Sender Address February 2005
Some MP
House of Commons
London
SW1A 0AA
Dear Person, Public Interest and the IBM Pensions Affair
Occupational
Pensions are a complex matter, and the complaints that IBM scheme members
brought to the Ombudsman had, as he has said, "a high legal content". In
summary, IBM UK said it would aim to be
one of the best of comparable companies, on the strongest communication channel
to members that it had, and has delivered as the worst, under Corporate
Instructions from the US. The Ombudsman
has not cast doubt on those facts, but argues that he does not need to make a
full investigation because such promises are "not legally enforceable" in any case. Also IBM introduced an artifice which had the same effects as
paying money from the final salary plan funds to the company so that the
company could pay its contribution to the money purchase scheme with it.
As
there is current discussion on why much of the public is indifferent to
Parliament's activities, it may be helpful to record the scheme members' recent
interactions with MPs. Perhaps the public has justification in
thinking that corporate privilege drives the world, with most MPs and
regulations merely carried along.
On
November 19th, the Association of Members of IBM UK Pensions Plans
(AMIPP) wrote to about 200 MPs, where we knew the MP had some constituent(s)
with concerns about the IBM pensions affair.
That letter explains that we know why the recent Ombudsman determination
is unsatisfactory, and covers the issues of appeal, accountability, and the
lack of a level playing field. As far as we can tell, two-thirds of
the MPs have not responded in any way, to AMIPP or the constituents. Some MPs have left the issue to their party
experts, who have taken and will take positions - amongst those MPs who did
respond, several referred to David Willetts and Steve Webb. Where MPs said they felt they could not
approach the named constituent(s), AMIPP encouraged the constituents to contact
the MP.
We
are grateful to the MPs who have acted with Parliamentary questions and with
letters to the DWP and the Ombudsman.
The responses to those mostly show a shifting of responsibility
elsewhere, noting that appeal to the High Court is a theoretical protection for
scheme members. We hope you will agree
with AMIPP that that is an irrelevance and a distraction tactic. No sensible person would advise an
individual to risk the costs of a case with a high legal content, against
respondents with budgets of billions, however strong their grounds.
This letter is sent because you
showed some interest in the topic. It
asks you to:
a)
Write to the Pensions Ombudsman requesting that in this specific case he makes
public (or allows to be made public) the Notice of Preliminary Conclusions he
issued in 2004. He has claimed that
the views of two complainants were taken account of during the residual weeks
between that and the final conclusions.
If confidentiality prevents the complainants from quoting the starting
document, they are hampered from showing MPs the hollowness of his assertion.
b)
Write to the Parliamentary Ombudsman, asking her to investigate the
administration that the complainants received, irrespective of whether that
administration effected the eventual determination. When she was persuaded to look into the case of those now
dependent on the Financial Assistance Scheme, it was partly due to letters from
MPs of all parties.
c)
Ask for, or encourage, an adjournment debate on the lack of resources,
accountability and monitoring that are preventing the Pensions Ombudsman from operating
as Parliament intended, and about what might be done about that.
The value loss of a percent per
year on the pensions of generally affluent IBM retirees can reasonably be
regarded as of low general priority for MPs.
But what that is a symptom of, arrangements intended to protect the
individual but lacking effective design and implementation - so that corporate
privileges negate pension promises and bad practice goes uncriticised - is a
matter of great importance.
Yours faithfully,
Dr Brian Marks,
chairman of AMIPP. Email xxxxx Tel xxxxx
Facts
and reasoning in support of our request to you for action.
Material summarising the background can
be found in our
letter to you dated November 19, 2004, and on website www.amipp.org.uk in the 'complaints' and
'Westminster' sections. These notes
relate that background to this particular letter.
The Ombudsman's description that this
case had "a high legal content" is
contained in his letter to the Rt Hon Andrew Mackay MP, dated 11 November
2003. David Laverick has not suggested
that he had any personal expertise in Pensions Law when he was appointed,
having spent the previous 6 years as Chief Executive of the Family Health
Services Appeals Authority.
In the Ombudsman's determination, the
artifice is described as a "transfer" between plans. (Paragraph 89). The
Ombudsman says he does not need to decide if this artifice was legal when first
implemented because the consequent lowered funding level was no loss to the
members. The Ombudsman agrees the
members were not consulted or clearly told about the artifice before it was
implemented but he does contradict those who say knowing about it would have
led them to act differently and avoid loss.
