Royal British Legion to expand Pie after £1m saving

These exercises offer members the chance to exchange their future pension increases for a higher initial pension. They have become popular as a method to reduce future liabilities, while an industry code last year sought to introduce safeguards for members.

The charity offered a Pie to more than 500 of its pensioner members – of whom 60 per cent contacted the independent financial adviser employed by the company, and 123 accepted the offer – knocking £1m off the scheme's liabilities.

"We are currently working on another offer letter to provide to people as they come up to retirement to give them the same option," said chief financial officer Helen Downie.

Under the plans, members approaching retirement would be offered the scheme pension, a one-off lump sum or a Pie.

The charity hopes the second phase "will actually be better" in terms of the financial benefit to the £58.1m scheme – which had a £6m deficit at end-September 2012 – but plans are at early stages, Downie added.

How to get good take-up

As part of the offer, which closed in October, members were given the opportunity to give up pension increases above the guaranteed minimum pension for the pre-1997 element of their benefits, in return for a larger initial pension.

We try and keep technical detail to a minimum

The member received 60 per cent of the benefit of this scheme, while the scheme itself received 40 per cent. "There was quite a prolonged period of negotiations," Downie said of the discussions between the company and scheme trustees to set the level.

The employer is tackling the scheme deficit in two directions – paying £940k in contributions in the year from October 2013 as part of a recovery plan, while reducing liabilities at the other end. Downie said: "By working in both directions we will ultimately get to the point where it is fully funded."

Nick Flynn, divisional director at the LEBC Group, which advised members on the deal, said: "The way that we correspond with people is so that we don't hassle them in any way, but we try to keep technical detail to a minimum."

Following the initial offer letter, it sent a one-page 'we are here to help' letter to the members. "The one-pager caused 200 people to phone," said Flynn. "That really got the ball rolling."

Royal British Legion's member safeguards

But the charity was mindful of treating its pensioners fairly, both for paternal and reputational reasons. It put in place a safeguard for scheme members that could have been vulnerable such as ex-service personnel on supported employment.

If you are getting 70 per cent or 80 per cent take-up, probably there was something not quite right

"I would authorise a face-to-face meeting with that person," said Downie. "[The adviser] would go to that person's home and have a face-to-face meeting with them."

The industry's code of practice for these incentive exercises, published last June, requires a number of safeguards for scheme members that could be vulnerable.

One important requirement taken up by the charity was that members who are more than 80 years of age should only be offered a Pie on an opt-in basis.

"[They] should only receive a short letter to notify them that the exercise is taking place and that they will not be contacted again unless they get in touch to ask for an offer pack," the code reads.

Margaret Snowdon, chair of the Incentive Exercises Monitoring Board and one of the authors of the code, said the concern was that some members could be taken by surprise by the offer.

"A lot of people, especially the older ones have been retired [for] quite some time, and are quite happy with what they are receiving – they can panic."

The IEMB is less concerned with exercises conducted at retirement, such as the Royal British Legion's planned offer, where members are geared up to make a decision on their retirement anyway.

Employers are more likely to come under scrutiny where the financial benefit of the exercises was too far skewed towards scheme funding, or where take-up was excessively high.

"If you are getting 70 per cent or 80 per cent take-up, probably there was something not quite right there," said Snowdon.