|The Association of Members of IBM UK Pensions Plans (AMIPP)|
|This page amended June 2007|
Those who are already retired will be most concerned with the risk of their pension losing value or even stopping.
For people who retired from the M-Plan, this is nothing to do with IBM or the IBM Trust. It is to do with the viability of the annuity provider the retiree chose at retirement and the characteristics of the annuity the retiree chose. The annuity providers are regulated by the Financial Services Authority and the risks are lowered by the size of the reserve funds that annuity providers are required to hold.
For people whose pension is delivered by the IBM UK Pensions Trust, there are two levels of concern - degradations driven by IBM, and the level of the government's "safety net" if IBM fails.
There is a good table about current increases on the Trust website, although it doesn't say which increases are IBM choice and which are protected by regulations.
Most companies keep up the value of the pensions they deliver by increasing the amount of the pension in line with the Retail Prices Index. (This may not be fully effective since expenses tend to rise faster with age than the RPI, but it matches the principle that pensions are delayed pay, and the value of the pay should be related to when the work was done.)
The size (in pounds) of the investments held by pensions funds, and the return they get on those investments, will tend to increase when the RPI increases - there is a high correlation for the obvious reason that the unit of value (the value of the pound) is changed. Failure to keep the value of pensions up negates the principle that pensions are deferred pay and provides a "windfall" saving in the cost of the scheme. There are no ethical grounds for such cost cutting.
For the part of a pension derived from service (ie work) since April 1996, the regulations provide Limited Prices Indexation, which largely retains the value of the pension (unless inflation takes off and the regulations are not changed). There is also a part of a pension called the Guaranteed Minimum Pension which has LPI by regulation. The part of the pension derived from service before April 1996 retains value to the extent that IBM chooses. Full retention of value has not been IBM's policy since the 1970's. From then until 2005 there was a policy of losing value by 30% of the RPI. (At times the Trust made the argument for increases that were 100% of inflation but IBM UK was constrained by Corporate Instructions and always refused.) Since 2006 the arrangement has been a loss of 40% of the RPI (or more if inflation exceeds 4%). After five years of such increases the losses will be higher. (50% of RPI, more if inflation exceeds 5%) There is no agreement on the rate after ten years of that but the Trust is planning on that ten years being extended.
Technically speaking, the latest arrangements could change (by agreement between the Trust and IBM) but there is no evidence of a willingness to improve them.
The other concern that retirees have is about IBM's willingness/ability to keep the pension scheme as a whole running, and about the "safety net" if it does not. Theoretically a solvent IBM could wind-up the scheme but the regulations provide that it would have to increase the funds in the Trust significantly before it did so; this is unlikely to be an attractive proposition to IBM. Theoretically a solvent IBM could hand the scheme over to another organisation to run and hence get the scheme off its accounting books. (Known as "scheme abandonment".) But it is unlikely that an organisation could be found willing to take the scheme on and only charging a price IBM was willing to pay. Also the Pensions Regulator (and our trustees?) would not favour scheme abandonment.
So the concern about the scheme as a whole is a concern about IBM becoming insolvent. This means IBM World Trade, since the Trust has a guarantee from IBM World Trade that it will pay IBM UK's contributions to the fund if necessary. Members will have their own opinions on the likelihood of IBM World Trade collapsing (or being bought by new owners in a way that could undermine the guarantee).
There certainly have been many cases of companies failing, with underfunded pension schemes. Most of the publicity (June 2007) is about the Financial Assistance Scheme which aids the victims in past cases. With the possible exception of some members of IBM schemes who also have pensions (maybe deferred) from other companies, the Financial Assistance Scheme does not significantly affect members of IBM schemes.
Current instances of insolvent companies are handled by the Pensions Protection Fund. What this provides as a replacement pension is detailed elsewhere but is roughly 90% of pension for actives and 100% (without some increases) for retirees. A government could change the rules and degrade these replacements but would obviously face fierce opposition if it did.
So overall dramatic loss of pension is unlikely. That situation calls for vigilance but no obvious activity. The insidious loss of pension value that results from IBM's cost cutting is a certainty, and every retiree will need to understand what it means for them.