Jan 12, 2008

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

Member Nominated Director Election:

This is actually two elections, one for a couple of employee MNDs and one for a couple of retiree MNDs.  There is no competition between employee and retiree MNDs.  Regrettably the Trust has decided to force you to rank employee versus retiree, presumably because it thinks you would find separate lists too complicated.  Because of the way secondary preferences in Single Transferable Voting work, your ranking of employee versus retiree can affect the results but since it does so in a way that is unpredictable there is nothing you can sensibly do with that ranking.

Within the employee election, Lucy Kannengieser has left IBM so only Gavin Wilson can stand as an incumbent.  To reflect scheme demographics, it would be good if at least one of the candidates was an M-Planner.  (There is no such thing as an IBM retired M-Planner; M-Planners who have retired are no longer members of IBM pensions plans.)

Within the retiree election, Dave Mitchell will not stand again, so only Mike Butcher can stand as an incumbent.

From the interest shown by potential candidates, it is expected that the previous trend for there being fewer candidates at each successive election will be reversed.  The full list of who is standing will not been known before voting starts, but at this stage AMIPP knows of Mike Eacott, Bob Maddock and Brian Marks standing, and suggests you vote for them.  (This is based on our knowledge, not a poll of those registered with AMIPP.)

We suggest you rank several candidates in each category both because of the transferable votes and because the Trust has taken a discretion to choose a temporary director to fill a casual vacancy from a large section of the candidates. (Up to seventh place in the category.)  Your ranking of more candidates will tend to ensure such a temporary director has significant support from the electorate. 

The Trust has made a decision, that was not mooted when scheme members were asked for opinions on MND arrangements, to pay employee MNDs £5K p.a. for their trustee work.  It is unclear whether this is additional or a compensation for how their career might suffer from overload of work. It is stated that they will be allowed time off for trustee work but not stated whether their immediate manager will, when it comes to appraisals, credit them only for what they have done in the time working for the department.  (That would seem to be the implication of saying the MNDs will not be assessed, but potential MNDs will need to seek their manager's view.  It would be unfair if different managers saw it differently.)

As with previous elections AMIPP offers space under its election link for any candidate who wants make their points.  You can check on that link for any latest news.  The AMIPP forum is also available to everyone.

Five documents have been added to the website since the last newsletter.

IBM South Africa members get 69% increases.  There is no such chance for the UK.  South African regulations have one half of trustees member elected and there was a large "surplus".

If you worked in France  You may be due a bit of pension.

Members Report and the Accounts for 2006  These AMIPP comments may be informative, for instance the £800K jump in "external professional fees", but some aspects are now better covered by the Actuarial Valuation and the MND election process that has actually been put in place.

The Valuation Report for 2006        A jargon-reduced explanation of the Actuarial Valuation.

The funding position (assets versus liabilities) improved over the 2003 to 2006 period.  This resulted from a combination of degrading what our pension schemes provide, the rates of return on the fund's investments, and the movement of money from being owed to the Trust into being owned by the Trust.  At one time IBM UK accounts showed an obligation of £1167.2m towards the fund.  This December 2006 valuation shows the funds as between 83% and 125% of requirements, depending on the different ways of assessing requirements.

Credit for the improved position must go to the regulation changes of recent years.  (A recent National Association of Pensions Funds poll found over 90% of schemes fully funded now.)  A solvent company can no longer discontinue its scheme when the scheme has inadequate funds; that removed one advantage to the company of a funding deficit.  If there is a deficit, the trustees and company must agree a recovery plan to remove it.  There is a Pensions Protection Fund to aid members when companies go bankrupt - the levy on all schemes to pay for that aid is higher when the scheme has a higher deficit, so a sponsoring company will gain some overall advantage from a lower deficit.  The levy is also lower when schemes have a guarantee of the sort our fund has from IBM Corporation.

As a result of the regulations, IBM's incentives and the Trust's incentives to eliminate the deficit have become more aligned.  The funding position is not likely to regress to the deficits seen before.  

Two causes for concern remain.  One is the slow rate of improvement planned for the "buy-out" level of funding.  Until the "buy-out" level reaches 100%, members are still at risk from IBM pressure to degrade schemes further and the Trustee options are fewer.  The other concern is about whether our trustees recognise sufficiently the dangers to scheme members in the combination of inflation, IBM's poor approach to inflation related increases (when compared with other UK companies), and increasing lifespans.  If trustees don't recognise the dangers, they won't recognise the need to keep members informed or to seek better terms.

The trustees have recognised in the actuarial assumptions an increase in longevity, in comparison with the 2003 assumptions.  But, unlike the best available assessments from studies of longevity trends, the trustees have not recognised major increases in the numbers of members living to the very highest ages.   The notes in the link above give charts that relate to this. 

The background to the pay element of scheme governance.

The objectives of a company (acting in the interests of shareholders) and the objectives of trustees (acting in the interests of scheme members) are not always the same but because of the way trusts are set up, it is the company that decides the financial reward for what the trustees do.  Does that sound like a recipe for conflicts of interest?  Whatever you think about the mechanisms of paying various sorts of trustees, you might question the amounts.  Given the context of increases for policemen and IBM employees, are increases that are some 5.4% p.a. compound justified for our retiree MNDs?  Should employee MNDs be paid independently of their IBM job specification, as part of their IBM job specification, both or neither? Is £25K pa enough to attract/retain a competent chairman for the trust board, or is a massive increase on that justified?

