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 inlaw 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:
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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
www.dss.gov.uk
POS(2)3134/94
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 per cent 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. W e 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 per cent, 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 per cent 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