Dear [MP],
You may recall that [Constituent],
and maybe other constituents, wrote to you on this matter. This letter is an
update for the sixty Members of Parliament that we know have been similarly
contacted by concerned constituents.
The Association of Members of IBM UK Pension
Plans (AMIPP) is a small group of IBM pension fund members organised for
the benefit of the 36,030 members of the scheme, of whom approximately two
thousand who have already registered at our website - www.amipp.org.uk
This letter does not
ask you to act on the complaints about IBM's behaviour in control of the
pension scheme; those are with the Pensions Ombudsman. It does suggest that as the new Pensions Act
evolves, you consider its proposals in the context of the IBM affair. We believe that:
1. A pensions trust should operate independently of the company, and not as a subsidiary of the company.
2. The Ombudsman mechanism
needs considerable strengthening.
3. Some previous decisions
by judges have not demonstrated awareness of how companies operate.
Current Parliamentary
activity provides the opportunity to address these issues, and restore some
public faith in the integrity of occupational pensions.
Pensions trusts have many of the characteristics of subsidiaries. The parent company owns all the shares. The parent establishes the Articles of Association. The parent hires and fires the majority of the directors. There is evidence that labelling such a subsidiary as a "trust" does not make it independent. In the IBM case it was the IBM US company that exerted influence on the trust both indirectly via IBM UK and directly by appointing its US executives as directors of the IBM UK trust.
IBM was an early mover in closing its final salary scheme
to new members. It decided this in
1996, before the introduction of the post-Maxwell regulations that gave members
some influence on schemes. As far as we
know, there were no efforts made to save the scheme, such as asking employees
to agree to make extra contributions.
A money purchase scheme was introduced and the trust allowed all the
employer contributions to that to be taken from the final salary scheme funds
rather than from the IBM company itself.
Throughout the 1990's the trust exhibited a policy of doing what IBM US
wanted while claiming to act in the interests of both current and prospective
members of the pension scheme. A gap
emerged between what the employees had been told to expect (a pensions in
payment policy that aimed to be competitive with other companies) and what was
delivered. The managers who gave the
IBM "pension promise" expected it to be delivered; they did not know that a
future IBM US CEO would regard pensions as an "old-fashioned benefit".
Gaps between
promise and delivery have led the Independent Pensions Research Group to
describe what has happened to UK occupational pensions as "mis-selling",
analogous to the private pensions mis-selling scandal.
The AMIPP website shows data about IBM's transition from "One of the Best" to "One of the Worst" for pensions in payment policy. A summary of the complaints to the Ombudsman, the complaints in detail, and the responses from IBM that are public can also be found there, along with more than a thousand comments from members.
That these comments reflect the prevailing view of all the members of the IBM scheme can be deduced from the election statements of the winning candidates in an election, by all the employees and retirees, of Member Elected Directors. Here are quotes, one from each of the winning candidates:
"Occupational pensions are not corporate
charity. They stem from a bargain bought with work. The purpose of
discretions is to deliver that bargain."
" IBM's recent actions with respect to pensions
constitute a breach of trust, the
Trustee has acquiesced where it should have protested, and IBM's dominance of the Trustee
should be curtailed.
"Having been a MED for 3yrs I can confirm, in my opinion, the
Arrangements [for Member Nominated Trustees] are NOT satisfactory."
"The IBM
board considers the fund largely a means of inflating profits. What was once a
symbol of trust between employee and employer has become a source of constant worry."
The complaints to the Ombudsman about IBM are now in
their third year under the jurisdiction of his office. They are not being considered in an integrated
way - less than half have reached the stage of active investigation, the rest
are on file awaiting investigation.
This affair is complicated, and nobody would want thoroughness
sacrificed to expediency. If the
investigations showed signs that the expectations of members were being polled,
and the people involved in the development of the IBM scheme since its 1957
inception were being consulted on what they intended, then elapsed time would
be a minor consideration. However we fear that the delay and lack of holistic
investigation are symptoms of malaise, and the delays involve legal wrangling
in attempting to derive from the deeds facts that the deeds simply do not
address.
