IBM Pensions and the Ombudsman's Determination

Dear Mr Person,

The Association of Members of IBM UK Pension Plans (AMIPP) is a group of IBM pension plan members organised for the benefit of the 36,938 scheme members, of whom more than two thousand have already registered at our website - www.amipp.org.uk One letter cannot match the views of every one of our members, but we note that A Contacter contacted you about IBM Pensions. Also A Constituent and B Constituent tell us you are their MP.

As you may remember, several scheme members complained to the Pensions Ombudsman about the running of the IBM pension scheme. After four years the Ombudsman has finally decided against these complaints. We believe the Ombudsman's investigation has been severely flawed, but the only way to appeal is via the High Court, which we cannot afford because of the small possibility of having to pay the costs of the pension scheme's lawyers.

This case demonstrates that currently the Ombudsman's Office does not provide the support that scheme members deserve, to challenge broken promises and perverse conduct.

It is difficult to describe a four-year investigation and its outcome within a short letter, but the attached notes attempt that. We hope you will read them bearing in mind one fundamental question -

Will Determinations like this one help restore employees' confidence in their pension funds and in the claim that contributing to a pension scheme is a good choice?

The Occupational Pensioners' Alliance, which includes AMIPP and focuses the views of more than a million occupational pension scheme members, believes that the Ombudsman's Office should be a source of scheme member confidence in pensions saving, not the degradation of it.

The attached notes describe how our concerns relate to the concerns of all occupational scheme members, and how they might be addressed by Parliament.

Yours faithfully,

Dr Brian Marks, chairman of the AMIPP. Email xxxxxxxxxx Tel xxxxxxx

The recent Ombudsman determination is unsatisfactory:

In a minor echo of the Butler report, this report describes behaviour that a typical person would find reprehensible, yet the investigator finds nobody to blame.

The report and other data show that IBM UK promised that for its protection against inflation policy, as with other benefits, it would aim to be competitive with leading companies. The promise was made to employees through the strongest communication channel available to management. In practice, IBM has chosen to make the erosion of pension value the worst of all comparable companies. The aim was diverted on corporate instructions from IBM UK's parent US company. The report does not contradict any of this, but the Ombudsman says he does not need to establish the details because the promise is not "legally enforceable", irrespective of the details. This amounts to saying that when the employer communicates directly with the employee, without incorporating such promises into the Trust Deeds, the promise cannot be relied on. In our words "a company can do and say whatever it likes when it wants to recruit, retain or retire employees and then do something different subsequently"

Is it a surprise that when scheme members are told that promises made directly to them are of no value (unless incorporated in the Pension Fund Trust Deeds) they are shocked? Almost all scheme members never see the Trust Deeds, which are drafted by skilled lawyers paid by their Trust (a Trust which may have a majority of employer appointed Trustees).

We do not think that Parliament intends promises to be so easily discarded.

The IBM UK Pensions Trust chose to use funds that the final salary scheme members had accrued, with the addition of their contributions, to fund a money purchase scheme for a different collection of employees, thus undermining the final salary scheme members' prospects and speeding up a move towards what is now a large deficit in the final salary fund. The Ombudsman finds no fault with the Trust's failure to consider whether setting up the money purchase scheme without this one-way chute for monies would be better for the scheme members, and does not assess the merits of this alternative.

In endorsing the chute, the Ombudsman relies on a Court case which allowed it. The circumstances there were very different - that scheme was non-contributory and the inflation-proofing met the regulatory standard for allowing payments from the fund to the company. The Ombudsman discounts the contributions distinction and does not address the other distinction. This implies the chute would be permissible for all schemes. According to the Ombudsman, nothing prevents the deeds putting it under the company's control and available even if the final salary scheme has poor solvency.

We do not think Parliament meant to allow a company-controlled trick for moving final salary monies away, without regard to the funding level and specifics of the scheme.

