We helped the sponsor and trustees bridge the gap to buy-out using GMP conversion combined with a Pension Increase Exchange (PIE) exercise. 

A PIE exercise involves offering members the option of a higher initial pension in exchange for lower pension increases in future. 

The background

The trustees and sponsor of a c£100m scheme were keen to be able to move to buy-out but the cost of doing so was not affordable at the time. 

The sponsor proposed to offer members a PIE option, and to combine this with GMP equalisation using GMP conversion.  This was designed as a package of measures to improve affordability by making the scheme more attractive to insurers. 

The key question

We worked with the trustees to design a GMP conversion approach that delivered benefit simplification in a considered way no matter whether members took the PIE option or not. We also prepared communications to help guide members through the process and distinguish between the legal requirement to equalise, the trustees’ choice to use conversion and the member’s option to take a PIE. 

We ensured the trustees took the opportunity to address historical rectification issues and get data ready for going to insurers for buy-out quotations. 

The results

Our advice helped the trustees implement what the sponsor proposed in a way that was reasonable in the context of their fiduciary duties. 

Our clear communications and design of the offer resulted in around a third of members taking up the PIE option.  

Overall, the exercise reduced the gap to buy-out and benefits were simplified, making them more attractive to insurers. As a result the scheme was ready to go to the insurance market to lock in current favourable pricing.