Financial planning for public sector workers

Public sector workers, including National Health Service (NHS) staff, teachers and police officers, underpin the functioning of our society yet their careers can be among the most demanding. They can involve busy work schedules and complex income arrangements, which may lead to financial advice challenges.

NHS

Public sector employees typically operate in quite rigid income tiers. For instance, if you’re an NHS worker, you will likely have a fixed base income that aligns with the health service’s set pay scales. Such structured income scales can lead to more straightforward financial planning, as earnings can be more predictable than in the private sector.

But less than one-third (31 percent) of healthcare workers are satisfied with their pay (1). So, many NHS staff work antisocial hours at higher rates, including nights, weekends and public holidays, to supplement their base income. This higher pay can make it difficult to know your final income in advance and that can impact your tax liabilities and pension contributions as well as your spending plans.

Education

If you work in state education, you will also have set pay scales, although you won’t typically work the same antisocial hours as NHS workers.

But 85 percent of state school teachers believe they are underpaid and 56 percent are ‘very’ or ‘extremely’ worried about keeping up with household bills and finances (2). So it may come as little surprise that some teachers supplement their income with freelance work such as tutoring or creative work. This means factoring in additional income streams into financial plans.

Police

Police work poses potential physical and mental challenges. These can disrupt financial stability, as does the fact that demanding shift work leaves limited time and energy for financial planning.

But a robust financial plan is crucial for police force workers, perhaps more so than for workers in the private sector. Policing can be dangerous: research shows 81 percent of police officers have experienced at least one work-related physical injury or mental health issue (3). So it may be useful to have a relatively large rainy day fund or to consider income protection insurance to safeguard your finances if you’re unable to work.

Pensions

Public sector employees are offered defined benefit pension schemes guaranteed by the government. Under the older schemes your retirement income is usually based on your final salary and years of service, meaning you have a predictable income in retirement. But retirement income in more recent schemes is usually worked out using your pay each year rather than your final salary. Retirement income in both types of schemes include annual adjustments to keep pace with inflation.

Defined benefit schemes can contrast favourably with the defined contribution schemes typically offered in the private sector. The value of defined contribution schemes depends on how much you and your employer paid into your pension and whether there is any growth from the underlying investments. And there’s always the risk your income withdrawals won’t meet your expectations.

But public sector roles can be emotionally and physically demanding, particularly in the NHS and police force, meaning many public sector workers target early retirement. However, retiring early may reduce your annual pension income. So you may want to speak with a financial adviser before deciding to retire early.

Members of the civil service pensions scheme can, for example, apply to have their pensions paid any time after the age of 50 (or 55, if they joined the civil service more recently). But this will permanently reduce their pension benefits by around 5 percent for each year before they reach scheme pension age (which is either 60 or 65, depending on their policy) (4).

Not every public sector worker is a member of the civil service pensions scheme. So it’s important to check with your specific provider to determine what an early retirement could look like for you.

If you aim to retire early, continuing and boosting contributions into your workplace scheme as you approach retirement could be essential. A thorough review with a financial adviser can help you work out the ideal age to start to receive your employer pension. And voluntary additional payments into a pension scheme may help boost your retirement savings, making an early retirement more feasible.

Public sector workers who supplement their earnings, perhaps through tutoring or working night shifts, may be used to an income that’s higher than their basic salaries. This extra income must be considered in the retirement plans and voluntary additional payments could help ensure this lifestyle continues in retirement. A financial adviser can help determine how much extra you are able to pay into your pension tax-efficiently.

At Schroders Personal Wealth one of our principles is to have regular reviews with a financial adviser. An adviser can help create a financial plan tailored to your unique circumstances and your personal goals. Regular financial planning reviews could help you deal with any particular ongoing challenges that may arise from working in the public sector.

Sources:

(1) NHS (www.nhsstaffsurveys.com), ‘NHS staff survey 2023’, May 2024.

(2) National Education Union (neu.org.uk), ‘Teachers feel severely underpaid’, 18 November 2023.

(3) Police Care UK (www.policecare.org.uk), ‘Injury on duty research (2016)’, 12 July 2024.

(4) Civil Service Pensions (www.civilservicepensionscheme.org.uk), ‘Leaving before pension age with two or more years’ service’, September 2014.