1 3 Aug 2006

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

Documents added to the website since the last Newsletter are:

Members' Report and Annual Report 2005 This reviews those documents from the Trust and comments on the content.  AMIPP thinks the adoption of "best practice" has improved the Members' Report, in comparison with previous years.

A relevant High Court case.  Interesting if you care about the situation where the company tells the staff something about pension rights but the formal documentation of the pension scheme says something different.  Which alternative version "wins"?  

Link for actives  This rearranged the information for employees and added a view from the union Amicus.

Donations to AMIPP  This page describes how to contribute money to AMIPP.  The page explains why a donations page was introduced.  (There is no risk of AMIPP disappearing because of web hosting becoming unaffordable.)

MEDs take over  Describes the situation with the IBM South Africa pension schemes.  It is expected that the retirees will do well out of rearrangements that remove IBM from the picture.

Retrospective view of trusteeship Brian Marks comments on his experience as a trustee.

Jimmy Leas' speech  A speech to the IBM shareholders meeting in the US.

There are no new changes to the IBM pensions schemes to report.  Employees in Final Salary schemes will have made their choices about which of the alternative degradings of their pension accrual they settled for.  We won't know until next Summer how many went for a change to Money Purchase, unless the Trust chooses to tell us something that it does not have to.

Some scheme changes can be expected relatively soon.  The Trust has to do something by the time age discrimination regulation comes into force in October 2006 but how much impact that will have is unknown.  If the Trust follows its recent enthusiasm for good practice we will see the introduction of flexible retirement, where an employee starts taking a pension but continues to work for IBM.  (Firms that already allow flexible retirement include British Airways, BT, BBC, Asda, J Sainsbury, Tesco and Marks & Spencer. )

You may have received a letter from the Trust giving a figure for the "capital value of your IBM pension benefits".  Do not be misled by the terminology into thinking this represents the worth of your entitlements.  It is not the figure for how much is needed in the pension fund to deliver your pension according to plans.  It is not the figure for how much the Trust would have to pay to an insurance company if it wanted the insurance company to take over the responsibility for delivering your pension.  The figure in the letter is useful only for answering the question "Will the Inland Revenue allow me to take benefits from further tax-advantaged pension saving?"

Calculation of the figure is simple.  For pensions already in payment prior to 6 April 2006, the capital value of these is calculated by multiplying the current annual rate, including any pensions increase, by 25. Any lump sum already paid is ignored in the valuation.  For pensions not yet in payment the calculation is 20 times the pension earned plus the lump sum available.

At national level, the issues making the headlines are the Financial Assistance Scheme and the White Paper.  We addressed the FAS in previous newsletters.  It isn't relevant to IBM but deals with the one-off calamity that preceded the introduction of the Pensions Protection Fund.  There is updated information on the cost of full compensation for the about 125,000 victims.  The figure is around £3B in today's money.  The calculation can also be done in future pounds - future pounds are worth less because of inflation so the amounts paid out will be larger (in amount but not in value).  Calculating that way can give £15B.  It is not a sensible way to do the accounting because the unit changes over the years.  However, it served a political purpose by providing the £15B sound-bite that was used to justify the Government's decision not to provide full compensation.

The decision not to provide full compensation only gets support from a coterie in Government and the Department of Work and Pensions.  As reported in Newsletter31, the Parliamentary Ombudsman found the Government guilty of maladministration.  An all party Commons Committee has endorsed that verdict, and warned that the Government is raising constitutional issues by ignoring the verdict.  (Why have an ignorable Ombudsman?)

The union-funded European Court of Justice case has led to a preliminary opinion from the European Attorney-General.  The next stage will bring the matter back to the UK courts.  It is not disputed that the EU law requires requires full protection of employees' interests with regard to their acquired or prospective rights under occupational pension schemes.  What remains is for UK courts to decide if our governments have done enough in this respect.  This link is to an account of all this without too much legalese, although it is somewhat biased to the TUC view. 

The whole White Paper is 2.61 megabytes but you can see it piecemeal.  Some key points are:

The plan for "Personal Accounts" - automatic enrollment in a DC scheme.  This is aimed at the people without any other occupational pension scheme, and will not affect IBMers.  Some 6 to 10 million will eventually join the scheme.  It is still not decided what the balance will be between the state administering this new scheme and the state monitoring the existing pensions industry operating the new fund.  Cynics will suggest the choice is between state incompetence (like the Child Support Agency?) and privatised irresponsibility (Railtrack?).  

The State Pension is to be eventually enhanced.  This was essentially forced on the government by the rise of means-testing.  If the trends were not altered, some 70% of pensioner households would have been means tested by 2050.  (And knowing that you will later be means tested is a disincentive to save now.)

It is also relevant that research continues to show that the RPI under-estimates how costs in retirement are rising.

The enhancement is expected to take the form of linking state pension increases to earnings increases rather than price increases, starting in 2012 if it looks affordable then.  It is necessarily fuzzy in cost and effect because although earnings have historically outpaced prices there is no certainty about whether they will, or by how much.  Western workers are losing influence vis-a-vis employers as a result of weakened employment laws and international competition for their jobs, so salaries may be depressed relative to historical trends.  On the other hand, a sufficient slump in employer pension costs might be thought to ease the squeeze on salaries.  It is such uncertainties that make detailed multi-decade plans improbable.  However, there remains a consensus on the outline - state pension increases to lessen means-testing, a need for working longer, and an auto-enrolled minimum occupational pension.

The biggest concern for occupational pensioners lies in Chapter 2 of the White Paper.  This introduces the prospect of unspecified "reforms" and law changes.  What that will lead to is not known; the relevant Minister has said that "nothing is off the table". Lobbyists for industry see it as the chance to get around the principle that pension entitlements already earned cannot be reduced.  The National Association for Pension Funds (NAPF), an organisation for sponsors of pensions and people who make their living in the pensions industry, says: "In considering whether to allow a roll-back of benefits, the government must weigh the collective interest in the economic competitiveness of businesses against the interest of individuals in getting a fair deal and having promises honoured".

The relations between our Trust and NAPF are not clear.  One of the trustee-directors is a former member of the Investment Committee of the NAPF .  Adrian Furnell, who works in Pensions Services was (maybe is) treasurer of the Southern Local Group of NAPF.  It would be bad news if our Trust was supporting an organisation which wants companies to be allowed to cut entitlements already earned.

Internationally, IBMers in Germany are resisting pensions degradation.

In the US, a large pensions reform bill has passed both House and Senate.  It is bad bill in that it makes it legal to make some pension scheme changes that take away benefit from older workers, but it does not go so far as to make what IBM did retrospectively lawful.  (Although the judge who still has to hear an IBM appeal about part of that case might be influenced by the fact that some of what was previously unlawful has been made lawful.)

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