The Ombudsman does not decide whether the chute was legal according to the Trust Deeds when it was first used, he says he does not need to because the effect on the funding level was not legally significant for the members. Similarly, he does not refute that members were right to assume that there was no chute (as the communications to them implied), but argues that it did not matter because knowing about the chute should not have altered their (misinformed) decisions.

We think Parliament placed a higher value on providing correct information. (And we know from the Associated Steel and Wire disaster how important it is for scheme members not to be led to assume all is well.)

Also we are confident that when Parliament created the Ombudsman's Office they did not intend to have five-year investigations, with four of those years under the Ombudsman, in order to reach the point where an appeal would continue the process for more years.

We know why the determination is unsatisfactory:

The Ombudsman lost staff, including the legal expert assigned to the case at first. He decided that, in addition to running a department of 30 people, he would do the investigation himself. As one might expect, the task overwhelmed him. In his letter to the Rt Hon Andrew Mackay MP he suggests "If need be, I will incur the wrath of my wife by spending a fair amount of time during [my] holiday drafting my determination". In his letter to Sandra Gidley MP, he says "I was probably wrong to think I could complete the work personally rather than have someone else read themselves into the files and produce a draft for me". We think he was wrong not to reverse his DIY decision.

No doubt keen to get the determination wrapped up, the Ombudsman chose to drop from consideration events before 1995, citing difficulties in going back in time. (Since two of the complainants retired in 1991, and their bargains crystallised then, this undermined their claims) The Ombudsman chose not to consider matters he could label as "the recruitment and employment practices of IBM either nationally or globally". (Although as the company commitment was "As in all compensation and benefit matters, we aim to compete favourably with the practice of other leading companies", you might feel the Ombudsman had a need to understand what the first clause of that statement meant to employees. ) He chose not to contact the past IBM executives and trustees who were relevant. He chose not to consider the documented reasons of an experienced trustee who resigned.

He chose not to address why the IBM promise would not be legally enforceable when the Equitable Guaranteed Annuity Rate holders were able to enforce the promise made to them. Throughout the document Straw Men - claims the complainants did not make - are used to replace claims they did make.

The administration as well as the investigation suffered. Two of the complainants were told their complaints would not be investigated until the others had been determined. 29 months later they learned this was wrong, their complaints had been being investigated, and the Ombudsman had been forming his opinion on input from the respondents, while their input was erroneously suppressed.

Appeal

The determination also has flaws concerning the law. However, irrespective of the strong case, it would be financial folly for an individual to appeal against the determination. Hence, for example, the Ombudsman opinion that something is not legally enforceable is self-fulfilling - because the Ombudsman says it is not enforceable it becomes not enforceable. As was said in response to the Green Paper: "There is no mention of ameliorating the fundamental failing of the mechanism - that mistakes in favour of scheme members can get rectified using legal teams funded by trusts and corporate budgets yet mistakes against scheme members cannot in practice be challenged."

The one-sided possibilities of appeal also press on the Ombudsman. An article in the periodical "Occupational Pensions" put it this way: "In practice, the courts will still intervene if they mistrust the motives of the trustees - the Ombudsman's difficulty is that, if he should choose to do the same thing, his decisions are reviewable by the courts, which may take a different view of the trustees' motives from him".

Accountability

The Office of the Parliamentary Ombudsman for Administration says it has "no power to investigate the actions of the administrative staff taken under the authority (explicit or implied) of the Pensions Ombudsman". Since those actions, together with investigations, form everything that the Office of the Pensions Ombudsman does, this amounts to there being no accountability to scheme members.

A panel not empowered to alter Ombudsman decisions, but monitoring the record for its legal soundness, has been suggested by the Independent Pensions Research Group. The suggestion deserves to be implemented.

The level playing field

What is needed most of all is a level playing field. This could be achieved, for cases like the IBM one which was "identified as having a high legal content", by empowering the Ombudsman to decide that in preference to his investigating the case it should go directly to Court. (With the complainants protected from bearing high costs).

If you need the latest information and opinion, please visit the website www.amipp.org.uk where there is active discussion on the Message Board.