What's a normal employer contribution amount?
Discussion
ETA: I am referring to pensions.
How much do employers normally contribute to pensions?
What about in the public sector?
I just looked at the Transport for London pension and they are contributing 6.2x the employer contribution. Do I see that correctly? An employee on 27k pays 5% - £110 each month - and TFL put in £700 each month? Really? This seems hard to believe. Please confirm!
I'm self employed and need to think about this stuff. Are there cases where if you're self-employed there is no point contributing to a pension? E.g. By instead using savings or buying property?
How much do employers normally contribute to pensions?
What about in the public sector?
I just looked at the Transport for London pension and they are contributing 6.2x the employer contribution. Do I see that correctly? An employee on 27k pays 5% - £110 each month - and TFL put in £700 each month? Really? This seems hard to believe. Please confirm!
I'm self employed and need to think about this stuff. Are there cases where if you're self-employed there is no point contributing to a pension? E.g. By instead using savings or buying property?
Edited by Pentoman on Sunday 26th August 10:24
The 6.2X is the average being the funding rate across your plan as a whole for all employees. It is not the same for all employees of course. Generally, the younger you are the lower the funding cost and the older the higher. If you're around the mid 40s then the multiple of 6.2X is roughly the one for you.
So, yes, employers really do contribute significant amounts into defined benefit schemes and the contribution is not taxable for you. Anyone who has the chance to participate in one of these schemes and decides not to do so must have very strong financial reasons not to do so and turn down the significant cost.
Of course, in public sector schemes the actual employer cost can only come from the tax and community charge payer, ie me and you.
R.
So, yes, employers really do contribute significant amounts into defined benefit schemes and the contribution is not taxable for you. Anyone who has the chance to participate in one of these schemes and decides not to do so must have very strong financial reasons not to do so and turn down the significant cost.
Of course, in public sector schemes the actual employer cost can only come from the tax and community charge payer, ie me and you.
R.
Pentoman said:
An employee on 27k pays 5% - £110 each month - and TFL put in £700 each month? Really? This seems hard to believe. Please confirm!
I'm not sure if the multiple is relevant or not (ie if the employee only paid in 1% would TfL only have to pay 6.2%?) but a typical public sector final salary pension is reckoned to cost about a third of the employees salary. So the example you indicated is pretty well spot-on.We employ people in France, Germany and the Nordic countries and have to pay those kind of amounts into employee's pensions, because it's mandatory there. In the UK we get 6%.
We've just had our pension revised at work, and the company now calculate pension payments on basic salary, no overtime or shift allowance included, as a result of the saving made they then increased the company contribution.
I pay 5% and the company pay 10%.
This may sound like a slightly bad deal, but for staff who don't get shift allowance and little overtime its brilliant.
I pay 5% and the company pay 10%.
This may sound like a slightly bad deal, but for staff who don't get shift allowance and little overtime its brilliant.
Where contribution rates are stated to be fixed percentages or fixed multiples of what the employee pays, this nearly always means that the pension plan is of the defined contribution type where the contributions are specifically for the employee and invested to create a sum of money at retirement for that employee. That sum of money is then used to buy a pension on whatever terms are available at that time.
In plans such as the TFL mentioned in the OP, in which the employer's "contribution" is in effect a balance of cost after all the employees who are members contributions are totalled, this invariably means the plan is of the defined benefit type. All employer/employee contributions are in effect pooled together to meet all emerging liabilities as they arise. Benefits are according to pre determined formulae and usually related to final salary. Common perception, rightly, is that a defined benefit plan is superior to a defined contribution plan.
It is very important to know what type the plan is when discussing and comparing both employer and employees' contribution rates etc. It could be argued that a comparison between the two types of pension plan is not really possible as it's a bit like chalk and cheese.
R.
In plans such as the TFL mentioned in the OP, in which the employer's "contribution" is in effect a balance of cost after all the employees who are members contributions are totalled, this invariably means the plan is of the defined benefit type. All employer/employee contributions are in effect pooled together to meet all emerging liabilities as they arise. Benefits are according to pre determined formulae and usually related to final salary. Common perception, rightly, is that a defined benefit plan is superior to a defined contribution plan.