The Pensions Week periodical has reported a national confederation of pensioners' associations (see www.copas.org.uk ) describing the Ombudsman's plight:
'If the Ombudsman
and his staff are not sufficiently valued it should be no surprise that there
are recruiting problems. If numerous
highly proficient legal assistants are not available it should be no surprise
when complex cases get resolutions in court that defy natural justice. If there is limited money for the Ombudsman
to use in explaining his decisions to higher courts, and the prospect of heavy
costs on his office when he chooses to do so, it should be no surprise if his
decisions veer towards the objective of avoiding respondent challenges.
The mismatch of resources that the Ombudsman has to support
a complainant (on average roughly one
three thousandths of a staff of twenty-five) and the resources that a
respondent has to subdue a complaint (powerful legal battalions funded by the
pensions funds or corporate budgets) is such that any suggestion of a "level
playing field" is untenable.'
If the Ombudsman criticises IBM then his decision is almost certain to be appealed. There are several grounds for pessimism about the approach in the High Court to protection of pension consumer interests. We take this view because:
- Both David Laverick and his predecessor Julian Farrand have said there were hampered by the judges' unwillingness to accept that Parliament intended "maladministration" to be more than just a label for what was already the law when Parliament acted.
- Judges expect to operate a closed shop, and have shown an antagonism towards the whole idea of an Ombudsman with judicial powers, and to Dr Farrand particularly. (The periodical Professional Pensions reports that they attempted to get him sacked.) Mr Justice Lightman has written that he believes it would be better if the Ombudsman had no judicial powers. However, he does not feel that view makes it "unsafe" for him to overturn Ombudsman decisions on appeal.
- Judges have based their decisions on the belief that companies are "taking the risk" in underwriting the pensions promise. That has been shown to be wrong, since companies who regard the promise as expensive simply close their schemes with impunity.
- Judges have regarded pensions as corporate charity, charity which could be encouraged by giving companies more privileges. Mr Justice Neuburger, when overturning the Ombudsman and allowing a money purchase scheme to be funded with final salary funds, suggested that would encourage companies to retain final salary schemes. As an MP who understands how companies operate, you are more likely to feel that by encouraging the view that the Ombudsman can always be overturned by barrister power, and by creating a new company financial advantage to money purchase schemes, he hastened the trend in final salary closure.
- Under present legislation a company is able to alter a trust deed without reference to the members of the pension fund and with no responsibility to advise members that this has been done. It can happen that the work of barristers at this stage may only be known about much later by the members, who then face an uphill battle in the courts if they aim to show the alterations do not honour the pensions promise.
The IBM affair is an extreme
example of how company control of a pensions trust can belittle the pensions
promise. It highlights the low level of
consumer protection built into our regulatory and judicial systems.
There is still some hope of a good outcome. Lord Scott has written "in exercising their distributive powers trustees and managers of pensions funds should regard themselves as giving effect to a contract rather than exercising discretionary powers. They must try to be clear as to the legitimate contractual expectations of the respective policy holders or beneficiaries and to identify any contractual restraints on the manner in which they may exercise their distributive powers." The "contract" here is the pensions promise - put in less legal terms the quote says trustees must use their discretions to foster the pensions promise.
Whatever the outcome of the
IBM affair, we think it is vital that forthcoming legislation makes it clear
that the duty of trustees to foster the pensions promise is not merely one of
their chores, it is their raison d'etre.
The regulatory and legislative framework should leave no room for
regulators and judges to elevate dubious interpretations of the "small print"
above the pension promise made. Member
influence in the trustee boardroom should be made sufficient to inhibit
problems at their source.
Please use your influence in this. Perhaps your earliest opportunity is with the members of the Select Committee enquiry chaired by Archy Kirkwood. Also, Steve Webb M.P. has offered to co-ordinate efforts on a cross-party basis, to seek to amend pensions legislation better to reflect the concerns of pensioners.
Yours sincerely,
Dr Brian Marks, chairman of the Association of Members of IBM UK Pension Plans.