15 June 2005

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

A pension increase has been delivered to the C-Plan retirees, in accord with the formula that has been used for more than decade.  (See background).  The increase was 2.7% over 15 months, equivalent to 2.2 % per annum.  If the trustee-directors proposal to IBM of full inflation protection had been accepted, it would have been 3.1% per annum (or 3.9% over 15 months).

From the point of view of immediate impact on scheme members' lives, the most important news is of job cuts.  Last August, IBM was proclaiming "We do see growth, unlike some of our competition", and proposing to add 18,800 people.   This May, IBM said it would cut between 10,000 and 13,000 jobs from the payroll.  It is a matter of opinion whether this U-turn was a panic reaction to the discouraging first quarter results, or the result of a sudden re-appraisal of where IBM's future lies.   

Most of the cuts are falling on Europe.   IBM has not given figures by country, but the grapevine suggests 650 in the UK.  (If you know better, please use the message board to tell everyone.)  This would not be out of line with the figure for Germany, if that is 700.  Amicus, the union, suggests "up to 1500" in the UK.

Opposition to cuts appears to be more co-ordinated than has previously been the case.  A joint press release was made, including the proclamation: "We, the undersigned Trade Unions and Work Councils, STAND TOGETHER to defend the interests of IBM employees worldwide and to help build the future of IBM and our customers."

There was a "Day of Action", resulting in strikes in France and Italy.  AMIPP regrets we did not tell you about this in advance of it happening - we were not monitoring the organiser's website closely enough.  There is a video of a US TV broadcast announcing the Day of Action, now of historical interest.

We know of no employee action in the UK on the Day, but unions are showing concern, as reported on the web  :

Amicus, one the largest unions in the UK, with 1.2 million members, has challenged the process IBM put in place to counsel workers on severance options. In particular, the union has charged that IBM is taking an unprecedented step in requiring elected employee representatives to sign non-disclosure agreements (NDAs), which restrict the information they can report back to the rest of the workforce.

"We have never come across that (NDAs) before in this type of negotiation," Peter Skyte, national officer with Amicus, told The Register. "These people can't represent the workforce because they can't report back to them properly with the gagging conditions IBM has in place."

(The "elected employee representatives" is presumably a reference to the Employee Forum members.)

There is also concern about the package being offered to encourage early retirement as voluntary redundancy.  The major terms are a payment of 2 months salary plus 2 weeks per completed year of service.  There is also some pension enhancement.

One IBM staffer who requested anonymity described the voluntary severance offer as "extremely disappointing." Amicus agreed.  "For a world-class company, IBM is not paying world-class redundancy in comparison with some of its competitors who pay, for example, one month's salary," Skyte said.

AMIPP has no statistics on the norm for redundancy, but IBM has not offered packages with one month's salary per year of service since the early 1990's.  We know that IBM UK's protection of pensions in payment from inflation is the worst amongst comparable companies, and that adds some credibility to the view that it's redundancy package is "disappointing".  The position is complicated by the news that IBM Ireland employees are being offered five weeks per year of service.  Maybe the regulations are different in Ireland.

It is reasonable to ask how the level of the package affects the prospects of the final salary scheme members in general.  In the past, for other companies, there have been lay-offs funded from the pension scheme's funds.  This has NOT been the case for IBM UK.  So if history is repeated, the generosity or miserliness of the package does not have an effect on the deficit in our scheme's funds.  Any increase in the liabilities that arises from acceptance of these packages will be matched by extra IBM contributions to the funds, additional to those already established in order to reduce the deficit.

However, all closed schemes move towards the situation where there are few active members, so the employer contributions look high in terms of the percentage of the total pay of the active members.  Redundancies accelerate this effect, and make the scheme look expensive from an employer perspective.   This is a prospect that applies to many schemes, not just ours.  David Norgrove, who is chairman of the Pensions Regulator (and hence described in the press as "Britain's new pensions watchdog") has said "There is a risk, maybe even a probability, that directors will see defined benefit schemes simply as a burden".  This is a scary prospect, and a major reason why AMIPP is still pressing to demonstrate that the mechanisms, intended to protect members from companies who promise one thing and deliver less, are not working.

You will recall that the Ombudsman found that IBM said it would aim to be competitive (via the strongest possible channel, a Management Information Letter) and that IBM actually aimed to "manage expectations" (under a Corporate Instruction).  He thought, however, that he did not need to look at the gap that produced between promise and delivery because the bargain was in any case "not legally enforceable".  In our words, he implies "a company can do and say whatever it likes when it wants to recruit, retain or retire employees and then do something different subsequently." AMIPP thinks he was mistaken in law.  As Newsletter 26 explained, a senior judge has doubted  "whether the Ombudsman (who prior to his appointment will ordinarily have no previous experience or expertise in the field of pensions) is particularly well equipped to assume the role of an expert in the field".  

