Members should have received the Members' Report on the calendar year 2006 and those who ask can obtain the Annual Report on which it is based.  Some AMIPP comments on the corresponding documents for previous years are on this website and many of the recent comments are still very relevant.  Here we comment on the documents for 2006, in the light of the current pensions scene.

Considering the Chairman's Report

Funding

It is a curious way of putting matters to say that the Scheme Actuary valued the assets.  The figures required for the Valuation Report are the values of the assets as determined by the stock market at 31st December 2006.  They are not a  matter for the actuary's judgement.  In the 2005 Members' Report the 2006 evaluation was promised for summer 2007.  The explanation for delay given on page 8 is indefensible - the Scheme Specific Funding Regulations came into effect by January 2006 and the promise was made after that, in July 2006. We hope that we are not headed for a delay similar to that for the 2003 Actuarial Report, which was not available until 2005.

Member Nominated Directors (MNDs)

We have commented elsewhere on the IBM Retiree Clubs (which are prevented by their constitutions from taking positions on business matters) being consulted when AMIPP was not.  The new arrangements are better than the "opt-out" arrangements that the regulations removed.  It was legally impossible for the MEDs to retain their distinctive status (of being given more rights than the IBM selected trustees, in law) so the Regulator's position is no surprise.  Parliament and the Regulator had decided what was in the best interests of scheme members. The Regulator merely upheld the Code of Practice that he was responsible for, which required the timely appointment of  MNDs.  The chairman's view that the scheme members would have gained something by contradicting the Code of Practice is an inexplicable view, since the chosen proposals allow members to vote to make the people who were once MEDs into MNDs (if these people choose to stand).

Governance

AMIPP has commented on Governance.  It is good that more emphasis is being placed on governance.  

Considering "Looking back at 2006"

Actuarial Factors

The rate at which pension can be exchanged for a lump sum used to be a poor rate, not properly reflecting the value of the pension, for some members.  The rate has been improved (but is still not necessarily fair value for everyone).

Less pension from AVC/ASC funds is a degradation of the scheme.

Age discrimination

As noted, the regulations came into force in December 2006.  What the regulations said was known well before that.  Yet the Trust proposes to take all of 2007, during which it may be acting illegally, to decide what to do about the regulations.  It is unlikely that the Trust will be challenged by members, since members will lack the information on which to base a challenge.

Changes to the operation of the Plan

The first paragraph reflects the degradation described under Actuarial Factors.  It would hardly be fair to make pension purchased from the Trust more expensive without giving members the option to buy from elsewhere.

The other two paragraphs are a degradation of the plan, although they won't effect most members.  The justification given is a thin one - whether accepting cash in exchange for pension alters the "overall strain" depends on the amount of pension to be delivered for a certain amount of money.  That exchange is determined by the Trust and if the money received is enough there would be no overall strain.  The change is in line with corporate plans to diminish involvement worldwide in Defined Benefit schemes. There is no prohibition on money being transferred in and pensions promised when IBM buys companies so presumably the "overall strain" then is not regarded as a problem.

Financial Review

The fund contains more real value than it did a few years ago because the Trustee called in some of the money that IBM owed to it, and because of investment returns.  (The Regulator has said that where there is a gap between the cost of pension promises made and the assets of the fund, the difference should be treated as an unsecured debt owed by the company to the trust.)  However, the pictorial rather over-estimates the gain.  There would have been a 13% increase in the number of pounds by inflation alone, over the four years in the pictorial.

Information for Defined Benefit members.

Update on the funding of the plan.

Use of the phrase "fully funded", without giving the assumptions for the calculation, doesn't mean a lot.  We will have to wait for the actuarial report to see how funding stacks up against regulated actuarial assumptions.  (The value of the assets will have gone up and down again since December 2006 but it is the value then that goes in the actuarial report.)

An improved financial position with respect to three years ago (when the Trust chose to sign up to a deficit removal period of ten years) is welcome.  There are two main reasons - the Trust calling in more promptly most of the debt that was owing from IBM, and the degradation of the C-Plan, which greatly reduced the liabilities.  So the welcome should be a muted one; given the choice many members would prefer to have kept the original Plan in conjunction with a deficit to be cleared under the Guarantee. 

Information for Defined Contribution members.

The best performing L&G fund in 2006 was the "Ethical UK Equity Index".  While this proves nothing about the long haul, it does suggest that choosing not to invest in the arms trade (for example) is not necessarily making a financial sacrifice.

Proposed MND arrangements

AMIPP has commented on this subject both before the proposals were made and in Newsletter 35 afterwards.  The two most dubious proposals are:

- Change of membership status following election.  Neither deferring or retiring alter an individual's ability to perform trustee duties.  No reason has been given for the proposal that deferring should take the person out of office and retirement should not.  If a trustee was forced to step down because they ceased to be an IBM employee but were too young to become a retiree, they might well argue they were discriminated against by reason of age.

- The "temporary Trustee director" mechanism is not consistent with the Code of Practice.  That code calls for transparency and the Trust has chosen to leave murky the criteria on which it will make temporary selections.  The whole mechanism is unnecessary because the Single Transferable Vote is an excellent method for electing an extra when somebody drops out after the election.  The voting is recalculated with the person who dropped out eliminated.  Importantly, the other preferences of those who voted for the person who dropped out are not lost.  The first application of the discretionary proposal could well be when the government decides that more MNDs are needed.  (The government proposal consulted on would mean one extra MND from 2009 on, for our scheme.)      It would not be in the spirit of the proposals for our company-dominated trust board to select somebody placed four places behind the person that STV recalculation elected.

From the 2006 Accounts (which contain the independent auditor's statement):

Six "risks" that the Trust has considered are listed.  They are all risks that the company might have to put more money into our scheme, under the Guarantee.  None of them are a risk to delivery of pensions, provided the Guarantee is honoured. The possibility that IBM (or whoever takes it over) might be unable or unwilling to honour the Guarantee is not listed as a risk.  This suggests that the Trust is more concerned with costs to IBM than with securing delivery of pensions.

The trend away from AVCs towards ASCs has a peculiar effect on the accounts.  The AVCs are, naturally enough, recorded as employee contributions to the funds.  The ASCs, which are in reality no more than AVCs in a more tax efficient guise, get recorded as company contributions!

Although our scheme is becoming more mature, the benefits paid out in 2006 (after adjusting for the reduced value of a pound) were less than the benefits paid out in 2005.  This is a measure of how the scheme has been degraded.

"External professional fees" are an interesting line item.  These are not the overheads in making investments - those are covered by the difference between gross and net investment returns.  They are not the costs of running Pension Services.  Although not explained, the "External professional fees" appear to be the fees charged by the organisations listed in the accounts, like  PriceWaterhouseCoopers,  Watson Wyatt, and Nabarro.   What is significant is the change in this line item.  For 2005 it was listed in thousands of pounds and amounted to £1.093M.  For 2006 it is listed in millions as £1.9M.   So there is an £800K jump.

£800K is not a lot in terms of the Trust's annual accounts - it is about 0.5% of what is paid out in pensions. However, even 0.5% would be a welcome increase in pensions, and affordable if the fees had not jumped.

Last year AMIPP said "There is some evidence of better book-keeping by Pension Services.  There is an adjustment for 11 deferred members found.  (Last year the adjustments were 40 deferreds found and 80 pensioners lost).  Such adjustments do not mean that the wrong people were being paid pensions or not paid - they only mean that there were inconsistencies in the records that needed 'cleaning' ."   Sadly the improvement has not been maintained - the adjustments total 49 this year.