It is very important to know what type the plan is when discussing and comparing both employer and employees' contribution rates etc. It could be argued that a comparison between the two types of pension plan is not really possible as it's a bit like chalk and cheese.
R.
The Leaper said:
Where contribution rates are stated to be fixed percentages or fixed multiples of what the employee pays, this nearly always means that the pension plan is of the defined contribution type where the contributions are specifically for the employee and invested to create a sum of money at retirement for that employee. That sum of money is then used to buy a pension on whatever terms are available at that time.
In plans such as the TFL mentioned in the OP, in which the employer's "contribution" is in effect a balance of cost after all the employees who are members contributions are totalled, this invariably means the plan is of the defined benefit type. All employer/employee contributions are in effect pooled together to meet all emerging liabilities as they arise. Benefits are according to pre determined formulae and usually related to final salary. Common perception, rightly, is that a defined benefit plan is superior to a defined contribution plan.
It is very important to know what type the plan is when discussing and comparing both employer and employees' contribution rates etc. It could be argued that a comparison between the two types of pension plan is not really possible as it's a bit like chalk and cheese.
R.
Thanks for this (for the bits I fully got to grips with, anyway In plans such as the TFL mentioned in the OP, in which the employer's "contribution" is in effect a balance of cost after all the employees who are members contributions are totalled, this invariably means the plan is of the defined benefit type. All employer/employee contributions are in effect pooled together to meet all emerging liabilities as they arise. Benefits are according to pre determined formulae and usually related to final salary. Common perception, rightly, is that a defined benefit plan is superior to a defined contribution plan.
It is very important to know what type the plan is when discussing and comparing both employer and employees' contribution rates etc. It could be argued that a comparison between the two types of pension plan is not really possible as it's a bit like chalk and cheese.
R.
). I had no idea government pensions were so... lucrative. That's how it seems.I guess I'm trying to do achieve 2 things here. 1. To get a feel for the typical costs for (govt) employees and comparing it to myself as self-employed - so as to try and judge my market value and how I compare to employees 2. To start to consider the long term future.
Pentoman,
You need to be careful when comparing the cost of public sector pension plans. This is partly because the benefit structures do differ considerably. Also, some are not funded in any way: in this event, the Treasury (ie you and me) pays whatever the cost of benefits is as they arise. It is usually these pension plans that make the headlines due to their financial unpredictability and very high cost as nothing is pre funded. The current government is seeking to reduce benefits and increase employee contibutions too.
I have a comment or two specifically about the Local Government Pension Scheme (LGPS) arrangements. These provides benefits for county and local council employees, as well as some other specialised public sector workers. Each council has it's own LGPS although the benefits and employee contributions are common to all of them. They are pre-funded out of the community charge, and so each council pays its relevant cost. They are considered to be extremely costly to the local tax payer. Plans are afoot to make changes and this will be a political football. Comparing a council's contribution is a minefield because each will be different although the benefits are the same, because of past funding commitments (or lack of them) and the demographics of each council's employees.
R.
You need to be careful when comparing the cost of public sector pension plans. This is partly because the benefit structures do differ considerably. Also, some are not funded in any way: in this event, the Treasury (ie you and me) pays whatever the cost of benefits is as they arise. It is usually these pension plans that make the headlines due to their financial unpredictability and very high cost as nothing is pre funded. The current government is seeking to reduce benefits and increase employee contibutions too.
I have a comment or two specifically about the Local Government Pension Scheme (LGPS) arrangements. These provides benefits for county and local council employees, as well as some other specialised public sector workers. Each council has it's own LGPS although the benefits and employee contributions are common to all of them. They are pre-funded out of the community charge, and so each council pays its relevant cost. They are considered to be extremely costly to the local tax payer. Plans are afoot to make changes and this will be a political football. Comparing a council's contribution is a minefield because each will be different although the benefits are the same, because of past funding commitments (or lack of them) and the demographics of each council's employees.
