This Newsletter has just one topic -  IBM UK has proposed a radical downgrade of its pension provision.  Details are currently uncertain, since there will be a consultation process which could alter them..

 

WHY?

Pension provision at the broadest international level is an increasing problem.  At the UK national level, there has been a spate of occupational pension scheme closures recently.  There is no one particular reason but it is noteworthy that the Government has announced less generous tax advantages for high earners contributing to pension schemes - so those making decisions to close schemes have less potential advantage to themselves in keeping the schemes open.

In contrast to many recent closures, IBM is not saying that it cannot afford to keep the existing scheme open.  IBM wants to cut costs in order to make more money available for dividends, buying back IBM shares, and acquisitions.  You will find background to IBM policy over many years in AMIPP's newsletters  and in this website for U.S. employees.   

WHAT WOULD BE THE CONSEQUENCES?

For Retirees:

There would be no direct immediate effects for retirees.  However, retirees may be concerned about the implication of a reduced willingness, and perhaps ability, of IBM to support its pension plans.  In particular, no pension in payment increases (other than those required by regulation) are backed by the C-Plan scheme deeds, beyond 2020.  When that time comes is it likely that IBM, having treated its employees so harshly, will choose to fund increases that it does not have to fund?

For Deferreds:

If you deferred under a "package", now is the time to refresh your memory of its conditions, since they cannot be altered and can differ from what is said here.

While you are deferred, the pension you have earned  is being increased in amount by Limited Price Indexation, limited to 5% per year.  ( That is a simplification but the variations are small except for those who deferred long ago, particularly from the N-Plan.)  This revaluation will not change.

The reduction in pension that will arise if you retire early will not change, in the sense that it will be intended to make neither a profit nor a loss for the pension fund, in comparison with what retirement at normal retirement age would cost the fund.  However, that is only the intent, the actual reduction will depend on a calculation and that calculation will depend on what the trustees do, for instance on where the fund money is invested.  So there is a link from the proposals to what the trustees would do and hence a link to your early retirement prospects.

Clarification of the age at which you can retire will be a side-effect of the proposals.  The government's basic rule, no retirement below age 55 after April 2010, has exceptions.  Despite requests for information  IBM UK's Pension Services  has not yet clarified how those exceptions apply to IBM schemes.  This will have to be done as part of making the proposals. 

Deferreds will retire one day if they live long enough - to that extent they have the same concerns as retirees.

For Actives:

You will be receiving information over the intranet.  It is proposed that those who chose to remain C-Planners in 2006 will have that decision wiped out, and will be penalised more than those who chose the Enhanced M-Plan.  It is proposed that after a short window of opportunity early retirement will become much more heavily penalised financially.  There is variation across sections and plans.

Those ejected from final salary plans will become deferreds for that plan, and everyone who lives long enough will retire, so employees have the concerns of deferreds and retirees also.

There is much for employees to consider.  At the broadest level, does a change coming so soon (in pension timescales) after the 2006 company propositions represent "bad faith" on the part of the company?  In the middle level, are there genuine opportunities for the consultation exercise to ameliorate the proposals?  And ultimately, what is the individual to do?

If you feel you would be better informed if you learned what other employees are thinking, we recommend use of the AMIPP Forum.  This already contains relevant discussions.

Note that you can contribute to the Forum under a pseudonym.  Or you can communicate with others who have registered at the Forum, without the need for you or they to use email addresses or real names and without anything appearing on the Forum.  You might think it wise to use the Internet from home rather than work for such purposes.

As with the election of Member Nominated Directors, AMIPP offers website space for any consultation committee candidate that might want it.

WHAT ABOUT THE DEFICIT?

The present deficit will not be altered by the proposals.  This is because IBM pays into the Fund in two ways, representing the strong distinction between pension benefits already earned and those yet to be earned.  The deficit represents a difference between what is in the Fund and what is expected to be needed to pay out the already earned benefits.  IBM will pay this debt to the Fund according to a schedule of payments lasting many years.  For benefits as they are earned, IBM pays monthly.  This is the employer contribution rate and varies - around 20% of salary for the C-Plan, 8% for the M-Plan.  It is in these payments that IBM will make savings (to add to the savings from employees leaving).

Although the two payment components are different, there is the obvious connection that IBM pays both, so their aggregate can be a motivator for the proposals.  Newsletter 38 explained how the trustees might get a valuation - needed to determine the schedule of payments.  (The calculation needs audited accounts so it would be the deficit as of December 2008.)  AMIPP newsletters have explained why giving a single figure for the deficit can be misleading.  With that caveat, published information can be used to estimate that the deficit has grown to around £2 billion. (Roughly twice its previous record amount.)