On the national front, the legislation introducing Personal Accounts is now law, and the scheme will go active in 2012.  It is basically a money purchase scheme like our M-Plan but with the contributions being 4% from the employee and 3% from the employer.  (Because of tax relief that allows the slogan "for each pound you put in you get two in the fund".) (The fund will be managed by a new organisation, not by a particular insurance company.) It is aimed at the 5 million or so people who don't already have the opportunity to join an occupational pension scheme.  It is generally accepted that the scheme will help the less well off to save, although some would be best advised not to join because of the effect of means testing on what they ultimately get.

The government has finally agreed to a respectable level of compensation for the 140,000 people who lost pension they had earned when their company went bust with inadequate money in the pension fund.  This can be viewed positively  ("justice triumphs in the end") or grudgingly ("government dragging of heels has destroyed people's confidence in occupational pensions").  A widely held view is that after the government put so much taxpayer money at risk in backing Northern Rock their reluctance to put a smaller amount into occupational pensions became untenable.   Some credit goes to recently appointed Ministers and maximum credit to the spokeswoman for the campaign, Ros Altmann.

A report by Aon claims "The UK state pension is currently the poorest in Europe".  (Aon is a respected company; they used to do actuarial valuations for our fund.)

The government proposes to lower the revaluation of deferred pensions earned in future.  According to Standard Life, one of the UK’s biggest pension providers, this means workers in their mid-40s who switched companies while inflation stayed at 4 per cent would lose 25 per cent of expected benefits [earned with the first company, under the new rules] by the time they turned 65.   Our trust does not have to follow but no doubt will.  When this happens employees will be earning a pension with less value (if they ever defer) than they were earning the day before.  But since nothing will change about their contributions or their pension if they don't eventually defer, most will be unaware - hence a pension degradation by stealth.  It could have been worse - employers wanted the weak revaluation to apply to already earned pension.  The government resisted that, so employees who change jobs soon will find that most of their deferred pension is protected from inflation until they take the pension.

In a separate move, the government also hit those moving jobs by leaving it to trusts to decide the value of the pension a leaver had built up. (The "transfer value").   This has been described as "a charter to rip-off ex-members".  It is only a concern for those who want to move the prospective pension they have earned away from our trust.  Individuals should investigate for themselves, but it is likely that the amount our trust will cough up as the value of your pension earned will be much less than the actual value of the deferred pension, thus effectively removing the option of getting away from the Trust as well as IBM.

Internationally, IBM has stepped up its policy of spending on buying its own shares and of exporting jobs to India. About 1 in 5 IBM jobs are now in India.  It appears that the shareholders, customers, and public are not much impressed by these policies.  Hewlett Packard has overtaken IBM as "the world's largest technology company".  IBM doesn't figure in the Forbes list of "The 400 Best Big Companies".  Authorised statistics are hard to find, but there are claims that more folk have left IBM US this year than have been sacked.  (Is this a surprise? It is cheaper for the company to accept a resignation than to provide severance pay etc.)  IBM has settled in one of the cases alleging it did not pay overtime when it should have, without admitting any wrongdoing; it is not clear how much of the $65 million the relevant employees got.  Similarly IBM claimed it did nothing wrong but paid $2.97 million when whistleblowers claimed it "solicited and provided improper payments and other things of value on technology contracts with government agencies."

IBM Italy workers have been active with a "virtual strike" but the results are contentious.

There is good news from South Africa - see top of this page.

If you are into nostalgia, here is very brief article on the original IBM PC, which was introduced more than 25 years ago.

Pension Services would like you to believe that when the Trust has "discretion" it can do what it likes and they don't have to record reasons.  Not so. In a recent Ombudsman case "the pension scheme member, Mr R Wilson, had nominated his daughter - Jeanette - and his three granddaughters as equal recipients of benefits on his death. But when he died, the trustee awarded the full death benefit to his son, Mr H Wilson, who also happened to be a director of the trustee. " The Deputy Ombudsman decided there was not enough reasoning recorded to "verify what factors were taken into consideration when the trustee made its decision, or that the potential conflict of interest was properly dealt with."  The Deputy Ombudsman imposed his own view of how the benefit should be allocated.

Here is a note for deferreds.  It is not new news, but a reminder.  The specifications for what a survivor gets when a deferred dies are various, depending on whether it is C-Plan, N-Plan, E-Plan etc.  And it can make a big difference whether the pension is in payment or still deferred.  So there may be reason to start taking the pension in order to ensure what the possible survivor gets.  Also the rules about when you can start taking the pension are varied.  Illness may be a factor.  Any special deal under which you left IBM may be a factor.  In some rare illness cases HM Customs and Excise will allow all of the deferred benefit to be taken as a lump sum.   It is not practical to cover all aspects here but we note that deferreds have much to consider, that in the past some have missed financial opportunities through ignorance, and that if deferreds are not sure what will happen in the various circumstances they would be well advised to find out.

This is the first Newsletter to come out after AMIPP changed the host for the website.  You should see little difference although the new hosting is more secure and cheaper.   Please try out our new Forum on the site.

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.