The promises made in DB schemes can be changed retrospectively ....

uk1

In case readers of this column missed this piece of news over the last few days. Effectively promises made to DB scheme members can effectively be changed retrospectively "at whim". I'm not an expert on the topic, so this is just for info ...

UK IBMers lose crucial battle in pension row

Win for Big Blue in court showdown over final salaries



https://www.theregister.co.uk/2017/08/04/ibmers_lose_court_of_appeal_case/

hyubh

uk1 wrote: »

In case readers of this column missed this piece of news over the last few days. Effectively promises made to DB scheme members can effectively be changed retrospectively "at whim". I'm not an expert on the topic, so this is just for info ...

https://www.theregister.co.uk/2017/08/04/ibmers_lose_court_of_appeal_case/

Closing a final salary scheme isn't changing the promises made in it retrospectively. That would be, rather, changing the accrual rate retrospectively (e.g. saying members service in the past years gets 1/80 not 1/60 or whatever), or denying inflation proofing guaranteed in the scheme rules.

The issue in the IBM case, as I understand it, was something like whether IBM had made contractual promises to keep the final salary scheme open for x number of years, i.e. promises over and above those forming the scheme itself.

uk1

hyubh wrote: »

Closing a final salary scheme isn't changing the promises made in it retrospectively. That would be, rather, changing the accrual rate retrospectively (e.g. saying members service in the past years gets 1/80 not 1/60 or whatever), or denying inflation proofing guaranteed in the scheme rules.

The issue in the IBM case, as I understand it, was something like whether IBM had made contractual promises to keep the final salary scheme open for x number of years, i.e. promises over and above those forming the scheme itself.

As I said, IBM made a number of retrospective changes - as well as closing it to new members. Employees won in the High Court in front of Judge Warren who is a pensions expert, but the case was lost on appeal in front of appeal judges who admitted that they found the issues extremely complex and appeared not to fully understand the issues. They pretty much overturned all the finding of Judge Warren. It basically found that prmises made that most people would feel they could rely on and were contractual, were not contractual and couldn't be used against a company as evidence of a breach of contract or trust.

In addition, Ashurst pensions lawyer John Gordon said: "Employers will be breathing a sigh of relief after this ruling. They were worried that anything they said to employees could be taken down and used in evidence against them in court. ‎

Most employees take in good faith promises made by the employers with respect to the pensions they have already paid for. If you are interested in understanding more, it was a complex long-running case and some of the web sites can do a much better job of explaining why the case is a sad precedent for DB scheme members. eg


http://www.pensionsage.com/pa/Court-of-Appeal-rules-against-members-in-IBM-case-overturns-High-Court-ruling.php

https://www.employeebenefits.co.uk/issues/august-online-2017/court-appeal-rules-favour-ibm-holdings-pensions-case/

https://www.sackers.com/publication/court-of-appeal-decision-in-ibm-v-dalgleish-and-others/


IBM Employees effected discussing the issues:

http://www.amipp.org.uk/phorum5/

martinsurrey

uk1 wrote: »

They pretty much overturned all the finding of Judge Warren. It basically found that prmises made that most people would feel they could rely on and were contractual, were not contractual and couldn't be used against a company as evidence of a breach of contract or trust.



Most employees take in good faith promises made by the employers with respect to the pensions they have already paid for. If you are interested in understanding more, it was a complex long-running case and some of the web sites can do a much better job of explaining why the case is a sad precedent for DB scheme members. eg


http://www.pensionsage.com/pa/Court-of-Appeal-rules-against-members-in-IBM-case-overturns-High-Court-ruling.php

https://www.employeebenefits.co.uk/issues/august-online-2017/court-appeal-rules-favour-ibm-holdings-pensions-case/

https://www.sackers.com/publication/court-of-appeal-decision-in-ibm-v-dalgleish-and-others/


IBM Employees effected discussing the issues:

http://www.amipp.org.uk/phorum5/

You keep using PROMISE, but that is not a fair representation of the facts.

IBM said, in communications, not even in the contract, at the time of Project SOTO that they had no intentions of further re organisation of the pension scheme.

That is not a promise, its not even a hint of a promise.

The first judge relied on members getting an expectation from those words which made them a contract, the appeal court ruled that he was wrong to do so.

Promises are and will be upheld, members reading between the lines on communications outside of the contractual arrangements will not.

seems like good law to me.

Andy_L

uk1 wrote: »

As I said, IBM made a number of retrospective changes

What were they? At a brief glance of those links all seem to be about future accrual not past

steampowered

As I read the links you posted, the decision doesn't seem to have anything to do with "promises".

The decision was that employees did not have a "reasonable expectation" of participation in the scheme. So changing the rules was not a breach of the implied "duty of trust and confidence".

