WHY THESE NOTES?

There is no requirement for resignations to be explained.  For instance, we do not know why Stephen Wilson (then Chief Financial Officer, UK, Ireland) left IBM, although the forum suggests he found IBM’s behaviour over pensions unethical.  I have put together these notes because it is reasonable for scheme members to ask why somebody would volunteer for four years of MED and quit before two.  Explanation is inevitably obscure because of the extremely secretive way in which our scheme is run.  I can only give an opinion on the broader facts that are available to you.  If you knew more detail on how your scheme is run, you would be able to decide whether the broader appearences matched the actuality or not.  I also hope that these notes will provide more understanding of why the trustee fails to deliver what you might expect.

THE SHORT VERSION

I was not willing to be party to some of the internal governance, and hence behaviour, of the trustee.

THE PERSONAL VERSION

I resigned on 16^th Sept.  I strongly support the message from the trustee in the Members' Report that the original IBM façade proposals could/should be regarded as bad faith. 

The trustee has not expressed a view on whether the consultation has been run as Parliament intended.  I agree with those who have suggested on the forum that it was not properly run, in respect of the genuineness of the pre-consultation information and in the delay and frustration that IBM introduced to the efforts of the elected PCCers to understand what the trustee had done.  The outcome suggests the trustee was complicit. 

The relation between the trustee and our MEDs has similarity with the relation between employer and employee.  Both parties are expected to sustain the relationship – the employee by aligning their efforts with employer aims, the employer by delivering on agreements and providing the environment that can reasonably be expected.    The trustee&MED relation is a bit different because an MED is not technically employed and hence cannot claim to have been “contructively dismissed” if the relationship breaks down because of the trustee’s failure to maintain trust and confidence. 

Quitting now does not fit well with the original volunteering.  In mitigation I note: 

- At election time it was not known that 2009 would see no employee MED.  If there had been an employee MED, particularly if somebody was elected to both PCC and as trustee-director, then employees would have been better placed.  It is a beneficial side effect of this resignation that there will be an employee MED.

 - At election time there was no sign of fully closing the final salary schemes.  Timing is still in doubt but the time will come when the potential for any trustee-director to do good will be reduced – trustee decisions for money purchase do not have a large impact in comparison with impacts the trustees can do nothing about.  There will be little scope for the company to come once again seeking large improvements to its accounts. (However, there will still be a vital role in setting the assumptions for ERDF, transfer values etc.  Hopefully these will be set to give the scheme members fair values, as opposed to as little as half that, which we have seen for transfer values in the past.)

 - Quitting as trustee has no significant negative effect on what I can do in support of AMIPP or in government consultations.  I played a (very small) part in the development of pensions regulation in recent years and hope to achieve some nudge in future.  Efforts to improve regulation often seem pointless but when something is achieved it has the merit of bringing the bad employers towards the level of the good, without relying on the uncertain motivations of those who make a living out of the pensions industry.

 EMPLOYMENT LAW, TRUST LAW, AND STYLE OF REGULATION. 

Without meaning to exaggerate their importance I suggest that resignations of this nature, (including that of Barry Morley from our scheme a decade ago), cast light on the complex interaction of the mechanisms surrounding workplace pensions.

It is widely accepted that UK employment law is of weaker assistance to the employee than the laws of some other European countries.   Use of the law is more difficult  for UK employees than for US employees – the US “class action” mechanisms lessen the financial risks and have led to successful challenging of IBM US pension policy.  The weak position of employees adds to the importance of regulation specific to pensions.

That regulation has greatly improved in recent years.  Not so long ago (in pension timescales) a company could run a final salary fund into deficit and then wind it up with the scheme members getting a fraction of what they should have.  (There was a minimum funding level, but it was far too low to be a safeguard.)    Nowadays only a company going bust can avoid funding its scheme, and in that case an insurance scheme ensures the members are largely compensated.  (Followers of the AMIPP newsletters over the years will know the details.)

A few years back, employers could adopt final salary deeds which made mitigation of the effects of inflation a matter for their charity.  As a result, for example, those who deferred could find that the amount of their pension was unaltered since they left the company, making it derisory in value when they came to take it.   Such arrangements are no longer allowed – some mitigation of inflation has to be provided for pension from current and recent service.

Other regulations have not been so successful.  In general, they have not been successful where they depend on employers having the same intentions as Parliament but where there are no controls to ensure that.  Thus we have consultations where Parliament intended employees to understand from the outset how the proposals would impact them but nothing inhibits the employer having one set of proposals for presentation and a different set that it actually intends.  (Provided such intentions are kept secret and informal.)  There are similar limitations with regulations about scheme member representation.

 PROCESS/GOVERNANCE AND CONFLICT OF INTEREST

The pensions world uses “governance”  in the sense that software developers use “process” – it is about the mechanisms of implementation as opposed to what is actually implemented.  Trust governance used to be a low key topic – the view was that since trustees knew, at least instinctively, what they were supposed to do, all would come right.  Recently, more attention has been paid to the role of process in guiding good intentions away from the perils of “conflict of interest” and “moral hazard”.  Advisers on parenting tell us love alone is not enough – the corresponding advice for trustees and administrators would be that good intentions are not enough. 

However, modern governance is up against continued employer dominance through powers of appointment, so that Trust Boards can be an instrument of the company and a fiefdom for the chairman.   

Secrecy is a governance topic.  Secrecy is the friend of dubious activity.  For example, AMIPP readers will know something about our “guarantee” but the document itself is a secret.  There can be no properly informed accountability of how it helps or harms the members. 

There can also be mis-aligned interests even when there is no conflict.   Because of the employers’ long term influence, the commercial interest of advisers will be best served by persuading the employer that the employer would not gain if the trust commissioned a different adviser.  This is not a conflict because advisers do not have a duty to act in the interests of the members – that is a trustee function.  This has allowed a comfortable relation between advisers and trustees.  The adviser can say “It is your decision but we think...” and the trustee can just adopt the same position while saying “we are acting in the members' interests by following legal/actuarial advice”.  Those attitudes have a bearing on why outcomes are often not what you would hope for.

When elected representatives on trust Boards were first introduced, the Minister responsible said they would give scheme members more influence in the running of their schemes.  The extent to which trusts thwart that intention will vary from trust to trust.  In most trusts, being in the minority will have a limiting effect.  Other factors may or may not have an effect.  For some years the Occupational Pensioners Alliance has recommended that where a Trust Board has an independent trustee-director then that trustee-director should be the chairman, as a matter of good governance.  (Small trusts can find it too expensive to employ any independent trustee.)  Also MEDs cannot influence decisions they are not told about, which makes delegation of decisions a key issue.

Our scheme has two independents on the Board and an ex-IBM finance director as chairman.  The trustee does not tell you what decisions are delegated, except to the extent that some are delegated to the head of pensions administration (who reports to an IBM executive – currently Bill Chrystie, Chief Financial Officer, UK, Ireland, one of the promoters of the IBM proposals).

A referendum would probably establish that scheme members favour co-operation between the elected PCCers and the trustee, favour using a bit of the fund's billions to test current IBM proposals in court, and favour an early valuation of the impact of economic slump.  That these things are not happening, while everyone proclaims their concern for the members, can be attributed to commercial interests and the governance of our trust.

SUMMARY

Pensions regulation has greatly improved.  But some regulations lack precision and enforceability, so that even widespread good intentions do not lead to the results Parliament intended.  In that context, it can be impossible for an MED to beneficially and legitimately participate.