Posted by Richard Phillips on 21 October 2000 at 11:15:53:

I have just received the follow-up response to my letter to Michael Mates MP. He encloses a copy of the reply he had from Jeff Rooker, the Minister of State at the DSS. Paragraphs 4,5 and 6 of the Minister's letter would appear imply that IBM is wrong in law to have done what it did. It all hinges on whether its raiding of the fund can be shown to have benefited the Company itself while not being in the interests of the fund members. Here is the Minister's reply:

DEPARTMENT OF SOCIAL SECURITY
from the Minister of State
Richmond House 79 Whitehall London SW1A 2NS
Telephone: 020 7238 0800
e-mail: Ministers@ms42.dss.gsi.gov.uk

Michael Mates MP

Dear Michael

Thank you for your letter of 29 September on behalf of Mr Richard Phillips of (address deleted) concerning his occupational pension. Mr Phillips is unhappy at the indexation of his pension and the company's use of the fund surplus.

I appreciate the concerns Mr Phillips has about his occupational pension scheme, but I hope that you will understand that it is inappropriate for me to comment on any particular scheme. However, I have some comments on occupational pension schemes in general which I hope he may find helpful.

At present, increases to pensions in payment are at the discretion of the trustees in accordance with the rules of the scheme. The only exception is that schemes contracted out of the State Earnings-Related Pensions Scheme are required to index the Guaranteed Minimum Pension element.

The Pensions Act 1995 provides that all occupational pension arrangements benefiting from tax-approved status are required to index pensions accrued from April 1997 in line with prices up to 5% a year. This will be a statutory minimum and schemes will still be able to increase pensions above this level if they wish to do so.

I appreciate that this will not affect Mr Phillips as he retired in 1991. However, we are not requiring backdating of indexation, as it would be wrong to impose substantial extra costs on schemes which would not have had the opportunity to take those costs into account when considering their funding position. However, if a scheme is in surplus and the employer wants a payment from the surplus, indexation will still have to be provided for past as well as future service. We believe this strikes a fair balance between the need of scheme members to maintain an adequate income stream throughout retirement and limiting costs to employers who sponsor occupational pension schemes.

With regard to the use of any fund surplus, under trust law, neither the employer nor the scheme members own the assets of the pension scheme. It is the trustees who hold the assets and they are under a strict legal duty to use them in accordance with the deed setting up the trust and the scheme rules. They are answerable through the courts, if necessary, for any breach of that duty. We believe that the trust law framework continues to provide the best basis for protecting the interests of all those concerned with a pension scheme, including the pensioners and contributing members.

The Pensions Act 1995 requires that:

• before a payment is made to an employer from a surplus, all current and future pensions in payment must be increased annually in line with the Retail Prices Index up to a maximum of 5%, including pensions accrued in the past.
• trustees satisfy themselves that the use of the surplus is in the interest of the members .
• members have been notified of the proposal in the manner required by law.

In schemes where payment is permitted by the scheme rules, members have a new right of challenge to the Occupational Pensions Regulatory Authority (OPRA) against the trustees' decision if they believe the statutory criteria have not been followed. OPRA will then investigate the case and decide whether to allow the payment.

In schemes which do not permit a payment, OPRA have the power to modify the scheme rules. The statutory criteria would be the same as for schemes which do permit payment. OPRA would then decide whether to modify the scheme rules to allow a payment to be made.

As there are many tax reliefs associated with pension schemes, there are Inland Revenue requirements regarding schemes, including limits on the use of surpluses. These are contained in the Income and Corporation Taxes Act 1988, introduced originally by the Finance Act 1986. They were intended to make sure that pension funds did not receive undue tax relief by holding unnecessary surpluses.

Where a scheme holds funds in excess of 105% of its liabilities, it must reduce the excess if it is to retain full tax exemption. This may be done in a variety of ways including employer/employee contribution holidays, improved benefits or taxable refunds to the employer. Any plan for the elimination of a surplus must be approved by the Inland Revenue.

The Occupational Pensions Advisory Service which is located at 11 Belgrave Road, London SW1 1RB (telephone 020 7233 8080) may be able to provide independent advice to Mr Phillips about his occupational pension.

I hope that this reply reassures you that there are measures in place to protect the interest of members of pension schemes.

