UK Power Networks is one of the latest employers to offer individuals receiving a pension from the UKPN scheme a higher pension – but with lower increases in the future.
This is known as a Pension Increase Exchange (PIE) option and has become more common in the pensions industry in recent years.
The pension is at the new, higher rate for the rest of the individual’s life, but without any future annual increases. Over time, this means that the purchasing power of the pension income may be eroded by the effects of inflation.
The offer, which is being made to pensioners registered at March 2019, will take effect from December 2019 for those who decide to accept the revised terms. Spouses’ pensions will be unaffected at present.
UKPN says it has taken legal advice about these offers, but has declined to share this advice with individual members.
Prospect pensions officer Joe Anderton said: “Members should consider options like this very carefully. With no cost of living increases, the value of a pension actually reduces each year and a higher rate of income tax may be payable on any increased current year payment.”
UKPN told Prospect in January that the PIE option would be made available to pensioners, but there were no negotiations between the company and the union over the details.
The Electricity Supply Pension Scheme constitution has specific restrictions on employer-instigated changes to the scheme’s benefit structure and two-thirds of the Protected Members have to agree to any benefit changes. But UKPN does not currently accept the need for this.
Independent advice and data protection
The company, not the Trustee Board, is making these offers. But the trustees have arranged independent advice for those who express an interest. The company will pay the advisers.
Members who express an interest must seek this advice before, and as a condition of, accepting the company offers.
They will also have to answer additional personal questions designed by the advisers. The responses may be recorded and will be used by them to provide the advice.
All this information will be kept by the adviser company and shared with UKPN and/or their professional advisers.
Subject to individual member consent, the advising company will also have access to the UKPN pension scheme database.
UKPN said these details would be shared in line with the requirements of the 2018 General Data Protection Act.
But recent “scam” attacks on banks and other large organisations may give members cause to consider the risks involved in this process.
General information on options exercises:
Pensions Advisory Service: Transfer incentives and pension increase exchange