Today’s pensions don’t favour Gen Z

Even in 2022, pensions still command an aura of reverence. A benefit where you work for one company for 30 years and then retire with a livable wage? And you don’t have to fret about picking investments? What’s not to like?
Although pensions are increasingly rare in the US, they’re not obsolete. About 38% of the private workforce had access to a defined benefit plan in 1980. By 2008, that had fallen to 20%. In spring of 2020, it was only 3% of private-sector workers, according to the US Bureau of Labor Statistics. The majority of today’s pensions are offered to those working in the government at a state or federal level.
When evaluating a potential job today, should pensions carry as much weight as they did decades ago? In most cases, no, not for those early in their careers.
Many modern pensions have been diluted to the point of being mediocre golden handcuffs. It’s often better to focus on the total benefits package instead.
Pensions, after all, are complicated. Most require a combination of years of service, a vesting period and hitting a certain age to receive the maximum benefits.
Let’s look at the New York City teachers’ pension scheme as an example. (Full disclosure: My husband works as a New York City teacher.) The pension is segmented into Tiers I through VI. Older millennials are Tier IV if they joined between Aug. 31, 1983 and April 2012. Younger generations are Tier VI if they joined after March 31, 2012. (There’s no Tier V for city teachers.)
The tiers have differing rules and eligibility criteria, with older tiers being
able to access maximum benefits with less of a time commitment.
Tier IV teachers see their pensions vest at five years of total service, whereas Tier VI teachers need 10 years. And things diverge further. Tier IV teachers can receive unreduced benefits one of two ways: either by putting in 30 years of service and being 55 or by being at least 62 and vested. But Tier VI teachers must be at least 63 and vested in order to receive unreduced benefits. That means a Tier VI teacher who started their career at age 24 needs to work nine extra years compared with a Tier IV educator. A Tier VI teacher who retires at 55 would receive only 48% of their possible retirement allowance, compared with a Tier IV teacher who would receive 100% retiring at the same age (if they started 30 years prior). Actual retirement allowances can vary too. The calculations can get complex 1 , but the required additional time commitment and the penalty for retiring before 63 generally makes Tier VI’s benefit less generous than Tier IV’s.

—Bloomberg