The fundamental difference
Public sector pensions are Defined Benefit: the scheme promises you a guaranteed annual income for life when you retire, worked out using a set formula. Most private sector pensions are Defined Contribution: a pot of money you own and invest, which you draw from in retirement.
This tool shows you the yearly income you get in retirement.
Public sector: how the income is built
Each year of your career, you build up a fixed fraction of that year's salary as pension. The total is paid as guaranteed annual income for the rest of your life, rising with inflation.
| Scheme | Yearly build-up | Yearly boost while working |
|---|
| LGPS | 1/49th of salary | Inflation |
| NHS (2015 scheme) | 1/54th of salary | Inflation + 1.5% |
| Teachers' Pension | 1/57th of salary | Inflation + 1.6% |
| Civil Service Alpha | 2.32% of salary | Inflation |
"Inflation" here means the Consumer Prices Index (CPI), the official measure used by the Government. Pension specialists call this yearly boost "in-service revaluation".
Private sector: how the pot is built
The private sector Defined Contribution comparison defaults to 8% total contributions, the legal minimum for UK workplace pensions (3% employer + 5% employee). You can adjust this in Advanced settings to model your actual workplace pension.
The pot is invested over the same career, then used for income in retirement. We assume the saver takes a sensible 4% a year from the pot, a widely-used guideline sometimes called the "4% rule" or "safe withdrawal rate".
Why we compare total contributions on both sides
A Defined Benefit pension is a single promise that includes both employer and employee contributions, and there's no clean way to split it. So for a fair comparison, the private sector side also uses total contributions (employer + employee). What matters in retirement is the income you receive, not who paid for what along the way.
About inflation
All figures are in today's money, so inflation is already factored out. The schemes' yearly adjustments are tied to inflation, so in unusual deflationary years they could technically reduce, though this is rare in long-term scheme history. Pensions already in payment are protected from any reduction by law (the Pensions (Increase) Act 1971).
The assumptions behind the numbers
Salary growth: 1% a year above inflation by default (reflecting typical career progression, adjustable in 'Advanced settings', including down to 0% for simpler calculations).
Investment return: 4% a year above inflation on the private sector pension pot (a middle-of-the-road long-term assumption; the Pensions Regulator suggests 3–5% as a reasonable range).
Safe withdrawal rate: 4% a year taken from the pot in retirement.
Matching-income pot size: calculated at a 3% rate, reflecting the cost of buying a guaranteed inflation-linked income for life. Salary growth is applied identically to both public and private sector calculations.
Important caveats
Figures show pension benefits only. The State Pension and tax-free lump sums are excluded for clarity. LGPS employer contribution rates vary by fund. All four schemes have a retirement age linked to State Pension Age (currently 67, rising to 68).
This tool is for illustration only and does not constitute financial advice. Figures reflect April 2024 scheme rules. For decisions about your retirement, consider speaking to a qualified financial adviser.
