Advice on a Pension Increase Exchange Offer (PIE)

Kangoo2

I am 60 and currently in receipt of a small final salary pension of £14.5k per year (£9k exchangeable and £5.5k non exchangeable).

 

My pension provider is offering me a PIE offer that would increase my pension to £18.5k.

 

I have had an advice session with the provided ‘independent’ advisors who have recommended that I accept this PIE offer.

 

My life expectancy is assumed to be another 28 years, though I am not in good health.

 

Assuming 3.83% inflation the assumed cross over point is 11 years and the breakeven point is 20 years. I realise that these would be less if inflation is higher.

 

I have other small pension pots and some reasonable savings.

 

My gut says take the offer, but looking for some second opinions.

 

I would still have the £5.5k element which would still rise in line with scheme rules.

 

I am aware that inflation is likely to hit 5% soon, plus aware of the tax implications of the extra amount.

 

Finally I am told that this PIE offer is a one off….so would it likely be offered again in the future?

 

So any opinions appreciated.

Dazed_and_C0nfused

What inflation proofing does the £14.5k have and is there a cap on this?

Daniel54

I had a PIE offer and posted about it on this board.

Essentially you are giving up future inflation increases in return for an enhanced but fixed monthly payment

Have you obtained a state pension forecast and checked if you will get the maximum? This will be another important income stream down the line

In your case I would be inclined to go with the advice received .In my case the advice was not to accept the offer and that is what I agreed with

There is no guarantee the PIE offer will be repeated, so safer to regard it as a one-off.

Link to my post https://forums.moneysavingexpert.com/discussion/5758623/pension-increase-exchange-pie#latest

Kangoo2

Thanks....

Of the £14.5k, the £5.5k part will continue to rise by a max of 2.5% per year according to the scheme rules.

I will get the maximum state pension.

I suppose i don't really need the increase as i have enough funds for the next 10 years. However is better to have a 'bird in the hand' or 'two birds in the bush'? I realise that the PIE offer is to the advantage of the pension provider in the longer term.

Marcon

Kangoo2 said:

Thanks....

Of the £14.5k, the £5.5k part will continue to rise by a max of 2.5% per year according to the scheme rules.

I will get the maximum state pension.

I suppose i don't really need the increase as i have enough funds for the next 10 years. However is better to have a 'bird in the hand' or 'two birds in the bush'? I realise that the PIE offer is to the advantage of the pension provider in the longer term.

Not necessarily. Depends how long you live. If you've had an advice session from an independent adviser (and they really will be independent - no need to put the term in quotes), who will know far more about your position than anyone here, why not listen to what they have said? If you have any follow up questions, they're the people to ask.

MK62

Kangoo2 said:

Thanks....

Of the £14.5k, the £5.5k part will continue to rise by a max of 2.5% per year according to the scheme rules.

I will get the maximum state pension.

I suppose i don't really need the increase as i have enough funds for the next 10 years. However is better to have a 'bird in the hand' or 'two birds in the bush'? I realise that the PIE offer is to the advantage of the pension provider in the longer term.

I'm assuming you mean, "of the £18.5k, the £5.5k part will continue to rise by a max of 2.5% per year according to the scheme rules", and if you decline the PIE offer, that the whole current £14.5k pension would rise by a max 2.5%.

If that's the case, I make the post tax crossover point 16 years, and the breakeven point, 29 years**........again, if 2.5% is the scheme maximum for annual increases for both current and PIE (the non-transferable part) options, then any inflation above that is irrelevant for your calculation, as you won't get more than 2.5% in any event.

**Assuming the PA stays frozen until 2026 and is increased by 2.5% pa after that.

Rodders53

Your IFA knows all about your finances and dependents' needs etc.,.

I took a PIE with my Pension some 6 years ago, also based on IFA advice (paid for by the pension scheme).
As they say a bird in the hand (money now) is worth two in the bush;  but it was life events and future plans that mainly determined that decision.

In my case roughly half the pension was eligible for PIE the rest remains linked to RPI (5% cap iirc) that also made it less of an inflation risk, I reasoned at the time.

Thrugelmir

Kangoo2 said:

 I realise that the PIE offer is to the advantage of the pension provider in the longer term.

The pension scheme has the additional burden of administration costs.  Regulatory solvency requirements etc. Using an insurance backed buyout crystallises the schemes liabilities for the schemes funding sponsor. Isn't simply a question of comparing payouts. The smaller closed schemes become the less economic they will be.