23 July 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. 

However, there is new information about the administration of the complaints.  You may recall from earlier newsletters that there was concern about the Ombudsman's Office decision that investigation of some complaints was not to be started until the investigation of others had finished.  Some complainants felt that the overall pattern of behaviour was something that ought to be assessed before any determination was made.

We now know, from explanations the Ombudsman has given to an MP, that the investigations of complaints from Alan Murphy, Dave Mitchell and Brian Marks (and possibly Mike Cawley) will be combined before there is a determination.  This makes it possible for the pattern of behaviour to be addressed in the determination, although it provides no guarantee that will happen.

There have not been new documents added to the website since the last newsletter, but there have been additions to the links page and there is plenty of reading there about Parliamentary activity and opinion on occupational pensions.

In a recent article we explained why IBM UK's Pensions Trust uses Nomination of beneficiaries rather than relying on a person's Will to indicate their intentions.  The Nomination is not an instruction, but it is guidance for the Benefits Allocation Committee which exercises its discretion.  There is a non-IBM Ombudsman case which emphasises the importance (and limitations) of your nomination being clear and current.  A member left all of his property to his daughter in his will.  The will was made in June 1997.  The member also completed a death benefit nomination form in September 1997 in favour of his fiancée.  The fiancée was financially dependent on the member and had even changed her name by deed poll to that of the member.  The trust decision makers decided to give the lump sum death benefit to the daughter rather than the fiancée!  You might think it highly unlikely that our Trust's decision makers (or any other trust's) would do a comparably unreasonable thing, but theoretically they might.  The Ombudsman decided that the decision in favour of the daughter was not perverse.  Apart from demonstrating the  limitations for members of the Ombudsman mechanism in the arena of "reasonableness", this case highlights the importance of making your nomination intentions clear, particularly where they are not aligned with your Will.

 - The chairman's report should be distinguished from the rest of the report.  It is just Jim Lamb's opinion (eg "I expect that the Trustee will continue to seek to persuade the Company to agree to improvements to pension increases") whereas the rest is a subset/restatement of the Annual Report.  (The Annual Report has more legal standing.)

 - The only statement about Trustee proposals is "In recent years the Trustee has made a number of different proposals to the Company on pension increases".  This statement has almost no information content - the proposals might all have all been poor but different from one another in minor ways.  The 2002 Members' Report, although almost as secretive, did at least say something about the amount of the 2002 increase proposal.

 - The juxtaposition of sentences could be misleading.  You probably know that a majority of US citizens believe that Saddam caused 9/11, even though the administration never said so and the relevant authorities have pronounced otherwise.  The administration achieved this effect by repeatedly following their statements about the horrid nature of 9/11 by statements about the horrid nature of Saddam, thus inviting the listener to believe a link.  In the chairman's statement we have a less momentous example of similar juxtaposition.  Jim Lamb tells us what the trust knows about what members would like (omitting mention of those members who would like what they were promised) and immediately follows with a sentence about what the Trustee has proposed.  Thus, without saying it, the impression could be given that the proposals are driven by what the Trustee knows about your views.  (Perhaps it is actually the case that proposals are driven in that way - the Trust has never told us the rationale for its proposals.  However, we must hope that the rationale is not actually as flimsy in reasoning as that.)

- Nothing answers the obvious question - how can it be in the best interests of the scheme members not to tell them what the 2003 proposal actually was? 

There are two noteworthy "successes" for members of schemes at the national level.   You will know from the media and AMIPP newsletters about the plight of members who were in schemes where the company put insufficient funds in the trust, and then went broke.   You will know about the members' campaign with the media and MPs, and the widespread acknowledgement of injustice that followed.

For a long time the government did nothing except warn against "raising false hopes".  Recently they set up a fund, to be provided with £400M from the taxpayer over a long period, from which victims can claim.  (The media argues the government had no choice but to do something - a large number of MPs from various parties had signed a motion calling for action and the government might have lost a crucial vote on the Pensions Bill if nothing was done.)

This success is not a full victory.   The £20M a year for twenty years is not intended to be enough to restore the pensions of the victims to what they should have had.  The best known estimate of that is £75M a year for thirty years.  There are possibilities of the funding being improved but the likelihood is that the members' efforts will have done no more than soften the blow for the worst hit.

The other success was by the RMT in stopping the closure to new members of its final salary plan.  (The plan is to be open to newcomers when they have five years of service in the rail industry.)  We have reported before on trade union success - eg Caparo in newsletter 13 - but the RMT case has to be regarded as partial success because the scheme now is not as good as it was before the company decided to degrade its pensions and keeping the scheme open was part of a bitter conflict involving a tube workers strike.

In view of successes like these, which do not involve the Ombudsman, it is not surprising that the AMIPP message forum has shown renewed calls for an "active" campaign, rather than the more passive waiting for a determination.  There is certainly room for opinion on what should be done. Waiting is undoubtedly frustrating, and if it eventually turns out that the Ombudsman is unable to protect the members' IBM UK final salary bargains then the delay will have been damaging.    

