A Decade of Decline

Did you read the small print?

IBM once told us that: we aim to compete favourably with the practice of other leading companies. Did you believe that? Now read on ........

From comments at the London IBM Retirees meeting earlier this year, it is clear that some do not appreciate the extent of the shortfall we are experiencing compared with over 95% of "other leading companies". The following figures cover the period from June 1990 to May 2001 and are based on a starting pension of £10,000 p.a.

   Increases by IBM                  Increases at RPI

10,000   5.0%   10,500       Apr 91 (10 months)   7.1%   10,710
10,500   2.9%   10,800       Apr 92 (12 months)   4.1%   11,150
10,800   1.2%   10,930       Apr 93 (12 months)   1.7%   11,330
10,930   3.5%   11,310       Aug 94 (16 months)   5.0%   11,900
11,310   2.6%   11,610       Oct 95 (14 months)   3.7%   12,350
11,610   2.1%   11,850       Jan 97 (15 months)   3.0%   12,720
11,850   3.0%   12,210       Apr 98 (15 months)   4.3%   13,260
12,210   2.4%   12,500       Oct 99 (18 months)   3.4%   13,710
12,500   2.3%   12,790       Oct 00 (12 months)   3.3%   14,160

Not only is a one-off increase of 11% required to bring this pension up to the "RPI" level from 1990 but the total amount lost over the eleven years is £7,483 for every £10,000 of pension!! The total pension payments over 11years to June 2001 is £126,076 for every £10,000 of initial pension. If RPI had been paid, the total received would be £133,559. Whilst the first year's figure is in excess of 5% (and could be seen as slightly over-stating the comparison) only RPI increases have been assumed at the same time as the irregular IBM increases. This has the effect of reducing the payments made as shown above compared with the annual reviews that most other companies' schemes implement.

The difference for spouse pensions is even more dramatic. Over eighty "leading companies" now pay two-thirds of the retiree pension to the widow(er). Assuming, for simplicity, there were no lump sums taken on retirement, then the IBM widow would be receiving a current pension of £6,395 in comparison with the Marks and Spencer widow who is much better off on £9,440 p.a. despite their late husbands retiring on exactly the same pension of £10,000 p.a. eleven years ago

And this hasn't just happened. In the Daily Mail of 9 June 1993 an article entitled "How does your pension match up to the best?" was based on the then latest National Association of Pension Funds survey which revealed:-

Three out of every four company pension schemes guarantee increases every year.

Nearly half of all funds guarantee an increase in line with the cost of living or 5%, whichever is lower. Companies with this guarantee include BAT, Boots, BP, Guinness and BT.
Even in 1993, Shell were guaranteeing RPI up to 7% and Glaxo RPI up to 12%. "Even in 1993 three out of every four of the companies surveyed GUARANTEED increases every year" and
"Also, in 1993, nearly half of all funds GUARANTEED an increase in line with the cost of living or 5% whichever was lower. Companies with this guarantee included BAT, Boots, BP, Guiness, and BT."

More information is available in A Decade of Decline (2).

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