Company Pension Provider Offers a Gamble...

Is this proposal something which can be accepted on an individual basis, or will scheme members as a whole have to decide whether or not to accept it? It seems to me that the older you are, the better the deal!

How do you define "catch up"? Do you mean that in 4 or 5 years the annual rate of indexed pension would be the same as the step-increased pension, OR that in 4 or 5 years, the TOTAL received from the two options would be the same? If it's the first of these, it would be 8 to

10 years before the total amount received (ignoring tax) started to be less than with the indexed pension - by which time you'll be 86/87 ish.

Sounds like a reasonable deal to me - unless you're confident of getting your telegram from the Queen! [Blimey, how old will *she* be? ]

Yes, and it is intended to be a once-only offer.

Yes, but the individual increases may be calculated actuarially, as I expect they will, the offer may be derisive in my case.

Yes, up to now I have looked at it in a simple-minded way.

Bear in mind that anyone born today could be expected to reach 100. At that age I probably won't know whether it's Charles or William in charge, and won't care, the government will probably be a UKIP/BNP coalition.

There is often a choice at the time of taking a pension, life insurance, or annuity, but I think it's the first time I've heard of it happening during receipt of pension.

I will have to look at the Pensioners' web site, it could generate some lively discussion...

Unless this is a pension which goes well beyond meeting your basic needs (i.e. is just meant to fund luxuries which advancing age is going to reduce your demand for in any case), then unless you have hot tips from a usually reliable source that your demise is imminent, it would be daft to go for this, unless they are proposing only to cut a limited number of future annual increases.

For example, suppose that RPI will equal 3% for the foreseeable future, and that therefore in real terms your pension would remain level.

You haven't seen the detailed offer yet, but supposing the step were

15%. This corresponds to a real-terms increase in year 1 of 11.65% (before tax, calculated as 1.15/1.03).

In year 2 you're still up 8.4% (1.15/(1.03^2)), in year 3 5.24%, year 4 2.18% and by year 5 you'd be down 0.8%. But you'd have had 4 fat years. What happens next? Are you expected to suffer 4 lean years before the annual increases kick in again, or are you expected to suffer a permanent annual real-terms decrease?

If the latter, it does seem a very bad idea unless you either know you're going to die soon, or the step is a whole lot bigger than the 15% example figure I gave.

What you need to look at for comparative purposes is the ratio of typical annuity rates for non-index-linked vs index-linked annuities.

In that case, the deal may not be so good - you'll need to read the small print!

I had a small step increase (about 5% I think) in one of my pensions which was already in payment, in return for agreeing to it being merged into a larger scheme with the same ex-employer - but that was all or nothing, and scheme members had to decide collectively whether or not to accept. In this particular case it didn't make any difference to annual increments[1] - because these are discretionary, and not guaranteed, anyway.

[1] When I first started drawing this pension about 10 years ago, the fund was over-funded and there were fairly generous annual increments. However, thanks to Brown et al, it's now under-funded and the pension payable (which, fortunately, isn't my main pension) is unlikely to increase in the foreseeable future.

In message , Roger Mills writes

Our scheme has the facility for the provider to add discretionary amounts above the normal 3% maximum, and this was done on one occasion, I seem to remember, when the plan was well funded.

Brown's changes to the tax liability is always quoted, but a number of employers announced and took "Contribution holidays" from their part of the funding, including ours. That didn't help, and in fact when my last company (call them ICL) became part of a larger group and then farmed out again, a very healthy pension fund surplus disappeared.

Thanks for that response, I'll consider your comments carefully, and of course the devil will be in the detail of the offer, when I receive it.

I manage to do the things I want to do, and actually put away over £3G per annum, so I can afford to sit with the scheme as it stands, and the potential inflation figures for the next few years suggests that the maximum 3% increase will be maintained.

yes, I know somone who worked for company A which had a pension fund well in surplus. Company A was bought by company B whose pensio nfund was just about balanced. they merged the two pension funds and promptly took a long contributions holiday. The new A+B scheme is now heavily in deficit :-(

Robert

There must be very few funds in surplus these days due to a combination of:

• changes to the taxation regime

• loss of value of funds invested on the stock market

• changes to the actuarial rules in the light of increasing longevity