At the broadest level, the
determination is unsatisfactory because of David Laverick's tendency to regard
pensions as corporate charity rather than as deferred pay. Although he recognises that others may
disagree - "I recognise an argument that the pension might be seen as deferred
salary" - he does not
allow into the determination the arguments and conclusions that stem from
salary deferment.
In particular his "not legally enforceable" opinion omits the view of Lord Scott that
"For the present it suffices to
notice that the result of Equitable Life litigation is that in exercising their
distributive powers trustees and managers of pension funds should regard
themselves more as giving effect to a contract rather than exercising discretionary
trust powers.". The Equitable
GAR holders were able to enforce their (unwritten) contract. This Ombudsman was unwilling to acknowledge
the need to investigate the IBM bargain before deciding nothing was
enforceable.
IBM
retirees take the simple view - "We have done our bit, IBM should do its bit".
If you can make sense of it, the
following paragraph from the determination appears to capture the view that
pensions are charity:
"This investigation has particularly looked at
the establishment of the M Plan, a primarily money purchase arrangement based on defined contributions. In
such an arrangement the risk as to what benefits a member's share of the fund
will buy rests entirely with
the member. For C Plan members there is no such risk: their benefits are defined by reference to their
final salaries. It might be argued that the issues before me have been about
whether those members should benefit from the successful risk taken by fund managers in the
placement of their investments even though the same members were not at risk should those
investments have been less successful. Looked at in that way the argument seems to me to lack the moral high ground
which is implied by the assumption that the Fund as it existed prior to the M
Plan should be ring-fenced for the benefit
of C Plan members."
This relating of the final salary plan
to the money purchase plan suggests that the final salary retirees' expectation
that their bargain would be honoured should have been abandoned because the
bargain was a better one than the money purchase members had. Perhaps this would be reasonable if pensions
were charity, but makes no sense if pensions are deferred salary. It makes no difference to the money purchase
scheme members whether the money to support their scheme comes from the company
or from the funds built up with contributions from the final salary scheme
members.
The paragraph also illustrates David
Laverick's propensity for introducing "straw man" arguments that the complainants
did not provide, in order to knock them down.
The complainants made no complaints based on moral high ground; they
reasoned about their bargain.
Because of the usual relative financial
circumstances, normally Ombudsman mistakes that favour a complainant can
be corrected on appeal to the High Court by the respondent, whereas mistakes
that favour a respondent cannot be corrected because the complainant
cannot afford to appeal. This is not
cured by "no-win no-fee" arrangements because of the risks in costs
awarded. For somewhat similar
circumstances the Consumers Association, "Which" (Jan 2005), has noted "To go to court, you'd have to risk your
home with a no-win, no-fee solicitor".
One has to question the
motives of those who imply the lack of an appeal is an endorsement of the
determination. Do they live in an
unreal world, or are they deliberately disingenuous?
Another
form of shirking responsibility is to note that the Ombudsman is
independent. The BBC is formally
independent, but that doesn't stop its processes being investigated and the
balance of its views questioned.
Parliament quite rightly thinks it has responsibility for establishing
structures and staffing that do a proper job.
The
Secretary of State is explicitly responsible for the continued appointment of
the Ombudsman, yet he simply moves enquiries on to somebody else.
The DWP
says that in most cases the system is working well. How do they know? The
majority of determinations will dissatisfy one of the parties. The DWP has no monitoring of the match
between decisions and the prevailing legal opinion. The DWP may have noted that the intensity of appeal activity has
dropped since the days of Dr Julian Farrand QC as Ombudsman but that could be a
reflection of personal views. It has
been said that where the law was open to various interpretations Dr Farrand
tended to the interpretation that scheme members would make. In any case, is "most" the right ambition,
if a few important determinations are unsatisfactory? (Should we be satisfied if most of the people incarcerated for
life are guilty of some crime?)
On
remedies, the DWP says "It would not be
appropriate to ask the Ombudsman to refer cases to the courts and to expect the
complainants not to bear court costs". But
in the past the Courts have directed costs to the respondents before hearing a
case, because of the public interest in a case being heard that the
complainants could not finance. The DWP
does not attempt to justify its "would
not be appropriate".
