(This page created on 3 November 2004)

ON TRANSFERS

Transfers are a one-way chute to move money from the final salary plan to the money purchase plan. One might think that unreasonable when the membership of the plans is disjoint and the design of the plans so different. The final salary members certainly didn't join with the expectation of it. But it can happen and Barclay's sets the precedent. So on those very general grounds there is no case to say the Ombudsman got the law wrong.

That it was OK for Barclays, which was non-contributory and gave members very good protection against inflation, does not automatically lead to the conclusion that it was OK for IBM, where the scheme was contributory and the pensions-in-payment policy very poor. Judges have said the contributory factor makes a difference in the obligations of the provider. The Ombudsman says that makes no difference but the reasoning is slim, and was not tested in the Barclays case, so there are grounds for appeal there.

Protection against inflation comes into the picture because the effects of transfers are the same as the effects of paying the money to the company. (If the money purchase plan had been separately funded and the transfer had been a payment to IBM that was used to pay the company contribution to the money purchase plan then the effects on the members, on liabilities, and on the company cash-flow would have been the same.) Parliament put a constraint on payment to the company - that it was not legal unless good protection against inflation was in place. It is arguable that since the effects were the same, Parliament intended the same constraint on transfers. Since the Ombudsman dealt with this argument by ignoring it, and since it was not tested in the Barclays case, there are grounds for appeal there.

Even if transfers could, in some circumstances, legally be added to a contributory scheme which had very poor inflation protection, it does not automatically follow that they could be added to the IBM UK scheme. The Deeds of the scheme might have prevented that. There is no way of appealing against the Ombudsman's opinion of what the missing document would have said. [21][183] On the 1997 deeds that do exist, the Ombudsman prefers not to say whether they prohibited transfers, and says instead that it does not matter because the final salary members would have been no better off if the accelerated run down of their funding level had not occurred.[190]

This is not an opinion that the general public would endorse. They would obviously say that, other things being equal, better funding was better - the "More assets, same liabilities, equals better prospects for members" mantra.

It is not possible to appeal because the Ombudsman took an unreasonable view, but one can appeal if that view was based on an incorrect view of the law. This gets technical, with distinctions to be made between accrued benefits and accrued rights, but what the Ombudsman says in the determination provides evidence of a wrong view of the law. The Ombudsman was also wrong in law to believe that the Statutory Surplus calculations that would come into play, if there were no transfers, could be ignored.

If the Ombudsman was wrong in deriving his view that the position of the final salary members was unchanged by the transfers, the issue of how the 1997 deeds should be read would be resuscitated, potentially with the result that the initial transfers were illegal.

Even if transfers could, in some circumstances, legally be added to a contributory scheme which had very poor inflation protection, and even if nothing in the deeds of the IBM scheme prevented them, it could still have been wrong for the trustees to have allowed the transfers.

ON THE TRUSTEES DECISION

The trustees only considered two alternatives, what was done and doing nothing.[70] The third-way of creating the money purchase plan without the chute was not considered. The determination shows the Ombudsman did not address this third-way either, perhaps showing an ignorance of the legal requirement for trustees to get the best deal for the members.

Considering just the two alternatives that the trustees did, the Ombudsman claims that the members got something from the deal and lost nothing. He claims the employees would have been made to pay more in contributions if the deal had not gone through. This is unreasonable. There is material elsewhere about the employee relations debacle that would have occurred if the employees were asked to pay for a cost that only arose because the company's pensions-in-payment policy was so poor. The Ombudsman does not know about IBM UK employee relations and, as far as we know, has not consulted any of the IBM managers of the time. However, an unreasonable opinion is not a suitable cause for appeal. The claim that the members were in the same position after the accelerated run-down started is, however, cause for appeal because it is based on a wrong view of the law, as noted above.

If the issue of the introduction of the chute is not challenged the damage will probably be slow to appear. The fund has a large deficit now. Even in the timescale of pensions schemes, a surplus seems a far prospect. If the chute remains, it will never happen. The chute can be used whatever the final salary funding level, and the money purchase plan is big enough to absorb large sums, so when the prospect of a surplus appears the chute can be used to remove the prospect.

There is some element of a "public duty" to appeal here. If this Ombudsman decision gives the green light to all such chutes in all circumstances then it is reasonable to suppose that any company facing the prospect of surplus will introduce a chute, thwarting the intentions of regulations about how surplus should be dealt with.

ON PROMISES

Changing from the topic of money movement to dishonoured promises, the key clause of the determination says that the bargain one complainant claimed was unenforceable, irrespective of what investigation might show about that pension promise.[215] This is a very extreme view - surely most people would think it possible for a company, when persuading an employee to work and contribute, to say what it was going to do with such strength that on failure to deliver there was redress for the employee? It is not the unreasonableness of the Ombudsman view that gives grounds for appeal, it is the fact that it stems from a wrong view of the law.

Again there is an element of "public duty" here. If the Ombudsman is going to jettison all claims of broken promises, without investigation, because of a belief they cannot be enforced in any circumstances, then many people will find that the Ombudsman's role is not what they expected.

The "More assets, same liabilities, equals better prospects for members" assertion, and the Ombudsman's rejection of it, surfaces again in the complaint about being given wrong information when assessing what to do about AVCs. The Ombudsman agrees the information given when the chute was introduced was not clear (the complainants say erroneous) [200] but claims that did not alter the position of the person thinking about AVCs. [191] The public would not agree with that since the introduction of something that accelerated the rundown of funds in the short-term, and supressed surpluses in the long run, would be seen by them as relevant to investing with AVCs in the scheme.

Whether the Ombudsman has taken a legally wrong view is harder to judge, and applies to all the issues about whether correct and sufficient information was delivered. For example, the regulations require Actuarial Reports to be available to members. The purpose of that regulation is no doubt to recognise that some members make decisions based on the financial aspects of the scheme. Is it enough to just make the Actuarial Report available, or does the spirit of regulation require something with the magnitude of effect of the chute to be disclosed?

ON IBM CORPORATION'S ROLE

Because the pensions bargain was entered into by IBM UK and the complainants, the complainants objected to the control exercised by IBM Corporation, suggesting it was an attempt at extraterritoriality and thwarting the sense of "fair play" that Trust Law depends on. Although the investigation uncovered an opinion from Legal Counsel that tended to support the complainants, the Ombudsman chose not to investigate. This implies the Ombudsman did not share the Legal Counsel's opinion, and that would be grounds for appeal in law.

ON TRUSTEE'S ROLE

The Ombudsman accepts [213] our description of what was happening during one period - the Principal Employer had told the Trustee what was going to happen [about increases] confident that the Trustee would follow a policy of doing what IBM wanted.  The Ombudsman says the practice at the time reflected where the economic power lay.  But this might-is-right argument ignores the trustee's duty to consider the purpose of its power to propose increases and act in accord with the purpose.  We think the Ombudsman is wrong in law to ignore that duty.  The company might not have listened to reason from the Trustee, but the members were entitled to have the Trustee make the effort.

ON DUE PROCESS

On a different line of thought, there are issues about whether the Ombudsman's procedures have been contrary to the law. The regulations give the Ombudsman enormous scope for doing what he wants, but a judge has pointed out that Parliament meant him to follow some fundamental principles of justice nevertheless. What happened was prejudicial to the complainants, e.g telling them their complaints were not being investigated when they were. The investigation ignored some principles, eg in setting a date before which evidence was inadmissable. This may provide grounds for appeal, considering the near impossibility of "due process" in the circumstances.