Newsletter No 29
19 October 2005
A
request: If you are an "E-mail Buddy", please print this
newsletter and give it to your buddy.
The topics in this newsletter are the election of MEDs, the "You*" flexible benefit options for employees, "Information asymmetry" when the company offers you choices, and an update about the Pensions Protection Fund.
There is
a link on the left of the AMIPP home page marked "elections". That now brings up information on both the
2002 election and this 2005 one. Many
of the 2002 pages are still valuable because they describe the way Single
Transferable Voting works, have history on previous ballots, and describe the
regulations.
This 2005
election allows for electronic voting as an alternative to returning the paper
form. One slight advantage of the
electronic choice is that the program that Electoral Reform Services uses will
not allow you to submit a vote that contravenes their requirements. If you give two candidates the same ranking
it will ask you to try again. If you
give two candidates the same ranking on a paper form you will not get the
effect you intended - only your lower numbers will have effect. (On the other hand you can rank 1,2,4... if
you want or even 100, 200, 300. It is
the ordering of the numbers you use that counts, not the actual numbers).
The AMIPP
webmaster will accept material about the election for possible publication, on
the same basis as other material relevant to AMIPP's interests.
There
were 69 names on the ballot in 1996, 17 in 1999, and 17 in 2002. This time there are 19, of which 13 are
retirees. There were 9 employees in
2002 so the candidate balance has changed from a majority being employees to a
majority being retirees. One might
expect that the recent spate of early retirements generated retirees with
enthusiasm (who would be within the age limit). Some might suggest that retiree MEDs now being paid had an
influence on that.
In
2002, AMIPP endorsed four candidates.
Three were elected, one could not be because of the restriction to two
retiree MEDs. The reason for endorsing
three retiree candidates, when only two can be appointed directly, is to cover
the situation when a successful candidate does not take up appointment. (As with Mike O'Sullivan in 2003, although
he was elected as an employee).
Only
two of the current MEDs are candidates this time. Brian Marks was prevented from standing, as explained in newsletter 28. Elaine Kirkwood is
not standing. One candidate is a
previous trustee, from a time when communications from the trust were less open
than now. (If you should regard that as a negative for the candidate, the way
to vote against somebody is to give a rank to all the others, even though you
may know nothing about them.)
AMIPP
has cautioned against voting for employees - retirees have more time and
independence. IBM has countered this
effectiveness to a degree by not permitting retiree trustees access to the
Intranet that informs employees.
However, AMIPP suggests that all voters would do best to rank retiree
trustees highly. (The current ones were
part of the mechanism that led to the contributions hike for employees but you can
be sure they did not support its introduction.)
None of the candidates say that they are an
M-Plan member. Although all trustees
will aim to consider all members, and many of the Trust's crucial decisions do
not effect the M-Plan, the many M-Plan voters might have hoped for an M-Plan
candidate. (The proportion of employees
in the M-Plan is always increasing and this was enhanced by the recent
decimation of the employee ranks, with mostly older leavers.)
AMIPP recommends that you vote
Dave Mitchell 1
Gary Glazerman 2
Bob Maddock 3
Gavin Wilson 4
These
endorsements were not arrived at democratically, they are just be an opinion
based on AMIPP knowledge and principles - this is analogous to when a newspaper
comes out with a voting recommendation in a political election. The Information
for potential trustee-directors, from current MEDs matches the context we
think the trustees will face.
---------------------------------------------------------------------------------------------------------------------------------------------
The name "You*" has been given to a
conglomerate of "flexible benefit" options made available to employees. Some are options that existed before, like
suppliers offering discounts. Some are
deals that IBM has put together, for Travel Insurance etc. Some are options on the pension and life
assurance provided by the pensions Trust.
The former options are good or neutral - one can expect IBM employees to
know enough to make an informed decision about whether some deal is good for
them. For the latter options there is
cause to doubt whether employees will be well enough informed.