The complainants
have had a long struggle aimed at persuading Mr Laverick to take their
complaints collectively, do a full investigation, and apply law that stems from
salary deferment. They succeeded with
the first, but too late. They failed
with the second because of the Ombudsman's tendency to trim the work to the
time he had personally available. They
failed in the third because, for two of them, misinformation prevented their
involvement until after the Notice of Preliminary Conclusions and they had no
opportunity to comment on the material that was new and severely wrong or
inadequate in the final determination.
However, it would be wrong to conclude complete failure now - there are
mechanisms unused, a story that should be told, and changes that should be
made.
Why should MPs ask for the
notice of preliminary conclusions?
In
response to Jim Sheridan MP, the Ombudsman has implied that any lack of
expertise in the investigator was harmless because Parliament gave him
responsibility for the legal view in the final determination. But when Parliament gave the Ombudsman that
responsibility it did so on the basis that he would be supported by
knowledgeable and experienced legal staff, and would be reviewing their work.
The managing director of a car plant is responsible for the quality of the cars
produced but if the managing director interpreted that as cause to assemble
cars himself that would not enhance quality.
The
Notice of Preliminary Conclusions is what the Ombudsman would have issued as a
determination if there had been no comments on it. The Ombudsman says complainant views were taken into account in
the short time between preliminary and final.
(There was no prior opportunity for two complainants - they were
misinformed that their complaints were not being investigated, until the
preliminary proved otherwise, by the Ombudsman's uncorrected "It is therefore my decision that
further consideration of your complaint should remain on hold pending the
determination of the complaints of Mr Cawley and Mr Mitchell".)
In these
particular unusual circumstances, the complainants should have the opportunity
to show MPs that there was no relevant accounting of their comments.
Why should MPs write to the
Parliamentary Ombudsman?
One
obviously cannot have an unlimited sequence of appeals, but in giving the
Parliamentary Ombudsman the power to investigate the Pensions Ombudsman,
Parliament must have intended the power to be used sometimes. The power is limited - in a letter to Sandra
Gidley MP the Office explains that a Pensions Ombudsman decision "gives authority not only to the decision
itself but to the broad lines of the investigation by which it is reached"
and the Parliamentary Ombudsman cannot question that. However, she can question administration without questioning the
verdict. Will she do so in the IBM UK
affair? It is clearly unsatisfactory if
pension scheme members have to wait four years for an opinion on whether the scheme
was operating illegally or not, since the members will have had to make decisions
involving the scheme in the interim.
Who should investigate the extraordinary delay? Would it be different if
the four years were ten or twenty? It
is clearly unsatisfactory for the complainants to be misinformed for years
about whether their complaints were being investigated or not. Who should investigate whether this was
deliberate or an oversight? Without
investigation, how can MPs know whether there is cause for reform?
Why should MPs support an
adjournment debate?
Public confidence in occupational
pensions is necessary to encourage saving for pensions. Any examples of reprehensible corporate
behaviour, unchecked by the mechanisms intended to protect the savers, now and
in the future, will undermine that confidence.
Monitoring and accountability of the regulators, currently missing,
would promote that confidence in future.
Genuine opportunities for scheme members to have regulations enforced by
the courts would promote that confidence.
There is no shortage of worthy ideas for reform. AMIPP has suggested some. The Independent Pensions Research Group has
suggested some.
In a lecture to the Association of Pensions Lawyers, Mr Justice Lightman has suggested
that "the existing
judicial jurisdiction of the Ombudsman raises serious questions regarding
compliance with the Human Rights Act and (for this and other reasons) should be
transferred to a tribunal". A tribunal would have the merit of providing relevant legal expertise
- Mr Justice Lightman noted an anxiety about "whether the Ombudsman (who prior to his appointment will ordinarily
have no previous experience or expertise in the field of pensions) is
particularly well equipped to assume the role of an expert in the field".
There is good cause for a debate, especially as the
DWP's response to suggestions is to label them "inappropriate" without
providing reasons to do so.
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. The Message Board has David Laverick's response to a letter from Jim Sheridan MP, which you might find illuminating.