions that pay them an annual income for life in retirement.
The amount they get is based on a calculation involving their annual salary and the number of years they worked for the civil service. The scheme is funded by their own payments and their employers, with any shortfall being made up with government money.
A leading union that represents civil servants said quoting the employer contribution rate as though it represents the value of the pension being earned “can be misleading”.
Another union said the civil service was emphasising pension contributions “in an attempt to remain competitive” with private sector pay, but said the 28.97 per cent figure “did not fully reflect how the defined benefit pension scheme operates”.
Civil servants currently accrue an annual retirement payment worth a portion of pensionable earnings, regardless of the amount the civil service contributes to the funding of their pension scheme.
As an example, if they earn £50,000 as a basic salary, they will get £1,160 a year in retirement for every year they have worked in the civil service – with this figure increased by inflation annually.
The figure the civil service contributes is adjusted every few years depending on the cost of funding the scheme, but this has no bearing on the amount that civil servants receive in retirement.
For example, next year the rate will drop by 6.6 per cent, but it won’t affect the pensions that civil servants accrue.
A spokesperson for the PCS union – the largest in the civil service – said: “Quoting the employer contribution rate as though it represents the value of the pension being earned can be misleading.”
Public sector pensions work entirely differently to most defined contribution pensions in the private sector, and the two can’t be easily compared directly.
In the private sector, employees generally pay a minimum of 5 per cent of their salary into their retirement pots and their employers top this up with at least 3 per cent.
The pension they receive in retirement depends upon investment performance.
Meanwhile, civil servants pay between 4.6 and 8.05 per cent to be a part of their scheme, with the money going towards funding current pension payouts.
In return, in retirement, they receive 2.32 per cent of their annual pensionable earnings per year, but this does not rely on any investment growth.
Teaching, NHS and other public sector professionals have similar pensions to civil servants, although generally, The i Paper found that contributions weren’t advertised in quite the same way.
Lauren Crowley, assistant general secretary of the FDA union, said: “While advertising employer contributions like this does not fully reflect how the defined benefit pension scheme operates, these job ads demonstrate the challenges of pay in the civil service.”
Civil servants’ overall pay lags behind comparable jobs in the private sector and even other parts of the public sector – including local government and the NHS. Employers emphasise pension contributions in an attempt to remain competitive.
Adam Cole, retirement specialist at Quilter, said the 28.97 per cent figure provided “useful context” about the cost of providing the pension, but added: “The employer contribution rate shown in Civil Service job adverts doesn’t directly determine the pension an employee will receive.
“While some prospective employees may wrongly assume the contribution is being paid into a pension pot in their name, the figure provides a helpful indication of how valuable the benefit is. The risk is not that the number is shown, but that there isn’t enough explanation of what the number actually represents, leading to misinformation.”
He said displaying the contribution rate can help employees understand that a defined benefit pension is a “significant part of their overall remuneration package”.
But said: “It isn’t a perfect measure, and there may be merit in providing more explanation alongside the figure.”
A Cabinet Office spokesperson said: “Pensions are an important part of the overall public sector remuneration package, ensuring that we are able to recruit and retain the best talent.”