Overall, the position of those who run the website can be summarised as "let's not change horses in midstream", but nothing prevents others from more activity.  It is worth noting that the victims of inadequate funds had a stronger emotional case than IBMers do.  Department of Work and Pensions research shows that 35000 of the 65000 who suffered lost half or more of their benefits.  Amongst those there will be some who effectively lost everything.  In contrast, the gap between bargain and delivery for a typical IBMer is more like 20%.   One might say that hardship makes no difference from a legal or ethical viewpoint  ("a bargain is a bargain, full stop") but it is hard cases that make media stories.   (And they are still getting coverage.  See the account of the recent Channel 4 program.   "Our money is vulnerable not only if our company goes bust or is taken over, but even if the bosses simply decide they want to break pension promises just to save money. "  )

In Newsletter 21, discussing Equitable, we noted "a proposal to be voted on at the AGM that the company contribute £2M towards financing a law suit against the government".   The proposal was rejected by 80% of those voting at the AGM.  The good news for Equitable investors is that the Parliamentary Ombudsman is seeking to reopen her inquiry, this time including a look at the role of the Government Actuary's Department.

In Parliament, the Pensions Bill continues to make progress.  The timetable is being held to but that is at the expense of moving much of the substance to regulations that are to come in the future, so that many people are complaining that they do not know enough about what they are voting for or being consulted about.

The Lords are currently working on what amendments they want made to the Bill.   From government attitudes so far it is probably safe to predict the following characteristics of the Bill.

The Pension Protection Fund will not actually protect anybody's pension, it will replace the pension with a cheaper pension when the company fails badly.  The cheaper scheme will have no increases, will be harsh about dependents, and may not provide a death-in-retirement cash sum.  (Details remain to be decided) 

The requirement for selection of Member Trustees to be "fair and open" will not make it into law, although the opposition parties, the TUC, the Ombudsman and organisations representing members wanted that.  From an IBM viewpoint this may or may not make a difference.  There is a necessary technical difference because the current arrangements are the result of employer proposals that were agreed by the members in 1996.  The new arrangements will be the responsibility of the trustees.  The arrangements might or might not be changed, but your views on their reasonableness will carry no weight in law.

One area that has still to settle is the ground rules for the battle between company financial experts, who will want to slough pension responsibilities by underfunding schemes and then winding up both company and scheme, and the authorities who will not want to see the Pension Protection Fund exploited in that way.  (As the Minister puts it "we cannot assume that all employers take their pension promise to their employees seriously.")  The government is busy devising preventative regulations and no doubt some experts are busy devising ways around them.  The particular relevance to IBM is that the Confederation of British Industry (CBI) has proposed that overseas investors are exempted from the regulations "so that they are not put off investing in the UK". (Times Business, July 7 2004).  

For the bigger picture of decades ahead, an important figure is how much money is flowing into occupational pensions funding.  The Office of National Statistics (ONS) does not have data more recent than 2002, and for that year the figure is £27 billion.  (This figure is more reliable than previous ONS claims of £80bn and then £39bn for this same statistic.  The earlier claims were calculation blunders.)

There is a common view that this flow into pension funds is inadequate to provide tolerable pensions in the future.  (Or to put it as David Willetts does "The scale and implications of the pensions crisis is still not understood, but I believe it is up there with terrorism or global warming as a threat to much of what we value.  A nation that is saving as little as we are is heading for long-term welfare dependency. We are getting trapped in a vicious cycle in which low personal savings leads to more dependence on means-tested welfare which further destroys the incentive to save.")

It seems unlikely that recent events will restore confidence in pensions saving, with the government ameliorating only the worst effects of its regulations that allowed underfunding, weakening members' involvement in the running of their schemes, and providing no new incentives for companies to provide good schemes.  All that provides support for the TUC view that company contributions should be mandatory.  (As in Australia).  For now, it is clear that current younger employees should not assume a comfortable retirement, even if the scheme they are in compares reasonably with others.

We have not observed much of relevance from the rest of the world.   News of  IBM UK possibly buying influence through making donations disguised as contracts seemed to make more impression in the US than here. Link, halfway down.  (Perhaps we in the UK take it for granted that corporations work that way.)  The US Treasury's acting inspector general has confirmed that IBM US put together a heading from one document with the content of another to produce something which gave the impression of a Treasury official position.   This was part of the IBM US effort to get lawmakers to retrospectively make the IBM US "cash-balance" scheme legal, after the courts had found it illegal.

There is a new website covering some of IBM Corporation's legal cases.  The cases are not easy to follow - bear in mind that a case "dismissed" probably means the parties settled, rather than meaning one side won.  Most of the cases are individual claims of racism, sexism, ageism, unfair dismissal type.  The ageism ones tend to be related to pensions  - Mr Goeller was sacked 18 months from reaching a 30 year pensions landmark; was he sacked to avoid paying that pension?  The successful class action is there, under the name Cooper.  (That case has run for years and has years to run - bear in mind that if there is a settlement IBM will not have to pay anything to the estates of those retirees who have died in the meantime.)  Under Johns there is a case that illustrates the ongoing control that IBM central can bring to bear on executives by providing lucrative share options which are only cashable if the executive stays in favour with IBM.  (Share options are still being used - Nick Donofrio took $10,694,145 by exercising options in 2003).  The Mancinelli case is intriguing.  IBM apparently paid Mancinelli well, after losing a case to him, to agree that the case should be "vacated", ie kept out of the records.  But this is such an unusual procedure that it made the case more interesting, and thus backfired.  The dissenting judge's opinion makes good reading.