Pension Increase Exchange (PIE) sounds tasty. But it’s not for everyone. Here are some tips for the perfect recipe.
Pension Increase Exchange. PIE. An option offered to members of defined benefit pension schemes to exchange their annual increases for a higher upfront pension. It’s something that trustees can make available to their members at or in retirement (if they’re eligible).
Having a bigger pension NOW that stops growing, or grows more slowly, in the FUTURE can be a good option for some people. And a bad option for others. But all those people are likely to be salivating at the tasty terms ‘pension increase’ and ‘higher upfront pension’. So you need to watch out for the way you word it.
Here are some top tips to get you started.
Start with simple ingredients
When a PIE offer lands on a member’s doorstep, it’s loaded with questions. What will inflation do? How long will you live? Is this your only income? We’re so worried that the member is taking all the consequences on board, we bypass some of the basics they need to get started.
The questions can wait. Leave the caveats for a moment. Just get straight to the point: explain what PIE is and that it’s an option you’re making available to this member. Tell them how long they’ll have to consider it. Explain that you’re about to go into detail – but that financial advice might help if it’s too much to chew on.
Add a dash of clarity
In the weird world of pensions, the word ‘increase’ usually refers to annual inflationary increases. But in the real world, it means ‘to get bigger’. Because of this disconnect, you’re in danger of asking members if they want to get a bigger pension by giving up… a pension that’s getting bigger?
Explain what you mean by ‘increases’ before things get too muddled. Then describe the upfront pension bump as a ‘higher pension’ – NOT an increased one.
For example, ‘When you retire, your pension increases each year to help it keep up with inflation. Different parts of your pension increase at different rates. With PIE, you can choose to give up some or all of your annual pension increases in exchange for a higher overall pension now.’
Sift out the term ‘exchangeable’
We often come up with labels behind closed board room doors to help us navigate pension complexities. But members weren’t in on those conversations, and they don’t know what their ‘exchangeable pension’ is.
Try to do without the label and explain it in layman’s terms instead. If that’s not working for you, try putting some context around it the first time you use the term:
The part of your benefits you built up before [date] increases at [x]% a year. This is the part of your pension you can exchange if you take up your PIE offer. If you did this, this ‘exchangeable’ part of your pension would be higher – but it would no longer increase each year. The rest of your pension would stay the same, and continue to increase as it does now.
Prepare a side of advice
Some members will patiently read through all your explanations and caveats, but most will only grasp it once they talk it through with a trusted person. If you’re giving members access to a financial adviser, mention it early on – so members can see it’s an option and act on it when they get foxed. Put the adviser’s contact details in the header or on the first page of your letter.
And while you’re at it, help make the onward process easy on members who just want to talk to someone about something complicated. Explain why this adviser has been chosen to help and exactly what will happen when they answer the phone to your member. Are they going to ask for personal information? How long will the call last? What happens next?
Beware: everyone will want a slice
If some of your members get PIE offers and others don’t, there might be questions. Head them off early by telling members with PIE offers that they’re not available to everyone.
You might also want to think about explaining (broadly) why some members have PIE on the menu and some don’t – or at least make sure your admin team is ready to do so on the phone. That way, when your members inevitably talk to each other, no one feels like the waiter is ignoring them.
Extra serving suggestions
Before you go, here are a few don’ts to balance out the dos.
Do not become the Grim Reaper
People tend to think about how long they’ll live rather than how soon they’ll die. They certainly respond better to the former. Keep an eye out for the way you’re framing PIE calculations, when asking members to work out if it’s right for them. Angle your words away from ‘running out of money before you die’ and more towards ‘having enough money for the rest of your life’.
Do not shout about ‘higher pensions’
People like big pensions. If they only glance at the facts, they’re likely to want to take up a PIE offer without much thought. Check that you’re not putting too much emphasis on ‘higher pension’ in headings or bolded copy. This is where members’ eyes will be drawn to first, and you want them to have a balanced diet of information before making any decisions.
Do not struggle with words when a picture will do
You can try to explain breakeven ages and the effects of inflation until you’re blue in the face, but it’s only going to land when people see it plotted out in a graph. The same goes for the list of things members need to consider, like their health, their income, their benefits, their dependants, etc. Use icons or visual aids to break up reams of information so it’s easier to digest. Even better – if you get the chance, use a short video or animation to help it all make sense.