Members should have received the Members' Report on the calendar year 2004 and those who ask can obtain the Annual Report on which it is based.  Comments on the corresponding documents for the years 2003, 2002, 2001 and 2000 are on this website and many of the recent comments are still very relevant.  Here we comment on the documents for 2004, in the light of the current pensions scene.

There is an electronic copy of the Members' Report for non-I-Plan members on the Trust's internet site, and a different one for the I-Plan.  The quotes here are meant as references to those. 

The purpose of a Members' Report is to summarise the Annual Report, which relates to the calendar year, but it also covers more recent matters because it does not come out until the third quarter.  This 2004 Report continues a trend to be more informative each year.  Although it is not larger than the 2003 Report, it has dropped some dross, such as the whole page devoted to giving the auditor's opinion that the Members' Report does not contradict the Annual Report.

Considering the Chairman's Report, in order:

The "Deed of Guarantee" is repeated.  It shifts responsibility for employer payments to the Trust, under most circumstances, from IBM UK to IBM World Trade.  While it is better that way than not, one might ask why the trustees thought it necessary - was it a real risk that IBM World Trade would allow IBM UK to fold and not pay its debts to the Trust?  The guarantee also has a plan for removing the deficit over ten years.  A plan of this nature (possibly quicker) would have been necessary whether the sponsor was IBM UK or IBM World Trade - the plan stems from regulation, not IBM's choice.  The regulation is welcome because it removes an IBM unilateral power which led to the £900m deficit.

Investment Performance

2004 was was a good year and that, in conjunction with IBM paying off some of the deficit, has put the scheme on a trajectory that would see the deficit eliminated in under five years.  (Although that is unlikely to happen even if the stock market plays its part - the guarantee allows for IBM contributions to be less if events get ahead of the ten year plan.)

Investment Strategy

The last sentence "The existence of the funding agreement with IBM WTC was an important factor in the risk assessment" could mean almost anything.  Since the bond-buying action was to "reduce the risk", does the sentence say that IBM WTC sponsorship increased the risk?

Changes to the DB scheme.

Although the 50% hike in employee contributions did not immediately affect the non-employees, the message from it applies to us all.  IBM does not accept the view that in Defined Benefit schemes the risk of costs increasing is a risk the employer took on.  When the risk turns into a cost IBM will, even when fully able to absorb the cost, seek to shift it on to the members.

Pension Increases:

The detail is less fuzzy than last year.  It was possible to infer from last year's wording and other documents that the trustees had recommended that pensions (in the part earned before April 1997) should be increased in line with inflation.  This Report uses the phrase "inflation proofed", making it clear that the 2004 recommendation (as well as the previous one) was for 100% of the RPI change.  Of course, it is what IBM agrees to that affects your bank balance, and the objectives of the Trust and of IBM are different, but these recommendations increase our confidence that IBM knows it is failing the members, when judged against other companies.  The trustees also tried to obtain an amelioration of the "cumulative impact of inflation".  IBM's refusals are made with the knowledge that each refusal makes the discrepancy worse.

IBM also rejected the proposal to "guarantee annual increases".  This is not a question of cost, since the amount of such increases could be adjusted to control their costs; it is a question of dogma.  From surveys, it appears that all UK companies schedule increases as annual, although some years may see zero increases.  That is not the US way, and IBM persists in the timing uncertainty of its approach.  The unwillingness to guarantee, at any level, for even a short period, is also explicable as dogma.  The 70% RPI inflation adjustments are included in the trust's financial calculations, and the "Guarantee" requires World Trade to fund accordingly.  In conjunction with the fifteen years of precedent that puts the company on very shaky ground if it were to attempt yet lower increases.  However, it chooses not to obtain the advantage in confidence and planning that would come, for it and members, with formal guarantee. 

There is some "spin" in the wording "Accordingly, pensions in payment were increased by 2.7% on 6 June 2005.  In addition statutory increases were awarded in April 2005".  The 2.7% applies to one part of your pension (that from pre-1997 service) and the statutory increases apply to another part.  The statutory increases were the minimum the regulations allow.  So the words "In addition" are at best redundant and possibly intended to give the impression that the increases were better than they actually were.

Defined Contribution sections:

With the employee taking all the risks, retirees becoming non-members, and little gap between the company's objectives and the Trust's objectives, there is not so much room for things to go wrong as there is in the Defined Benefit scheme.

Legislative Changes

Both here, and on page 18, the text attempts to give the impression of something that is simply untrue - that the degradation of the scheme for members now earning increases with a 2.5% LPI associated was required by the legislation.  The fact is that the legislation allowed the degradation but did not require it.  (Analogy can be made with the Minimum Wage - the government sets a minimum wage but that does not mean the government wants or requires all wages to be at just the minimum level.)

This goes with the statement that "The total cost [of the Pensions Protection Fund levy] will be borne by the Plan".  Of course the Plan will pay the levy, as the regulations require.  But the cost is being borne by the members.  As page 18 says "In recognition of the additional burden of the cost of the Pension Protection Fund, the rate of the LPI increase has reduced...".  Implementing a reduction was not required, it was a choice made by the Trust and IBM.  The choice meant that the levy (and more) was offset by unnecessarily making the value of pensions earned in fiscal year 2005 less than that earned in fiscal year 2004.

The last sentence of the Pensions Regulator section on page 18 says "They will also be available to consult if major changes to the pension plan are contemplated".  It is not clear whether the "They" is intended to mean the members or the Pensions Regulator.  Anyway, the legislation actually requires consultation with active members.  (Although IBM will want "consult" interpreted as "we will tell you what has been decided".)

As in previous years, we comment that the Members' Information says nothing about an Internal Dispute Resolution Process (Page 20).  Our scheme has a formal process because all schemes are required to have one.  The reason Pension Services does not want you to know about it may well be that the regulations give you certain rights about how much delay can be introduced and the manner of communication with you. You can lose those rights if you do not know about the Internal Dispute Resolution Process.

Page 9 has an age profile of membership.  You can visually deduce that a significant part of the C-Plan membership is barred from standing in MED elections by the age 67 rule. 

The diagram of increases, page 11, should be viewed with care.  Although the vertical axis might look comparable with the usual way of displaying increases in RPI, CPI, Council Tax or whatever, it is not comparable.  The usual way is to present annual increases.  The Report shows increases over longer periods, as indicated by the spread on the horizontal axis.  Conversion to annual rates would lower some of the numbers on the vertical axis. (It is also worth noting that when the Bank of England uses inflation figures it is using the Consumer Prices Index rather than the (higher) Retail Prices Index which underlies pension calculations) 

The horizontal scaling on this diagram is also suspect.  Although the page is headed "The Past Five Years" there are six years involved on the horizontal axis.  The axis has been compressed so as to make it look like the five years involved in other charts on the page.

It is illuminating to see in the M-Plan paragraphs the sentence "Members are encouraged to let the Pensions Trust know their views about any of the above subjects, or any other matter relating to the Defined Contribution sections".  By clear inference, the Pensions Trust does not encourage letting them know your views on the Defined Benefit sections.  If you do write the Pensions Trust, please copy AMIPP.