Pension Increase Exchange

WYSPECIAL

I’ve been offered an extra £1400 pa if a chunk of pre 1997 pension worth £4400 is frozen.

If I don’t take the offer then it will continue to receive increases of CPI up to a maximum of 3%.

This sounds poor value to me as if CPI was 3% or higher I could be losing out in under ten years. Obviously if CPI is low then the cross over point is much later.

My thoughts are not to accept it and I have no need for the extra money. Or am I missing something?

MK62

Is the extra £1400pa index linked (or CPI linked with a 3% cap)?....if so, at 3% I make the breakeven point just over 25 years....at 2%, about 38 years. On the face of it, that doesn't sound too bad, but as to whether you should take it, only you can decide that......personally I think it's a 50-50 choice tbh.

hugheskevi

WYSPECIAL said:

I’ve been offered an extra £1400 pa if a chunk of pre 1997 pension worth £4400 is frozen.

If I don’t take the offer then it will continue to receive increases of CPI up to a maximum of 3%.

This sounds poor value to me as if CPI was 3% or higher I could be losing out in under ten years. Obviously if CPI is low then the cross over point is much later.

My thoughts are not to accept it and I have no need for the extra money. Or am I missing something?

Agree with your thinking. Playing with a spreadsheet, if CPI is 2% or less the exchange looks a good deal, but if CPI is much higher than that then the pension looks better.

I think it is quite key that you have no particular need for extra money - the offer is reasonable, and would be quite attractive if more money up front would be useful.

Note that your age makes a difference, the older you are the better the offer is (I've assumed you are about 60-65).

Marcon

WYSPECIAL said:

I’ve been offered an extra £1400 pa if a chunk of pre 1997 pension worth £4400 is frozen.

If I don’t take the offer then it will continue to receive increases of CPI up to a maximum of 3%.

This sounds poor value to me as if CPI was 3% or higher I could be losing out in under ten years. Obviously if CPI is low then the cross over point is much later.

My thoughts are not to accept it and I have no need for the extra money. Or am I missing something?

General overview: https://www.thisismoney.co.uk/money/pensions/article-5913849/Should-PIE-Pension-Increase-Exchange-Steve-Webb-replies.html

Has your employer offered access to (free) financial advice? If they have, make sure you take it up before taking a decision.

Linton

Dont just consider the difference if you lhave an average life expectancy.  Inflation linking is particularly useful as insurance if you live much longer than average.  Calculate the difference in income at say 95.

So yes it's a seriously bad deal.

WYSPECIAL

MK62 said:

Is the extra £1400pa index linked (or CPI linked with a 3% cap)?....if so, at 3% I make the breakeven point just over 25 years....at 2%, about 38 years. On the face of it, that doesn't sound too bad, but as to whether you should take it, only you can decide that......personally I think it's a 50-50 choice tbh.

Yes having looked at the figures in more depth the £1400 is index linked to CPI up to 3% which changes it a bit. 

Free advice from LV is offered so I'll go through it with them but I'm sure it's my former employer who expects to be the overall winner or they wouldn't be offering it!