Is PIE worth the benefit?

silvercar

I've just been notified that I have a small pension that pays out later this year (at age 60, female). I only have the options of taking the pension or transferring to a SIPP.

My choices are influenced by PIE, an expression I have not heard of - "PIE stands for Pension Increase Exchange. It gives you a higher annual pension straight away. But in exchange you give up some of your future annual pension increases."

Annual pension of £3120 + lump sum of £20,800 or with PIE annual £3850 + lump sum of £25,700 (so including PIE  increases the immediate pension by 24%)

Alternatively, forego the lump sum and have annual pension of £4,000 or with PIE £5350. (here including PIE adds 33% to the pension).

I do have a use for the lump sum, so am tempted to take that regardless of the numbers- unless the difference is outstanding, but would appreciate comments on whether it is worth including PIE or not. (I have other retirement income lined up, so this is just one thin layer of the cake).

DullGreyGuy

What is the rate of escalation if you don't take PIE?
Any reason to believe your life expectancy is above or below average?
Do you have other pensions that could keep up with inflation if you gave up escalations on this one?

silvercar

DullGreyGuy said:

What is the rate of escalation if you don't take PIE?
Any reason to believe your life expectancy is above or below average?
Do you have other pensions that could keep up with inflation if you gave up escalations on this one?

1.Taking Pension Increase Exchange means your pension is in two parts: an annual increasing pension (only 17% of the total) which will rise broadly in line with inflation and a non increasing part won’t rise each year. 

2. no

3. yes, have a SIPP and OH has a big pension through work and a SIPP.

Silvertabby

Looking at the two lump sum options, the commutation rate is pretty generous.  The PIE rate less so in view of your age.

It's really a gamble - the 24% in your pocket against cost of living increases over the rest of your life.

DullGreyGuy

silvercar said:

DullGreyGuy said:

What is the rate of escalation if you don't take PIE?
Any reason to believe your life expectancy is above or below average?
Do you have other pensions that could keep up with inflation if you gave up escalations on this one?

1.Taking Pension Increase Exchange means your pension is in two parts: an annual increasing pension (only 17% of the total) which will rise broadly in line with inflation and a non increasing part won’t rise each year. 

Question 1 was more about what is the escalation rate if you don't take PIE... ie what are you giving up.

I've seen pensions with silly escalations like RPI floor 5% in which case by year 10 you'd be out of pocket even if inflation stayed below 5% and quicker if it was above. Naturally some would prefer more money in their 60s and accept a lower income in their 70s and 80s etc whereas others will think lifetime value

silvercar

This is what I would be giving up by taking PIE:

"Your pension increases each year with reference to Retail Prices Index (RPI), and the rate at which your pension increases is expected to change in 2030. This is because of a government decision to effectively replace the RPI with the Consumer Prices Index including owner occupiers’ housing costs (CPIH) as a measure of inflation. As CPIH is typically lower than RPI, this means you may see your pension benefits increasing more slowly after 2030. The Pension Increase Exchange conversion factors we have used to calculate this pension quote take account of the government’s decision and have assumed lower pension increases from 2030."

WYSPECIAL

DB scheme I am in offered PIE on part of the pension and would pay for independent advice when the time came to choose. Might be worth seeing if your company will do the same.
In my case I chose to take it.

hyubh

silvercar said:

This is what I would be giving up by taking PIE:

"Your pension increases each year with reference to Retail Prices Index (RPI)"

What's the cap (if any)? Private sector DB pensions typically don't have uncapped increases, especially when RPI based (rather than reflective of increases in public sector pensions).

silvercar

hyubh said:

silvercar said:

This is what I would be giving up by taking PIE:

"Your pension increases each year with reference to Retail Prices Index (RPI)"

What's the cap (if any)? Private sector DB pensions typically don't have uncapped increases, especially when RPI based (rather than reflective of increases in public sector pensions).

It is RPI based, but the Government’s planned scrapping of RPI in 2030 will mean it will move to the typically lower CPI measure.

it’s a BT section C pension, they came into being when BT had just been privatised, so whereas not as lucrative as the public sector BT pension, it may well have carried over certain conditions that were more akin to public sector pensions.

https://newsroom.bt.com/court-rules-rpi-remains-the-relevant-index-for-pension-increases-in-section-c-of-bt-pension-scheme/

hyubh

silvercar said:

hyubh said:

silvercar said:

This is what I would be giving up by taking PIE:

"Your pension increases each year with reference to Retail Prices Index (RPI)"

What's the cap (if any)? Private sector DB pensions typically don't have uncapped increases, especially when RPI based (rather than reflective of increases in public sector pensions).

It is RPI based. It talks of future reductions in increases from 2030 when some different calculator of increases will be used. I haven’t got the papers to hand at the moment.

it’s a BT section C pension

OK, looks like it's capped to 5%: https://www.btps.co.uk/NewsDetail?a=67