I would presume this is a clever (?) attempt by the BBC to reduce the pension deficit. Clearly the actuarial cost of an index linked pension is somewhat more than a flat rate one. If you can "persuade" pensioners to swap at a cost that is less than the difference for the BBC's liability then - BINGO - deficit is reduced. I could have a very interesting meeting with those financial advisers I reckon !

One needs to remember that the financial advisers are being paid by the BBC. Clearly this is an "insurance policy" by the BBC to avoid accusations of mis-selling or similar further down the line should something happen in the future (like 15% p/a inflation) and pensioners start screaming about their relatively worthless "increased flat pension" !

In the realms of the law it used to be forbidden for one side to provide the lawyer for the other side. No such sensible arrangement applies to the area of so called financial advise. How about starting off with the pensioners affected by this insisting that the BBC pays for their own choice of independent financial adviser and not be bound to take the one the BBC has chosen. It would also be rather more satisfactory from the point of view of confidentiality of ones full person financial and other circumstances. Do pensioners really want to disclose all that information to some firm working under contract for the BBC who clearly have a vested interest in the outcome going in one particular direction ?

In conclusion - Independent Financial Advisers chosen by the pensioners but paid for by the BBC, NOT the BBC's chosen adviser.

Edited for spelling error.

My friendly IFA had quite a bit to say about this, first interesting comment (I think his brother is an Estate agent);

"There are 4 things that determine the calculation of the value of an index linked pension; Inflation, Inflation, Inflation and Inflation".

Obviously it is a bit more complicated than that but this gets the message across and leaves you, me, the BBC and Chase de Vere stabbing pins into a chart to determine what said inflation will be for every year of the rest of the pensioner's life.

Uh uh. I know what you're thinking. Did inflation average 6% or 5% over the last 20 years ? Well to tell you the truth in all this excitement I kinda lost track myself. But you've gotta ask yourself one question "Do I feel lucky ?" Well do ya, pensioner ?

My reading of the BBC's letter suggests that the offer would involve not the payment of a lump sum to us, but a permanent uplift in our monthly pensions. Obviously we await details. I had a look at the inflation statistics on the ONS website. They show that from 1991 to 2014 inclusive, the average annual RPI inflation rate was exactly 3%. But that annual inflation rate rose above 5% in 21 different months, mainly back in 1991 and around 2011. The ONS's separate calculation of the RPI for two-person pensioner households shows that inflation, for them, was above 5% in 14 different quarters, or 42 months in total; in other words for 15% of that timespan (1991 to 2014 inclusive). It seems that if recent economic history is anything to go by, the chances of inflation rising above 5% at some point in the next 24 years are quite good.

Maths not my strong point, but my pension appears to have gone up some 57 per cent since I retired in 1999. That's a helluva benefit to give up.

This site includes a recent review of the fund. (30th September 2015)

"The £12.9bn (€17.6bn) BBC Pension Scheme returned 20.1% over the year to April, backed by its exposure to long-dated UK bonds and global equities.

The pension fund for employees of the UK’s public broadcaster, however, said the long-dated bonds, while adding to performance, also hampered the scheme’s ability to meet its 2026 funding target."

See;

http://www.ipe.com/news/funding/bbc-scheme-seeks-to-cap-inflation-increases-with...

This seems to indicate that the offer is to be made to 16,900 existing pensioners (Old Benefits Scheme only ?) but there is a comment later about those over 80 might be offered it so it is a little unclear. I would guess therefore that initially those over 80 might be excluded, perhaps because the increase to be offered would look quite small in % terms owing to the expected term to death (lovely phrase !) being quite small hence the potential gain to the BBC being similarly tiny.

Many other companies have gone down the PIE route, you can search around the www for some background info. Here is one from BT with a case study;

http://www.btpensionersreconnect.co.uk/Pension%20Increase%20A%20Case%20Study2.pd...

Note in that case the increase offered was less than 20% although complicated by a partially indexed bit.

Here is a KPMG document aimed at companies. Note the term "Balanced Deal Percentage".

https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/...

Here is a link to what the Pension Regulator has to say.

http://www.thepensionsregulator.gov.uk/guidance/incentive-exercises.aspx

I draw your attention to this section;

"Risks associated with incentive exercises

Where a member accepts an IE offer, an employer’s pension liability or risk is likely to be reduced. Conversely, for members the risk that they will suffer a loss in the long run will usually increase if they accept an offer. Losses could be due to factors specific to the individual (eg life expectancy or investment choices) or the overall economic and market environment in future. An IE offer is often set at below ‘cost-neutral’ terms in order to reduce an employer’s pension liabilities, and in this situation there is a heightened risk that members will be worse off.

A minority (and, very possibly, a small minority) of members may have personal circumstances which result in them being in a better position through accepting an IE offer

IE offers can create risks for trustees and employers as well. These include legal and reputational risks materialising many years after the IE has taken place.

IEs can be costly. There is the cost of the incentive itself. Also there is a cost to obtaining advice (legal, financial, and actuarial). Designing IEs to meet appropriate standards (including those in the Industry code), can present significant challenges which come with a cost implication."


Oh dear, it is all getting very heavy and technical isn't it . Finding it hard to take all this in ? Would a pretty coloured diagram help ? Here you go !

http://beaufortconsulting.co.uk/pietest/key-considerations/your-health-and-life-...

Simples ! all you have to do is work out whether your life expectancy is average, better than average or worse than average.















Edited due to broken link.
Edit2 added KPMG document link
Edit3 added link to government pensions regulator +copy  text
Edit 4 added link to pretty coloured diagram