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South
Africa provides protection for scheme members against abuse of corporate
privilege, where the UK does not. There are regulations dealing with the
use of "surplus" by splitting it into an Employer Surplus Account and a Member
Surplus Account, while UK regulations only require that the trustees say that
they considered the members (whatever they actually did). Regulations in
South Africa call
for half of the trustees on a trustee board to be member-elected. Recent UK
regulations call for one-third of trustees to have been member nominated but allow the
selection from amongst such nominees to be made by the previous trustees. South
Africa has an Ombudsman who seeks out company misdeeds,
saying:
"[T]he
purpose of this office is not only to determine and dispose of complaints lodged
in terms of section 30A(3) but also to investigate complaints....Where our
investigation reveals any form of maladministration or unlawfulness, which has
not been pleaded by the parties, it will nevertheless be further investigated
and forms part of the ruling where necessary. Whenever our investigation reveals
a related issue not initially raised or accurately formulated by the parties,
all interested persons shall be afforded an opportunity to submit further
submissions and evidence in respect of this new issue."
The UK
currently has an Ombudsman who believes that pensions are corporate charity and
he should not investigate what complainants did not complain about in their
original submissions.
You can
find more on the difference of context between the UK and SA in
the chronological index for the South African section.
You will find that IBM altered the deeds ahead of the appointment of the
one-half elected trustees so as to diminish their effectiveness. The
elected trustees obtained a legal opinion that IBM had acted illegally.
It now
appears that the conflict will resolve itself by IBM handing over its final
salary pension obligations to insurers who provide annuities and to a residual
trust run by the elected trustees. The only analysis of this prospect that
AMIPP knows of is a letter to the scheme members.
Here is one of the options, from which you can judge the attractiveness of the
others if you don't want to read them all.
INFLATION GUARANTEED ANNUITY
Your pension value, enhanced by a proportionate share of the solvency reserve
and member surplus, will be transferred to an insurer. The insurer will
guarantee annual pension increases in line with the increase in inflation (CPI)
for life.
This kind of cover is more expensive to buy than a With Profit annuity.
Consequently, on transfer to the insurer, your monthly pension would increase by
about 20%.
This option gives you peace of mind in knowing that future increases will be in
line with inflation. This is an important factor, particularly in times of high
inflation.
AMIPP suggests there are three
messages for UK scheme members to be derived from the South Africa story:
1. The potential was
there in the UK, some eight years ago, for much more benefit improvement than
our trust delivered. There are similarities between our fund then and the
South African one before the latest changes. Both were subject to
inadequate protection of pensions against inflation. (According
to Hull [a South African Elected Trustee], in 1996, IBM implemented a
strategy to keep pension increases at two-thirds of the Consumer Price Index,
and to delay increases in order to grow the fund surplus. This is in spite of
IBM's undertaking to provide pensions "comparable to the leading employers in
our industry". ) In both countries the company said one thing and did another.
(In
both countries, on average the pensions
of DB funds have kept place with inflation and leading employers have done
better, with IBM much worse). Both
funds were in surplus despite low or absent employer contributions.
Judging on what is being achieved in South Africa, divorcing the UK fund from
IBM would have led to much better pensions. It is worth noting the South
African Member Electeds say "Of necessity our
investment strategy would have to be more conservative than at present"
so a UK equivalent would have avoided the worst
of the 2002 equities slump.
2. Our failure to get
redress for IBM's dubious practice around 1996 is due to the weakness of scheme
member protection in the UK. The IBM approach to pensions in the
UK, in the USA, and in South Africa is co-ordinated from Armonk. This is
reflected in the closeness of policy between the UK and South Africa, and by the
"Corporate Instructions" described in the Ombudsman's Report. It seems the
South African scheme members will achieve a 20% pension increase, inflation
proofed. US scheme members have
used the law
to obtain $320 million from the company. There
is another $1400 million due, subject to appeal. Nothing concrete has been
achieved in the UK because we have an Ombudsman with no specialist background in
Trust Law and a setup that is unbalanced - Ombudsman mistakes of law in one
direction can be corrected in the High Court but mistakes in the other direction
cannot be, since complainants cannot risk the cost of High Court action.
3. MEDs matter. Given the
history of MEDs ineffective opposition to the degradation of the IBM UK pension
schemes, one might argue that MEDs (and hence MED elections) are irrelevant to
you. It is true that there is no prospect of UK MEDs emulating the South African
MEDs success because there will never again be a significant surplus in the UK
fund. (If there was ever a prospect of one, the company would use its
power to take some assets from the final salary fund and use them to pay its
contribution to the money purchase scheme.) Nevertheless, there are
other things than surplus allocation which scheme members care about. The
eventual success in South Africa does indicate that having the scheme members'
point of view heard has advantages, however powerful the corporate privileges.
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