The current Ombudsman has not suggested that he had any personal expertise in Pensions Law when he was appointed, having spent the previous 6 years as Chief Executive of the Family Health Services Appeals Authority.  However, the financial asymmetry between complainants and respondents means that mistakes against complainants in cases like this cannot be corrected in the High Court.  The increasing risk that the Regulator identifies (of companies exploiting their privileges to cheapen schemes)  makes it important, for the decades that schemes like ours have to run, that there should be better mechanisms to protect scheme members.

Newsletter 26 described the AMIPP efforts in getting acknowledged what happened in the processing of our complaints.  This has been slowed by the general election and the subsequent change in the cast of characters.  There is a new Pensions Minister, Stephen Timms and his boss is David Blunkett  the new Secretary of State for Work & Pensions.  The pensions spokesman for the LibDems is David Laws and for the Conservatives it is Malcolm Rifkind.  These two are also new to their pensions roles.  (Malcolm Wicks, Steve Webb and David Willetts, whom we had got accustomed to, all no longer have special responsibilities for pensions.)   In the Lords, the key figures of Baroness Hollis and the shadow spokesman Lord Higgins have moved to the backbenches.

The election itself produced a few promises of "bribes" but little debate on long term pension approaches.  Perhaps that is not a bad thing because it avoided antagonism and fixed positions on the matters that the new Parliament will take up.  There is still considerable consensus about raising the basic State pension in order to lessen means testing but the government is adamant that will not be done by linking increases to wages rather than prices.  Big issues which we have mentioned in previous newsletters (like compulsory saving on the Australian model, or a Citizen's Pension on the New Zealand model) remain simmering.

More in danger of boiling over are the considerations of retirement age.  One proposed component of solving the pensions crisis is that people should work longer.  Government efforts to apply this to civil servants, by raising the retirement age in their  schemes from 60 to 65, has encountered resistance. (A series of one-day strikes that would have disrupted the election campaign were averted by Mr Blair's intervention.  Guardian 9/6/05 ).   The concept of any mandatory retirement age is under criticism because it acts against working longer and because it is judging on date of birth rather than capability (aka ageism).  The government originally proposed doing away with mandatory retirement ages but has settled for weakening them.  Legislation that comes into force in the autumn of 2006 will enable employees to request staying on and the company will have to produce a better reason than "you are too old" for refusing.  The government has also allowed for people not wanting to take their State pension at 65.  If someone delays long enough they get a worthwhile lump sum when eventually taking the State pension.

A big problem with "work longer" is that the needed jobs are not available.  There is news on that but it does not yet amount to a solution.  Some major companies that employ people aged over 65 are B&Q, Asda, Marks & Spencer, Tesco, Sainsbury's and Nationwide.  They report "older employees have helped increase levels of satisfaction amongst customers".

For us, there is a clear example of ageism in the rules for who can be a Member Elected Director, where candidates must be less than 67, irrespective of their capability or the electorate's view of them.  This could be changed - all it needs is two paragraphs in the announcement of the forthcoming elections, one to state the change and another to tell you the period in which it could be vetoed (if 10% disapproved).

On an IBM world front, there are dramatic changes in South Africa.  The short story of IBM South Africa pensions is that when the government legislated to give the scheme members more influence (for instance by having 50% of trustees from the membership, something that the UK government merely plans) the company reacted by changing the deeds to give trustees less influence.  This led to sharp conflict with the trustees, who obtained a legal opinion that the company moves were illegal.  It now seems that the two sides will go separate ways, with the trustees taking responsibility for the residual scheme and its surplus.  This is predicted to be good for the members, with suggestions of 20% increases.  Because of the very different funding levels there is not much similarity between the South African and UK situations, apart from in IBM's attitude to scheme member influence.

It may be worth mentioning upcoming changes to the way "Transfer Values" are calculated in the UK.  The Cash Equivalent Transfer Value is what you get (for those not already taking the pension) when re-assigning what you have earned with IBM to a different purpose, e.g. to leave IBM associations behind when changing jobs or to get closer management of the funds that support you in retirement.   The actuaries professional body, The Actuarial Profession, governs the calculation through its guidance note "GN11:Retirement Benefit Schemes - transfer values".   Changes to GN11 are planned.  The chairman of the pensions board at the Actuarial Profession writes.  "The GN11 proposals would result in increased cash equivalents for many scheme members...  However, legislation allows transfer value payments to be reduced by trustees below the full cash equivalent in an underfunded scheme to protect the pension position of the remaining members and pensioners."

So there is a timing issue for anybody considering taking a transfer value. Information about what the IBM trustees have done in the past would be helpful in that assessment, but it is unlikely to be forthcoming.

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.

Some providers of email addresses, such as Hotmail and Yahoo, will take away provision after a few months in which the email address is not used.  It is worth knowing that, although if you have picked this email up you will have refreshed your usage.  Lapsed email IDs may account for AMIPP having lost contact with some people.  Also, if you know of IBM leavers who might be receiving these newsletters at an IBM email address please remind them they will need to use the change of email address page.

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