JEFF ROOKER MP

Posted by Pete Warren on 21 October 2000 at 12:06:50:

In Reply to: Reply to letter to MP posted by Richard Phillips on 21 October 2000 at 11:15:53:

This letter is a gem!!

The really relevant points are:

• before a payment is made to an employer from a surplus, all current and future pensions in payment must be increased annually in line with the Retail Prices Index up to a maximum of 5%, including pensions accrued in the past.
• trustees satisfy themselves that the use of the surplus is in the interest of the members .
• members have been notified of the proposal in the manner required by law.

On the first point could the payment holiday AND the use of the money for the M plan be considered a payment to the employer?

On the second point the transfer of money is definitely NOT in the interests of members

And finally, did we receive notice that the rules were being changed?

Posted by Alan Murphy on 21 October 2000 at 19:09:18:

In Reply to: Re: Reply to letter to MP posted by Pete Warren on 21 October 2000 at 12:06:50:

: On the first point could the payment holiday AND the use of the money for the M plan be considered a payment to the employer?
Yes! Because prior to the Trust Deed Amendment (Feb 2000) the employer was required to use ITS money to fund the M Plan. The Trust Deed 1997 states "Each employer shall make ... contributions ....". So in order for this to be true, the C-Plan surplus must have been payed to the employer (if only for a microsecond).

: On the second point the transfer of money is definitely NOT in the interests of members
Which members M-Plan or C-Plan members? (Silly question!)

: And finally, did we receive notice that the rules were being changed?
NO - and Neither that they HAD BEEN "changed".

I cannot find in the various reports sent to me by the Pensions Department over the years
any reference to the fact that the Trust Deeds had been changed. I am still looking.
However in the FULL '1999 Annual Report' (which you FIRST HAVE TO REQUEST from the Pensions Department), there is a 3 line paragraph which says:

"The definitive Trust Deed & Rules dated 24 April 1997, have been amended, firstly, with effect from 15 December 1997 to incorporate the benefit structures of the members transferred from the Data Sciences Pension Scheme and, secondly, on 24 February 2000 to clarify the position regarding contributions."

I think the use of the word "clarify" in this last sentence is the closest we can get to the word "change" - but you would have to be a lawyer to know the difference. Were the Deeds amended to "clarify the position" or were they "changed"? Judge for yourself - see the link below.

Posted by Tally_ho_us on 22 October 2000 at 22:37:25:

In Reply to: Re: Reply to letter to MP posted by Pete Warren on 21 October 2000 at 12:06:50:

* members have been notified of the proposal in the manner required by law.

What is the manner required by law??? You need to find out what this is???

Also I suggested that you all find and post the laws that he referred to. You need to get familiar with those laws. Just a suggestion that is.

Posted by Dave Mitchell on 23 October 2000 at 22:29:20:

In Reply to: Re: Reply to letter to MP posted by Tally_ho_us on 22 October 2000 at 22:37:25:

: What is the manner required by law??? You need to find out what this is???

Just to make this clear, the minister, Jeff Rooker, is referring to the mechanism described in OPRA Note 3. IBM has not done this (because it claims it has not been taking money out of the scheme).

I've appended a couple of relevant paragraphs from this note below.

- - o - -

19. For this purpose, the members of the scheme are active members, deferred pensioners, pensioners and other persons entitled to the present payment of benefits under the scheme, such as the spouses and dependants of deceased members. All members must be given two written notices (see paragraphs 20 and 21). Notices should be sent by post to the address at which the member was last known to be living or, in the case of an active member, to the address at which the member works. The legislation therefore makes it a requirement that all members, including deferred pensioners, are informed about the proposal. That means that if there has been no previous communication with deferred members, a letter must be sent to them at their last known address. Notices need not be given where a member has no known address, or if correspondence sent to the last known address has been returned.

20. The first notice must be given after the PSO has given approval in principle to the proposals for reduction or elimination of the statutory surplus (see paragraph 17(a)). This notice must:

1. give details of the proposals;
2. outline the requirements of section 37(4) of the Act (see paragraphs 16-18), and tell the members whether the requirements are satisfied;
3. tell the members of their right to make written representations about the proposals to the trustees before a specified date (not less than two months from the date the notice is given);
4. tell the members that a second notice will be given to them if the trustees intend to proceed with the proposals (having considered any written representations from the members), and that no payment will be made to the employer until at least three months after the date on which the second notice is given.