The financial aspects are driven by "salary
sacrifice". There is a difference
between (a) paying National Insurance Contributions on your full salary and
paying for something after that and (b) paying for the something first by
taking a salary reduction and then paying National Insurance Contributions on
the reduced salary. This is blatantly a
tax wheeze to reduce the National Insurance Contributions paid but the Inland
Revenue has said it won't be closing the loophole. So unless your conscience is deeply troubled by the exchequer
having less to spend on social justice, there is no big reason to avoid salary
sacrifice. (The announcement of the flexible benefit options to the employees
noted some minor possible drawbacks).
So there is little cause to worry about the main pension option being
something where you have to opt-out rather than an opt-in.
Further pension options, like pausing your
accumulation of pension and receiving some income instead, are more
problematical. Those most likely to
favour this option are high earners - both the Trust deeds and the Inland
Revenue put maximums on the value of the pension you can receive and earning a
bigger benefit than you can receive (without it being highly taxed) is clearly
a bad idea. The usual advice in such
situations is "Consult your Independent Financial Adviser". High earners can afford to do this, but in
general scheme members cannot be expected to buy actuarial calculations on
whether an option is good for them.
This sort of situation, where the provider
knows a lot more than the consumer, is known as "information asymmetry" and the
Financial Services Authority (which deals with private pensions and
investments) is harsh on providers taking advantage of it.
One of the reasons why the motivations and
financial balancings behind the "You*" offers are unclear is that the IBM "UK
Forum" (which we called the "Employee Forum" in newsletter 24 and newsletter 27) was not consulted about the content, it was only
consulted on presentation. In short,
there is a lot still to be exposed (e.g. about the likely cost of the life
insurance that was previously free) and we hope you will share any conclusions
you reach with others via the message board.
An example of information asymmetry is the choice,
which many leaving IBM recently had to make, about taking a lump sum on
retirement. It has been conventional
wisdom that taking the lump sum was good, and generally people have. But even that is being questioned now, as in
this article. It also applies to Transfer Values, as currently calculated. Actuaries are saying things like "Companies are
desperate for people to transfer now - as paying even a generous TV means the company
is no longer on the hook for the full buy out cost."
---------------------------------------------------------------------------------------------------------------------------------------------
Our
pensions will not be replaced by pensions from the Pension Protection Fund
(PPF) unless IBM World Trade cannot pay its debts, and most of us probably
think that is a small risk. (There are deficits much larger than IBM UK's. The Financial Times reports the Royal Mail's
as "nearly £4.5 billion", and BAe's is £2.4 billion.) However, as usual, things
are not simple and there is a thread that relates the PPF to our pension
prospects. It begins with the Financial
Assistance Scheme (FAS) which was meant to help people who lost pensions due to
company failures, before the PPF came into play. The government said it would finance the FAS with £20M a year
for 20 years but even with only 80,000 to compensate (the initial estimate),
this could not provide much compensation per individual. Then came further big pensions scheme
failures, for example Rover and Turner and Newall. The option of doing nothing for these schemes would have led to
backbench revolt. The option of adding
them to the FAS would have lost any pretence that the FAS could meet the need.
The government
is already in a sorry state with respect to pre-PPF failed schemes. The TUC has gone to the European Court
because scheme members were told by the government that their pensions were
"guaranteed". The Parliamentary
Ombudsman is about to report on a similar complaint and even if that is a
whitewash there will be uncomfortable facts made public.
So a
way was found of deeming that such schemes could go under the PPF. This limits the damage from a government
point of view but places a burden on industry that few people expected, since
the PPF is being funded by all pension schemes and hence indirectly by
business. That in turn brings us to the
extra threats to the IBM UK schemes:
(a)
From IBM's appetite for further cheapening of the schemes.
See newsletter
27
on the Regulators view "There is
a risk, maybe even a probability, that directors will see defined benefit
schemes simply as a burden".
(b)
From the possibility
that the PPF, our last line of defence, will have to be cheapened by making the
pensions it provides worse.
The
longer term outlook for pension legislation remains as we noted in the last
newsletter - a crucial report is expected in November.
Fresh
news from abroad is scant, from an IBM UK point of view. The October
8th issue of scheme member news has a letter to senators noting
(as the judge who found IBM US guilty of ageism did) that IBM knew what it was
doing was illegal.
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. 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