This page has the content of Determination R00713, converted by Optical Character Reading from a paper copy.  The identification of the person complaining has been removed.

9 January 2008

Your complaint against the IBM United Kingdom Pension Trust Limited (the Trustee) concerning the IBM United Kingdom Pension Plan (the Scheme).

Thank you for your letter of 2 October, responding to Annabelle Cyprys’ letter to you of 24 September 2007, setting out her view of the likely outcome of your complaint. I have reviewed your case and considered the contents of your recent letter very carefully. I enclose copies of correspondence you have not yet seen.

You say that the key point of your complaint is whether the funds you paid for with your AVCs should be considered part of the total pension fund and be treated in the same way. You do not think that they should be and re-state your complaint in the following way;

“Powers have to be applied with good reason. IBM profiting from a change in my pension, when I had fully paid in advance for the pension at the price the trustee quoted, was not a good reason. The trustees were wrong to accept it as a reason.”

You also make the following points in your letter:

• You accept that you do not have a contractual entitlement to increases of 70% of RPI because the Trustee and IBM have powers to diverge for that when there is valid cause.
• When the Trustee sold you your AVC pension you established an agreement. It was an implicit component of that agreement, as with any similar agreement for one party to
supply another party for a price, that what would be delivered would not be less than the original intention of the agreement unless there was a good reason.
• Good reason which might lead to a reduction in what was delivered was the possibility of the overall scheme being in jeopardy.
• The characteristics of the deal that you have with the Trustee are determined by anumber of factors, including, the Trustee’s published figures over decades, the published algorithm, actual increases to pensions in payment, descriptions, opinion in determination K005 16, actual parameters and by legal opinion.
• The expense of maintaining the increases to the whole of the Scheme is not sufficient reason not to uphold your complaint as it would have no cost, since you have already paid in full for your AVC pension

• Discretions must be used for the purpose they were intended and not exercised for irrelevant reasons.
• The Trustee had an obligation to make sure that its advisers understood the context and an obligation to act on the advice only if it was not contrary to the Trustee directors’ duty to act in the best interests of the members.
• If the Trustee received and acted on advice that IBM was entitled to some of the money that you had paid for your pension (in the form of a reduction in its contributions to the fund) the Trustee was being perverse.
• You ask for a copy of the advice received by the Trustee
• You do not suggest that the Trustee acted with bad faith but that does not ensure good behaviour.
• Evidence of maladministration by the Trustee is that your money, provided in response to a quote from the Scheme, should be directed towards IBM’s profits rather that the delivery of the pension.
• You do not see how the offer by the administrator is relevant to your claim as you wanted the deal that you already had to be honoured not to change it.

Although you have taken issue with Annabelle Cyprys’ summary of your complaint, I note that in your complaint form and in correspondence you refer more than once to the “bargain” or the “deal” that you had with the Trustee and to the “pension that I bought with my AVC money”. All of these comments indicate that you believe you had a contract with the Trustee, or something very similar, to provide you with increases of 70% of RPI and that this was a fundamental term that could only be varied in limited circumstances. It is these circumstances which are in dispute. I hope that you accept that as a fair summary.

The strict position according to the relevant documents is that all pensions in the course of payment “..shall be increased by such amount as the Trustee, with the consent of the Principal Employer, shall from time to time determine on the basis of advice from the Actuary.. .“.Information dated April 1996, concerning AVC Plans (a copy of which has been forwarded to you) provides, in relation to a T Plan member (which you were) under the heading “When you come to retire” that:

“Your account will be used to purchase IBM main plan pension in the main plan to which you belong. You may also use the value of your pension account to purchase a pension with an outside provider, however, the rates which IBM offer are unlikely to be matched by an outside provider. In both A and T Plan cases any pension will be provided under the terms and conditions of the main plan pension as set out in the appropriate main plan section of the handbook.”

When you elected to take your AVC pension benefits, you elected to do so in the form of a single life pension, with discretionary increases “as awarded by the Company from time to time”. Your AVC pension was purchased within the Scheme with your AVC fund. It was therefore clear that increases were subject to the consent of the Company. While you may have decided to choose the option you did on the basis of the characteristics that you mention, this does not determine the terms of the arrangement which you had with the Trustee. The terms make clear that you had no right to any specific increase.

The literature sent to you before you made your election underlined the discretionary nature of the increases and that they would be the same as awarded to your main Scheme pension accrued before 6 April 1997.

As to whether the Trustee acted fairly in determining the increase, discretions, as you rightly say, must be exercised jr accordance with certain principles. For instance, a person exercising a discretion must act reasonably and not in an arbitrary fashion, must not reach a perverse decision, must take into account relevant factors and must ignore irrelevant factors. In reaching a decision, trustees will frequently have to balance competing interests, such as the interests of an individual member as against the interests of the membership as a whole and are entitled to take into account the interests of the employer.

Before accepting the Company’s position and determining the amount of the increase, the Trustee considered the position as is evidenced by the minutes of their meetings of 19 January 20C6 and 23 February 2006, extracts of which you have seen. They took appropriate professional legal advice (from Leading Counsel and their solicitors) and the advice of the Scheme Actuary, the solicitors and the Actuary being present at the Trustee’s meetings.

You argue that Trustee’s decision is perverse as it has taken into account the interests of the Company which is unfair and irrelevant as the Company has no rights in relation to your AVC pension which you had already paid for in full. I am afraid that particular reasoning simply cannot succeed. You accept that the 70% RPI increases may be varied as long as the considerations are appropriate, but paradoxically you say that the reason the considerations actually taken into account are not appropriate is that there was a commitment to pay 70% of RPI increases (subject to appropriate variation).

I think a far more important issue is what the actual basis was on which you bought pension from the Scheme. If the Scheme’s actuary had assumed 70% of RPI increases in setting the  rate, and other actuarial assumptions as to future investment returns etc were likely to be born out in practice then you might be right that the Scheme was making an unfair profit. However, the minutes of a trustee meeting on. 19 January 2006 (a copy of which you have) say:

“. .The question was raised as to whether there was a pre-existing requirement, either within the annuity calculation or other document, which required that AVC pensions should include PIP increases at a level of 70% of RPI. In response to the latter question Mr Newman ( Secretary to the Trustees) advised... that he had never seen any such documentation. It was noted by Mr Alexander (the Actuary) that the annuity calculation used was an old one and did not reflect current market conditions and he stated that current rates would be very considerably worse. “(My emphasis)

This is consistent with the assertion made at the time that a pension bought from the Scheme was likely to be better than an annuity bought commercially. In practice, the adjustment in the increase rate is unlikely to result in a profit to the Scheme.

It is not for me to substitute my decision for the Trustee’s decision and I am satisfied, on the basis of the evidence, that the Trustee has acted in accordance with the requirements of the Scheme and the principles of law. You are not therefore entitled to receive continuing increases of 70% of RPI on your AVC pension.

So my Determination is not to uphold your application, essentially for the reasons given in Annabelle Cyprys’ letter of 24 September as added to above.

The Determination is final and binding on all parties, subject only to an appeal on a point of law. In England and Wales, appeal is to the Chancery Division of the High Court, in Northern Ireland to the Court of Appeal and in Scotland to the Court of Session. The courts have quite short time limits within which appeals must usually be set in motion, in some cases as short as 14 days, so you should take advice quickly if you are considering an appeal.

Please may I formally remind you that documents received by you during the course of the investigation are to be used by you only for the purposes of the investigation of your complaint and not otherwise disclosed. Failure to comply with this requirement may result in proceedings for contempt of court.


Yours sincerely



Tony King
Ombudsman