Contents

  1. PENSION SCHEMING - 1 December 2000
  2. MERGER MOST FOUL - 3 November 2000
  3. MARSHALL LAW - 6 October 2000
  4. IBM Dishonourable mention - 13 July 2001
  5. Honourable man - 10 August 2001

PENSION SCHEMING

An EXTRACT from Private Eye 1 December 2000 Number 1016

The Barclays case has been watched closely by British employees of the vast American multinational IBM. The patter of pensions at IBM is rather familiar. In 1997 the employers switched the old final salary pension scheme to a new money purchase scheme. One happy consequence of this switch for IBM shareholders was that the employers' (though not employees) contributions to the new scheme were paid out of the enormous surplus - estimated at £700M, - on the old one.

The beneficiaries of the old scheme are up in arms, protesting that their benefits are affected by the company's decision. The IBM C Planners' website is peppered with furious letters to IBM directors and pensions trustees pointing out the flaws in the company's arguments. One common reply is that "legal advice" was taken before funding the new scheme of the old one, and the lawyers, paid by the company, gave the go-ahead to the company to loot the surplus. The matter has gone to the pensions ombudsman and before very long will no doubt wend it weary, familiar and expensive way to the high court.

The full text of this article is here PENSION SCHEMING

MERGER MOST FOUL

An EXTRACT from Private Eye 3 November 2000 Number 1014

This extract relates to the British Airways (BA) Pension Fund. BA and the Pension Trustees had attempted to merge the fund for older employees (APS) with the fund for younger ones (NAPS).

........ (this) would allow British Airways to subsidise the new scheme while continuing a 40-year "pensions holiday" on the old one.

Then on 20 October the trustees met, reinforced by Mike Post. Unanimously they decided to do a smart about-turn. Previously they had all been in favour of the merger. Now they were all against it. "The trustees," said a statement, "will now be notifying BA that they do not consider it appropriate to proceed with the merger."

The about-turn followed advice from the same actuaries, Watson Wyatt, who originally supported the merger with such passion but who had now changed their tune after carrying out reevaluations of both schemes.
................

The full text of this article is here MERGER MOST FOUL

MARSHALL LAW

(from Private Eye 6 October 2000 Number 1012 Page 26)

Sixteen years ago, before it was privatised, British Airways set up a new pension scheme for its workers. Colin Marshall, then BA chief executive, reassured pensioners with a clear commitment. "These are not in any way rival schemes," he wrote on the front page of the British Airways house journal. "They will of course be legally independent, and I can promise you that neither is going to subsidise the other."

The words to remember are "of course" and "promise". For under the chairmanship of the same Colin (now Lord) Marshall, and in defiance of the declared wishes of its pensioners, BA is proposing to merge the two legally independent pension schemes so that one can subsidise the other.

So secure and generous was the pension scheme under public ownership that BA's City backers refused to contemplate privatisation unless the scheme was replaced. So the old airways pension scheme (APS) was replaced by a new airways pension scheme (NAPS). Members of the old scheme continued to enjoy the security and benefits of the old scheme. To tempt members of the old scheme into the new one, the trustees offered a juicy bribe averaging £4,900 - £15,000 for a pilot - but thousands of APS members were shrewd enough to turn the bribe down and stay in the old scheme.

By last year in the old scheme there were roughly 5,000 active (that is, still employed) APS members, 32,000 pensioners and £6bn. In the new one there were 41,500 active NAPS members, 23,000 pensioners and £3bn. The old scheme had accumulated a huge surplus - actuarially valued at £993m, but at market value worth well in excess of £1bn. So British Airways had not paid a penny into it for years.

By contrast the new scheme had run into a deficit, and BA has to pay some £90m a year into it. The advantages for BA in merging the schemes are thus fairly obvious. It would be able to use the surplus on the old scheme to subsidise the new one. In general, the huge surplus on the old fund, which could and should be used to raise benefits and provide long-term security for pensioners, would be used instead to bolster the dwindling fortunes of BA.

The announcement by the trustees (who are the same for both funds, as is their chairman Derek Stevens, finance director of BA) that the funds will be merged was made in July last year, and might well have gone ahead in an atmosphere of general apathy and ignorance. Unluckily for BA, the merger proposal was studied very carefully by a British Airways pilot captain called Mike Post.

Mr Post discovered, among other things, that the same firm of actuaries - Watson Wyatt - was advising BA and the trustees of both pension schemes, and was recommending the merger. Rather different advice was given to BA pensioners by an independent firm of actuaries, Barnett Waddingham. It pointed out that if the merger proposal went ahead "several hundred millions of APS monies would be allocated from benefit security and improvements under APS to the employer". In plain language of a type not normally used by actuaries, the huge surplus under the old scheme was going to be swiped by BA for its own purposes.

Mr Post also discovered that if he collected the signatures of 50 active members of APS he could call a meeting. In a couple of days he gathered 100. On 19 August last year, 800 people flocked to a meeting in a Heathrow hangar. In his speech on that occasion, Mike Post pointed out the differences between the two pension schemes. He singled out clause 18 of the trust deed of the old scheme which insisted: "No changes or additions to the rules can be made which would result in the return to an employer of their contributions or part thereof." There was, he pointed out, no such security in the new scheme.

On a show of hands 93 percent voted against the merger. Two days later, another meeting was called at the spanking new BA Waterside building at Heathrow. Fifteen hundred people turned up this time and on another show of hands, only seven voted in favour of the merger.

In November last year, in a postal ballot, to which 78.2 percent responded, 276 active (employed) members of APS (7 percent) voted in favour of the merger, 3,620 (93 percent) against. In a second ballot of all APS beneficiaries, 4,945 (21 percent) voted in favour of the merger, 18,070 (78.5 percent) against.

The matter came to the high court in front of Mr Justice Park for a preliminary hearing on 31 March this year. The courtroom was stuffed with top City lawyers, the senior ones on £400 an hour. The hearing was expected to last one day, but lasted for four. Mr Justice Park ordered that the active (employed) APS members should be independently represented and their legal expenses paid out of the pension fund. He was clearly impressed by the size of the majorities against the proposed merger, and impatient with the delaying tactics of employers and trustees who seemed, as so often, to be in unison. A full high court hearing has been set down for 15 January next year.

In the meantime Mike Post has stood for election as a pensioners' trustee. He was surprised to discover that none of the candidates could issue an election address or indeed circulate any argument. The result was announced on 27 September. There was a 52.1 percent turn out - extremely high for a pension trustee election. The votes cast were: Mike Post, 9,827 (65.6 percent); Bob Bolt 5,108 (34.1 percent). The result is said to have caused intense dismay in the office of Lord Marshall, but equally intense celebration among British Airways pensioners.

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