The Royal British Legion has offered a pension increase exchange to its retired former employees already drawing a defined-benefit pension, in a bid to reduce the deficit in its pension scheme.
In a pension increase exchange scheme (PIE), an offer is made to pensioners to give them an immediate and significant increase in their pension now, in return for giving up non-statutory increases in the future.
Because the increase is less than the full value of inflation and longevity risk, it has the effect of reducing the deficit in the pension scheme.
The last actuarial valuation of the Legion’s pension scheme deficit was carried out in 2008 and valued it at £5.4m, but in 2009 this escalated to over £15m as a result of the economic crisis. The scheme had already been closed to new members, and in April 2010 the charity stopped existing members from making any more payments into it.
But it still needed to address the underlying deficit, and so earlier this year the Legion wrote to all 540 eligible members of the scheme who had already retired, and offered them the opportunity to take part in the pension increase exchange.
Independent advisers were appointed to provide free, impartial advice to these former employees, and after a phone call or a face-to-face meeting, each scheme received a clear recommendation as to whether accepting the offer would be in their best financial interest. In many cases it was not deemed to be so.
So far, 17 per cent of those scheme members have accepted the offer and this looks set to rise to around 20 per cent – more than the 10 to 15 per cent charity had expected. The PIE offer is now being developed for future retirees.
The inital cost to the charity was projected to be around £200,000, to yield a deficit reduction of up to £1m.
