These are comments on the actual Determination R00713.

The complaint was:

“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.”

From this and the other input that the Ombudsman shows, we can say that what the complainant wanted the Ombudsman to do was:

(a) Establish that the buyer (the complainant) and the seller (the trust) thought the deal involved full payment in advance, at the time the deal was made, prior to 2006.

(b) Establish what benefit the actuary was told to calculate the cost of, at the time the deal was made.

(c) Establish whether the benefit resulting from the 2006 changes was less than (b).

(d) If it was, establish the reason for the changes.  (The complainant suggests IBM profited from the changes.)

(e) Judge where the reason fell on the scale of acceptable and unacceptable reasons.

What the Ombudsman chose to do instead was:

In relation to (a): The Ombudsman does not comment.  If the trust had challenged view (a) then one would have expected the Ombudsman to say so.

In relation to (b): Although the Ombudsman recognises one possibility, "if the Scheme’s actuary had assumed 70% of RPI", he does not ask what the actuary actually did calculate.  In order to calculate, the actuary would have to have been given some basis, since future increases can amount to as much as a third of the value of a pension at retirement.  The Trust does not say what the actuary was calculating.  The attitude of the trustees is illuminating.  They are not interested in what the actuary actually did, only in whether there is a paper trail that would show what the actuary did -  "Mr Newman ( Secretary to the Trustees) advised... that he had never seen any such documentation."

Surviving documentation or not, the actuary was costing a pension and could not do that without considering increases.  Even if the trustees and Ombudsman chose (pretended?) not to think about that, scheme members can deduce the answer.  The 1994 Actuarial Report says "...the Trustee and the Employer to continue their discretionary practice of periodically granting increases to non GMP pensions in payment".  So the 70% policy was established by 1994 and data shows it continued until the 2006 changes (after the AVC cost calculation was done).  Perhaps as much as two decades of the policy in practice.  What other policy than this could have gone into the calculation? 

We cannot know why the Ombudsman did not enquire into what calculation was done, which leaves open the possibility that the Ombudsman did not wish to acknowledge that the understandings of the buyer and the seller, about increases, were the same.

In relation to (c):  Because the Ombudsman chose not to consider (b), he has nothing specific to say about (c).  There is mention of "adjustment in the increase rate" but nothing about what that adjustment was from or to.  Scheme Members will note that an uncapped 70% of RPI is always more than a capped 60% of RPI. 

In relation to (d): The Ombudsman does not ask what the reason for changes was.  However, no reason has ever been suggested other than to cheapen the scheme from IBM's perspective.

In relation to (e): Here we see why the Ombudsman showed so little interest in (a) through (d).  He asserts that "It is not for me to substitute my decision for the Trustee's decision".   In other words, there is no level of wrongness in reasoning which would lead this Ombudsman to judge the Trustee action as maladministration.  So the complaint was doomed to rejection from the start, without any analysis of what actually happened.

Overall, the determination is useless to the complainant (and anyone considering a similar situation) because it does not address the complaint actually made, and because it refutes the complainant's view that Trustee reasoning can be sufficiently "wrong" as to amount to maladministration.

It is worth considering whether what the Ombudsman did consider has lessons for us, even though he did not consider the actual complaint.

"Deal" versus "contract":  If buyer and seller agree on something, both understand it the same way, but they then sign some document that can be interpreted differently, does the document or the understanding prevail?  Does it make a difference if Trust Law is involved?  For every occupational pension there is a deal - somebody provides work and/or money and gets later payments for a lifetime.  But how far is there a contract? Lord Scott, a law lord, once commented on this conundrum:

“For the present it suffices to notice that the result of Equitable Life litigation is that in exercising their distributive powers trustees and managers of pension funds should regard themselves more as giving effect to a contract rather than exercising discretionary trust powers.”

Lord Scott does not say there is a contract, he says that trustee behaviour under Trust Law should be more like giving effect to a contract.

This refinement is too much for the Ombudsman.  He contradicts the complainant, who says there is no contract, by treating the complainant's assertion that there was a deal as an assertion there was a contract.  Consequently, he says the complainant's "particular reasoning simply cannot succeed".  (Notice also that, even under this distortion of the complaint, the Ombudsman cites no regulation, legal precedent, or independent opinion in support of his view.)

The Ombudsman finds a paradox in that the complainant acknowledges that the deeds allow for discretions, while claiming there is a test of reasonableness that the trustees should apply before agreeing to changes to increases & deeds in a particular case. 

So this bit of the determination does not clarify anything for anybody.

"profiting" versus "making a profit"

The Ombudsman says "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."  This is astonishing:

(a) In its loose talk about a Scheme profiting.  A scheme does not have a profit-and-loss account; the sponsor does.  A scheme becoming cheaper is not a profit for the scheme, it is a profit for the sponsor.

(b) In the suggestion that the fairness of the deal depends on what future actuaries, after the deal was done, would consider likely to be borne out in practice.  Imagine a parallel universe in which returns were on an upward trend and longevity downward.  Would an Ombudsman there support a claim for compensation because the current costings of a complainant's AVC pension were lower than the costing when he bought it?  Surely not - the Ombudsman would point out that the deal was unaltered by whether it looked later to be a good or bad deal for the complainant.

Yet this determination considers and emphasises the current actuary's opinion "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" .  Of course this actuary is reflecting perceived knowledge - for some years now actuaries have lowered annuity rates.  The costing of every occupational pension in the country will have become larger for the same benefits. What is astonishing is that the Ombudsman should think it relevant to this complaint. Perhaps he has a lack of clarity between "profiting" and "making a profit".  When a provider finds a way to deliver a lesser benefit (or a given benefit at a lower cost) that provider is profiting, whether or not the whole deal makes a profit.  In case R00713, IBM profited - see (c) above.

This lack of clarity is apparent in the statement "..the adjustment in the increase rate is unlikely to result in a profit.. ".  Since the adjustment was downward the sponsor must have profited.  Whether the deal "makes a profit" is mostly down to how long the complainant lives - how much can the Ombudsman know about this particular complainant's death date?   

Does AVC make a difference?

An AVC pension is different from non-AVC pension.  The deeds confirm that.  The deeds do not prevent increases on AVC pension being different from those on non-AVC pensions.  The Ombudsman presumably understands this, since he does not say otherwise.  The Ombudsman ignores the fact that before the 2006 changes were made, the Trust proposed to IBM different increases for AVC and non-AVC pensions.

However, his statement that "The literature... underlined...that they [increases] would be the same as awarded to your main Scheme pension accrued before 6 April 1997"  suggests some inconsistency with the deeds.

All of us would like to see what words led the Ombudsman to that conclusion, but he quotes none.  It is unlikely that the literature is definitive on whether the increases on AVC and non-AVC would be the same percentages.  If equality was an element of the deal, and emphasised in the literature, that would have inhibited the trust from even suggesting to IBM that AVCs deserved better treatment because of their upfront funding. [If you have seen some literature that supports the Ombudsman opinion, naturally AMIPP would like to know.]

Sadly, this is one of those "pig is a cow" situations.  If the Ombudsman says something is underlined then it is underlined - the process does not allow the complainant to say otherwise.