Posted by Richard Phillips on 02 October 2000 at 00:48:32:
I have last week sent the following letter to my MP.
Having read all the stuff on the Web Site, I realise that my description of what has been happening is not completely accurate, but I think it's close enough. I have not yet had a response.
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Michael Mates MP
House of Commons
Westminster
LONDON
SW1A 0AA
September 26, 2000
Dear Mr Mates
Urgent - Occupational Pension Schemes
In 1991, along with many others, a good number of whom will live in East Hampshire, I retired from IBM under an early retirement arrangement when they were reducing their workforce dramatically.
At the time, I was a member of their then Pension Scheme (The 'C' Plan), which provided for a pension based on Final Salary.
Under its terms, I was not entitled to regular pension increments, but we were told that the scheme was and would continue to be funded by the company to permit discretionary annual increments at 70% of the prevailing Retail Prices Index. There was a history of such payments, the company was then perceived as being benevolent towards its retired employees, and this was mentioned frequently in the process of persuading us to retire early, though the discretionary nature of the increases was emphasised. For a few years this was the pattern of increments.
However, all that has changed with a change of management in he USA, where the firm is based. Lately, the "70% of RPI" increases have been appearing at 18 month intervals, which means the real value of the pension has started to fall more quickly.
At the same time, the pension fund which underlies the scheme has prospered in a good investment environment, and has accrued a very large surplus (some £700m.) over what is actuarially required to fulfil its liabilities. As a result, the company has taken several contribution 'holidays', as the law allows.
In the 1990s the law on pensions was changed, and the company was obliged to start offering its employees a pension which was guaranteed to increase in payment at 100% of RPI. Its response was to close the C-Plan to new entrants, and to start a new scheme for current and future employees, the M-Plan, which complied with the new legal requirement. They did not, though, set up a new pension fund to undertake the new obligation, but instead the contributions to the new scheme are paid into the same fund as were the C-Plan contributions, and the same fund is to be used to pay the new, inflation-proof, pensions. Worse still, the company is raiding the surplus in the fund in order to pay its enhanced contributions to the new scheme.
So I am losing out in two ways:
The surplus built up using past employee contributions including mine is being used to pay inflation-proof pensions to others, but not to me, and to cover the cost of providing them. The 'surplus' is being rapidly exhausted.
My own pension is at the same time shrinking in value at a greater rate than I was led to expect.
I gather that IBM is not the only firm which is taking this disgraceful line.
Would you be so kind as to raise this matter in parliament, please?
In particular, would you press for a change in the law to oblige employers to use surpluses in pension funds to provide inflation-proofing for existing pensioners in addition to current and new employees when they retire, and before those surpluses are used as an excuse for employer 'contribution holidays' or raided for other purposes?
Meanwhile, with a group of other IBM pensioners, I am exploring ways to use the existing law to force the company to behave more ethically correctly, and your support would be much appreciated.
At a time when there is a clear move in all political parties to ensure that everyone has a worthwhile personal pension in addition to the state pension with a view to reducing the cost to the public purse of the latter, a new class of people is about to be created who thought they had made such provision but will have been cheated of it. Some of them may unnecessarily become a charge on the public purse in the future as a result.
This is very urgent.
Thank you for your attention