PIE confusion

hefalump71

Before I go to an IFA, just trying to get my head round pension options as the  PIE offer seems to be better than the alternative, but not sure how to calculate properly to compare.
Option 1 (non-PIE) is annual pension of £17,684
Annual increase elements: 0% on £14,743, 5% on £816, RPI (max 7%) on £2124

Option 2 annual pension of £26515
Annual increases: 0% on 20,149, CPI (max 3%) on 2995, CPI (max 5%) on 1026, RPI (max 7%) on 2124

My calculations suggest over 40 years option 1 never catches up with option 2, assuming maximum R/CPI but I am not sure if I am doing it right as I thought there should be a crossover point at some point with PIE? Am I missing something? 

CrazyJohn64

Similar question and similarly confused!

Shimrod

hefalump71 said:

Before I go to an IFA, just trying to get my head round pension options as the  PIE offer seems to be better than the alternative, but not sure how to calculate properly to compare.
Option 1 (non-PIE) is annual pension of £17,684
Annual increase elements: 0% on £14,743, 5% on £816, RPI (max 7%) on £2124

Option 2 annual pension of £26515
Annual increases: 0% on 20,149, CPI (max 3%) on 2995, CPI (max 5%) on 1026, RPI (max 7%) on 2124

My calculations suggest over 40 years option 1 never catches up with option 2, assuming maximum R/CPI but I am not sure if I am doing it right as I thought there should be a crossover point at some point with PIE? Am I missing something? 

Does option 2 reduce by the state pension or some other amount at some point in the future? It's difficult to see what you are exchanging when choosing option 2 as it appears more generous with a higher starting pension and more of the pension offering inflation protection (£6K vs £3k).

hefalump71

There are no mentions of other reductions.

Tommyjw

The option 2 figures dont add up to the total so its hard to be exact, is that a typo? also is the '5%' a fixed amount?. Your benefits also look slightly odd with RPI max 7% being an odd increase, do you have anything from the paperwork or past paperwork about how your pension is split out? e.g. normally it may be : PRe 88 GMP, Post 88 GMP, Pre 1997 Excess, 1997 to 2005, 2005+ , for example

But otherwise, yes, it's clear they have messed up the calculation or the figures they have given to explain it. You cannot (inoring RPI max 7% as that stays the same) lose £800 of 5% benefits, but gain £4k on CPI max 3/5% AND Gain £5k on non-increasing benefits and call that a PIE exercise. 

Marcon

hefalump71 said:

Before I go to an IFA, just trying to get my head round pension options as the  PIE offer seems to be better than the alternative, but not sure how to calculate properly to compare.
Option 1 (non-PIE) is annual pension of £17,684
Annual increase elements: 0% on £14,743, 5% on £816, RPI (max 7%) on £2124

Option 2 annual pension of £26515
Annual increases: 0% on 20,149, CPI (max 3%) on 2995, CPI (max 5%) on 1026, RPI (max 7%) on 2124

My calculations suggest over 40 years option 1 never catches up with option 2, assuming maximum R/CPI but I am not sure if I am doing it right as I thought there should be a crossover point at some point with PIE? Am I missing something? 

How much information have you actually been given? Is the sponsoring employer (and PIE is an employer driven exercise, even if communications are routed via the trustees/scheme administrators) funding independent financial advice?

Shimrod

hefalump71 said:

There are no mentions of other reductions.

It would be worth going back to the administrators (this would appear to be a defined benefit arrangement), and query the figures. For a PIE exercise, I would expect to be giving something up for the higher figures, but that doesn't seem true in this case.
What is the normal retirement age for the pension, and are you sure option 2 does not mention a reduction when you get to state pension age (assuming your normal retirement age is some years before state pension age).

hefalump71

Tommyjw said:

The option 2 figures dont add up to the total so its hard to be exact, is that a typo? also is the '5%' a fixed amount?. Your benefits also look slightly odd with RPI max 7% being an odd increase, do you have anything from the paperwork or past paperwork about how your pension is split out? e.g. normally it may be : PRe 88 GMP, Post 88 GMP, Pre 1997 Excess, 1997 to 2005, 2005+ , for example

But otherwise, yes, it's clear they have messed up the calculation or the figures they have given to explain it. You cannot (inoring RPI max 7% as that stays the same) lose £800 of 5% benefits, but gain £4k on CPI max 3/5% AND Gain £5k on non-increasing benefits and call that a PIE exercise. 

Yes the 5% seems to be a fixed amount. Have just checked and I have correctly typed the figures as given - it just all seems very odd (or wrong). There is no further info given on splits or anything. The scheme was joined in 1998, can’t remember when it was left but (it’s my partners) and it has been dormant for quite a few years - certainly pre 2005, but I can’t get correct info at the mo. Think we will have to go back to administrators to clarify.

hefalump71

Marcon said:

hefalump71 said:

Before I go to an IFA, just trying to get my head round pension options as the  PIE offer seems to be better than the alternative, but not sure how to calculate properly to compare.
Option 1 (non-PIE) is annual pension of £17,684
Annual increase elements: 0% on £14,743, 5% on £816, RPI (max 7%) on £2124

Option 2 annual pension of £26515
Annual increases: 0% on 20,149, CPI (max 3%) on 2995, CPI (max 5%) on 1026, RPI (max 7%) on 2124

My calculations suggest over 40 years option 1 never catches up with option 2, assuming maximum R/CPI but I am not sure if I am doing it right as I thought there should be a crossover point at some point with PIE? Am I missing something? 

How much information have you actually been given? Is the sponsoring employer (and PIE is an employer driven exercise, even if communications are routed via the trustees/scheme administrators) funding independent financial advice?

Not a lot - the figures have been given in response to our request for them as my partner is considering accessing this pension early - normal retiring date would be  2029. It is a pension that has been dormant for many years. No mention of advice being funded. Think we need to go back to them for clarification.

hefalump71

Shimrod said:

hefalump71 said:

There are no mentions of other reductions.

It would be worth going back to the administrators (this would appear to be a defined benefit arrangement), and query the figures. For a PIE exercise, I would expect to be giving something up for the higher figures, but that doesn't seem true in this case.
What is the normal retirement age for the pension, and are you sure option 2 does not mention a reduction when you get to state pension age (assuming your normal retirement age is some years before state pension age).

The normal retirement date is 2029 - my partner requested figures as considering accessing this pension early. It has been dormant for several years. And definitely no mention of reduction at state pension age, the (scarce) details just mention that the option 2 gives up some non statutory increases in exchange for the higher initial pension. More digging is required I think. 

DRS1

 just mention that the option 2 gives up some non statutory increases in exchange for the higher initial pension

But the increases in Option 2 are not statutory increases - especially the RPI capped at 7% one.  I am also a bit dubious about the CPI (max 5%) one.  I thought LPI was RPI capped at 5%.