27 April 2004

A request:  If you are an "E-mail Buddy", please print this newsletter and give it to your buddy.

The public situation with respect to the complaints and the Ombudsman is largely unchanged.  We can make no prediction about when there will be a determination. 

The updates to the website since the previous newsletter are:

South Africa Update  This one is discussed under world affairs below.

History of Pension Increases (updated)   For those who like to see the data gathered in one place.

Hursley Retiree Club AGM 2004      A report.

The Mechanics of AVCs    For those interested in the practical detail of how our scheme handles AVCs.

links to the Pensions Bill      With updated information on the Pensions Bill that Parliament is now considering - see also below.

The following are also added via our links page:

Another weighty report on UK pensions prospects generally.  It is from the Economic Affairs Committee in the House of Lords and is called Aspects of the Economics of an Ageing Population.  It is not restricted to occupational pensions and not at all particular to IBM, but those with a general interest in pensions will probably find at least the summary worthwhile reading.  The report is more fact-based and analytic than some we have seen.

Were you born between 1925 and 1945?  There is a report from actuarial experts that this age group is doing particularly well on longevity.

Pensions Bill - 2nd reading debate For those who want to see what MPs in Parliament said about the Pensions Bill

Hansard for the Committee Stage For those who want to see what MPs discussing amendments to the Bill said in committee.

The theme for UK Pensions since the last newsletter has been regulatory failure and the government's unwillingness/slowness to offer compensation.  This has shown up in the Penrose report.   Lord Penrose found that one component of the Equitable disaster was lack of adequate supervision by the regulators.  However, there were other factors as well and the government has made clear that, although it is responsible for the regulators, it doesn't intend to compensate Equitable's members.  Equitable has been advised that it has "no realistic legal claims" against the regulators although the Equitable Members Action Group is not so sure, and is behind a proposal to be voted on at the AGM that the company contribute £2M towards financing a law suit against the government.  

On the occupational pensions front, work on the Pensions Bill has been overshadowed by the situation of scheme members who find there is not enough money in their fund when the company goes bust.  This has received a lot of attention from the media and more recently from MPs.  There is general agreement that the government allowed the pensions industry to persuade it that the Minimum Funding Requirement for a trust's funds should be weakened, so that in practice funds could be legal but have so little in them that they could pay only 20% of the pensions that employees anticipated.  Despite this responsibility, the government has no plans to compensate the victims.  The cost involved in compensating the 60,000 or so people involved, so that they get full pensions, is of the order of £100M.  That sounds a lot, but it is not in Treasury terms.  (Tax relief on contributions to pension saving runs at £14 billion a year).  The difficulties in providing compensation seem to be more about the principles of where the money should come from.

As we have mentioned before, the flagship of the Pensions Bill is a Pensions Protection Fund (PPF), a sort of insurance scheme that will largely prevent scheme members losing out at future insolvencies.  Perhaps it is worth noting how that might affect IBM UK.  (There is no immediate financial problem for IBM UK but if a company can go from "one of the best" to "one of the worst" on employee treatment in the course of a couple of CEOs then maybe it can go to insolvency in the timescale of pensions in payment.)  If IBM UK Holdings went bust, the PPF would provide our pensions, and the trust would disappear.  Whatever the employees had earned as a pension they would get 90% of, up to £25,000.  The pensions already in payment would be at 100%.  These would be the initial numbers, when the PPF takes over.  Increases after would be just those required by the regulations, ie none ever for pre-1997 service.  (Not a change probably, since if IBM UK was close to insolvency that would make affordability a justification for zero increases anyway?)  You might think it ironic that because IBM's pensions in payment policy is so poor, we have little to lose from a potential cutover to the PPF;  those who are in good schemes are generating much discussion in the Committee working on the Bill, about the reasonableness of the PPF paying pensions significantly less than the company would have paid (if it had not gone bust).    

Even if the company doesn't go bust, there is a potential effect on us.  The levy (a sort of insurance premium) has to be paid annually.  Details are not fixed but figures mooted in the Committee are in the £10 to £40 range, per member, possibly rising sharply if demands on the PPF increase.  The cost per member now of administering schemes is larger than this, but not many times larger.  So the levy will add a noticeable cost.  It is possible for schemes to try and take this money off the members.  As we have explained before, it is easy for a company (particularly an ununionised one) to worsen the deal for employees.  It is harder to worsen the pension promise for retirees.  In this case the Department of Work and Pensions has not decided whether retirees can be made to pay the levy.  There is a lot of "to be decided" but potentially you could be paying a few tens of pounds a year for an insurance that you perhaps don't think you need.

While we are mentioning the Committee work, we should return to the topic that the concept of Member Trustees chosen by members is under threat from proposed legislation.  The campaign to retain "fair and open" selection of Member Trustees is led by the national body that AMIPP is associated with, the Occupational Pensioners Alliance.  It is an encouragement that the Chairman of The Commons Public Accounts Committee has described trustees as "the first line of defence for pension scheme members".  But despite support from all the opposition parties, it has not yet been possible to amend the Bill to include "fair and open" selection.  This doesn't necessarily mean that IBM UK's arrangements for Member Trustees will change but (if the Bill goes through as is) they could be changed for the worse without our agreement.

IBM has operations in 160 countries so we cannot hope to survey the whole scene, but there is some pattern to IBM's broken promises in the US, UK, South Africa, and Canada.   Essentially, the US retirees have brought a successful class action in the courts.  The South Africans have obtained an opinion from Senior Legal Counsel that IBM is operating illegally in its control of its Pensions Trust, and they are raising money for a legal action.  Here in the UK we are waiting to see if the Pensions Ombudsman has the capability to protect our pension promises.  The Canadian retirees association has restricted membership but we do know of its aim "To compel IBM Canada Ltd. to treat all retirees in a manner consistent with the company's basic beliefs and the representations made to them at the time of retirement with respect to ad hoc pension increases and the maintenance of benefits".

It is not directly related to pensions, but "offshoring" of jobs is receiving a lot of attention amongst employees.  IBM Corporation has now bought into both ends of this activity - moving jobs to India and bulk buying employees in India.  It has paid a 9 figure amount for Daksh, India's third largest provider of call service centres, with 6000 workers.

IBM has changed its policy in giving share options to executives.  Share options give the recipient the right to choose to buy shares of the company, in the future, at a favourable price decided by the company.  Gerstner paid about $16 a share to acquire IBM shares worth about $100 a share.  By doing this for lots of shares, and then selling, he took hundreds of millions of dollars from the company.  Newsletter 12 records how "buybacks" were used to boost the share price. Sam Palmisano has acted to stop this particular behaviour, by upping the price the executives will have to pay if they want to take up the option to buy shares.

There is general agreement this a good move, although not the only way to curb this particular type of greed.  Microsoft has moved to a policy of giving no options, but giving shares instead - the cost of these shares automatically shows up on Microsoft's accounts .  Other companies have moved to showing their share options as an expense on their accounts, with the expectation that when shareholders can see the cost they will do something about it.  This accounting practice is favoured by the International Accounting Standards Board.  (You might well ask why this has not always been required accounting practice.)

Over a period, AMIPP has lost contact with a number of people, listed in Lost Members.  They might have changed their email address and not told us, or they might have lost their jobs and no longer have an email address. If you can help by reminding them of the need to re-register, or by being an "e-mail buddy" for them, please do.

AMIPP, the Association of Members of IBM UK Pension Plans       www.amipp.org.uk