What is a Pension Increase Exchange offer (PIE)?

What is a Pension Increase Exchange offer (PIE)?

A PIE offer is where the trustees give a scheme pensioner the opportunity to give up pension increases on one tranche of their pension in exchange for a one-off permanent increase to the pension.

Example:

A 70 year old receives a scheme pension of which £1,000 p.a. was earned before April 1997. This part of the pension increases at 5% p.a.

The PIE offer is to increase this part of the pension by 35% so the pensioner would receive £1,350 p.a.

However, in exchange, no further increases would be given and this part of the pension would be fixed at £1,350 p.a.Age and Health

Both affect whether or not PIE offer should be accepted. PIE offers only usually apply to Defined Benefit schemes.

Would the member be better off?

Break-even Point

There is a break-even point where the value of the current pension (plus the normal increases) matches the value of the new pension. The member is told how many years it will take to reach this point.

POOR HEALTH  

• If the member is in poor health and doesn’t expect to live for the number of years it will take to reach the break-even point, then it may be better to take the offer and receive the higher pension now.

GOOD HEALTH

• If the member expects to live for years beyond the break-even point then the PIE offer may not be beneficial to them, the current pension and higher pension increases should be retained.

In this example the value of the pensions, if they are paid for 14 years, are similar. However, if the pension continues to be paid for 15 years, the value of the PIE pension is less, so it will take 14 to 15 years to reach the break-even point.

The member needs to consider their life expectancy when deciding whether or not to accept a PIE offer.