There is nothing in the articles which suggests that IBM breached an express promise.

martinsurrey

steampowered wrote: »

There is nothing in the articles which suggests that IBM breached an express promise.

but the title "firms intentions as to the future of DB schemes can change at some point in the future, even if years ago they said they had no intention of future changes"

Doesn't quite have the dramatic twang about it

uk1

It was as I said a complex case at the end of which Judge Warren in the High Court found wholly and unreservedly in favour of the employees that promises had been made and changes made that were both of future intention on which employees made decisions, and those promises which the judge decided were contractual and that breaching them was an act of bad faith and were also many were retrospective in nature.

The appeal court judges voiced their concern at their own grasp of the issues.

All of the questions asked here are discussed in detail on the AMIPP web site amongst IBM employees who mounted the action and who were much more directly involved with the case than I and with the trustees who also post there. I cannot improve or add any value to what is there.

It isn't my intention to repeat details that are availble there for any with sufficient interest to understand rhe detail - and anyone can register there and ask questions - or to argue the rights and wrongs of the case with posters here. Simply to point out that the information for those intereseted in this case is available. I have absolutely no problem with people here trivialising the case whether they understand it or not. Much of the commentary from industry experts thought otherwise.

https://uk.practicallaw.thomsonreuters.com/4-568-2585?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1

This article considers the High Court decision in IBM UK Holdings Ltd and another v Dalgleish and others [2014] EWHC 980 (Ch). This is an important pensions law case that considers the employer's Imperial duty, its implied contractual duty of trust and confidence and the construction of pension scheme

PeacefulWaters

uk1 wrote: »

It was as I said a complex case at the end of which Judge Warren in the High Court found wholly and unreservedly in favour of the employees that promises had been made and changes made that were both of future intention on which employees made decisions, and those promises which the judge decided were contractual and that breaching them was an act of bad faith and were also many were retrospective in nature.

The appeal court judges voiced their concern at their own grasp of the issues.

All of the questions asked here are discussed in detail on the AMIPP web site amongst IBM employees who mounted the action and who were much more directly involved with the case than I and with the trustees who also post there. I cannot improve or add any value to what is there.

It isn't my intention to repeat details that are availble there for any with sufficient interest to understand rhe detail - and anyone can register there and ask questions - or to argue the rights and wrongs of the case with posters here. Simply to point out that the information for those intereseted in this case is available. I have absolutely no problem with people here trivialising the case whether they understand it or not. Much of the commentary from industry experts thought otherwise.

https://uk.practicallaw.thomsonreuters.com/4-568-2585?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1

I'm trivialising nothing. The case law created here directly affects me to the tune of c£200k.

But I can't find the retrospective changes made that you refer to in the opening post. What are they?

uk1

PeacefulWaters wrote: »

I'm trivialising nothing. The case law created here directly affects me to the tune of c£200k.

But I can't find the retrospective changes made that you refer to in the opening post. What are they?

To be clear, I have absolutely no intention of getting mired into semantics. I have simply posted this information as being something of possible interest to others..

An example of a retrospective change and there are others was that employees had a set of early retirement factors that they were a part of a defined benefit. They were set at 3% per year for every year from they retired early from 53 until NRA at 63. Employees were told that this wouldn't change. So their contributions bought that benefit. The company then used a change to those rates to coerce people to leave the company "freely" rather than give them redundancy. Those that didn't leave have had early retirement factors increased by upto a range of 6-8% which is an immediate loss of pension tights already accrued.

I have repasted one account of one member who posted on AMIPP.

The people affected were all members of the C plan in 2009. IBM had already closed the C plan to new joiners many years before. I believe the people affected were aged 45 - 63 in 2009, and are now (2017) aged 53 to 71.

As for how much individuals lost, that varies by individual circumstance. (How long you worked for IBM, your salary, age in 2009, when you want to retire.)

One simplified example may help. Before Waltz, someone on a salary of £50K could expect to retire at 63 with a pension of £33K. After the judgement, that is probably £28K or less, so a loss of 15-16%.

Where it gets worse is if you are no longer employed by IBM at the point your retire. Then you lose an additional 10%-27%.

So your total pension is down by anything from 15% to 42%. Worst case, IBM makes you redundant at 54, you can't find work, and you have to start claiming your IBM pension. That pension of £33K you were hoping for is now worth only £19K.

Where I think this will affect most IBMers, is the tax-free sum the Inland Revenue allows you to take from your pension pot when you retire. As I understand it, most IBMers do take the tax free sum. Some people use it to fund a final house move, or refurbishment, to pay deposits for children's houses, or to splash out on that special holiday they always wanted. My guess is many (most?) people will forgo some of all of the tax-free cash in favour of trying to push the value of their monthly pension closer to the level they had planned.

PeacefulWaters

It is of interest. It's just your definition of the word retrospective seems a bit off.