R.
Pentoman said:
ETA: I am referring to pensions.
How much do employers normally contribute to pensions?
What about in the public sector?
I just looked at the Transport for London pension and they are contributing 6.2x the employer contribution. Do I see that correctly? An employee on 27k pays 5% - £110 each month - and TFL put in £700 each month? Really? This seems hard to believe. Please confirm!
I'm self employed and need to think about this stuff. Are there cases where if you're self-employed there is no point contributing to a pension? E.g. By instead using savings or buying property?
I start with them in September (grad scheme) and that's the arrangement detailed in the contractual guff.How much do employers normally contribute to pensions?
What about in the public sector?
I just looked at the Transport for London pension and they are contributing 6.2x the employer contribution. Do I see that correctly? An employee on 27k pays 5% - £110 each month - and TFL put in £700 each month? Really? This seems hard to believe. Please confirm!
I'm self employed and need to think about this stuff. Are there cases where if you're self-employed there is no point contributing to a pension? E.g. By instead using savings or buying property?
Edited by Pentoman on Sunday 26th August 10:24
The Leaper said:
Pentoman,
You need to be careful when comparing the cost of public sector pension plans. This is partly because the benefit structures do differ considerably. Also, some are not funded in any way: in this event, the Treasury (ie you and me) pays whatever the cost of benefits is as they arise. It is usually these pension plans that make the headlines due to their financial unpredictability and very high cost as nothing is pre funded. The current government is seeking to reduce benefits and increase employee contibutions too.
I have a comment or two specifically about the Local Government Pension Scheme (LGPS) arrangements. These provides benefits for county and local council employees, as well as some other specialised public sector workers. Each council has it's own LGPS although the benefits and employee contributions are common to all of them. They are pre-funded out of the community charge, and so each council pays its relevant cost. They are considered to be extremely costly to the local tax payer. Plans are afoot to make changes and this will be a political football. Comparing a council's contribution is a minefield because each will be different although the benefits are the same, because of past funding commitments (or lack of them) and the demographics of each council's employees.
R.
Mr Leaper,You need to be careful when comparing the cost of public sector pension plans. This is partly because the benefit structures do differ considerably. Also, some are not funded in any way: in this event, the Treasury (ie you and me) pays whatever the cost of benefits is as they arise. It is usually these pension plans that make the headlines due to their financial unpredictability and very high cost as nothing is pre funded. The current government is seeking to reduce benefits and increase employee contibutions too.
I have a comment or two specifically about the Local Government Pension Scheme (LGPS) arrangements. These provides benefits for county and local council employees, as well as some other specialised public sector workers. Each council has it's own LGPS although the benefits and employee contributions are common to all of them. They are pre-funded out of the community charge, and so each council pays its relevant cost. They are considered to be extremely costly to the local tax payer. Plans are afoot to make changes and this will be a political football. Comparing a council's contribution is a minefield because each will be different although the benefits are the same, because of past funding commitments (or lack of them) and the demographics of each council's employees.
R.
Interesting reading. One question (a simple one) - what do you mean when you say benefits? You don't mean employment benefits do you? You mean pension benefits? What kind of benefits are there?
Russ
Let's assume the pension plan is of the final salary type.
Typical benefit are:
The bottom line is everything will depend on what the rules of the particular pension scheme provides. There's a huge variation among pension schemes. The scheme should have a booklet setting ou the main features in simple terms.
R.
Typical benefit are:
- the pension when you retire, part of which may be paid as a lump sum with a then reduced pension,
- death benefits which during employment will likely include life cover calculated as a multiple of salary plus a widow's pension, and maybe childrens' pensions,
- on death in retirement there should be a widow's pension (but no life cover).
The bottom line is everything will depend on what the rules of the particular pension scheme provides. There's a huge variation among pension schemes. The scheme should have a booklet setting ou the main features in simple terms.
R.
Gassing Station | Finance | Top of Page | What's New | My Stuff