Reports from the Hursley Retirees Club AGM (12th March 2002)

This report was received from Brian Marks. His personal comments, as opposed to things actually discussed, are in square brackets. The Webmaster would welcome reports from others.

The Hursley Retirees AGM had an attendance of 195 (out of 900+ eligible).

Bob Hanley - the Lab Manager (not Director) gave us a pitch he normally gives to customer and community visitors to the Lab. It seems to be in healthy shape with a staff of 3000 (half in IGS so not really development) and 115 new employees in the year. [That is not the rate of increase of staff because people leave - the site is near its capacity for employees]. Revenue growth for Hursley products is "Double digit". [Good, even allowing for inflation.]

The retiree club business was smoothly done with - Chairman's report, accounts, re-election of Officers and Committee. The year has been full of enjoyable and uneventful trips. Retiree contribution to trip costs rises this year by £1.00. [Nobody offered to work out if the long term changes in trip prices rose faster or slower than our pensions!]

Kevin Waller did the presentation for the pensions trust, a role he has also had in seven previous Hursley retiree AGMs. He started by noting that he used to be pleased to be able to say he was in the pensions provision business but just recently pensions providers were being criticized from all directions. [No suggestion, however, that he is able to countenance the possibility that the criticisms are justified in the light of the pension providers' behaviour.]

Kevin reported on how the pension funds had performed as investments. Not too good in an absolute sense (negative return in each of two years) but good in comparison with some others (because of proportion in property, which did well).

The Trust is to have a website. [That rather undermines its argument that it won't contribute to this one because only a fraction of retirees have access and it does not want to give information to just a section of retirees. But does anybody think that was the real reason anyway?]

The three-year cycle for Member Nominated Directors (also known as elected trustees) will give rise to an election process that starts in Autumn 2002.

Kevin said that the subject of much press comment - Accounting Procedure FRS17 - is not relevant because US standard FAS7 is used by IBM UK.

Martin Circuit, Chairman of the Retirees Club, then invited questions from the floor. (The reporting of the questions here is not meant to be an exact copy of the words used by the enquirer.)

Q - Why does the trust use trackers when investing?

A - In practice they have been better performers than actively managed funds and the management costs are low; much lower than they are for an individual with a tracker. [The questioner acknowledged that was a good answer.]

Q - Why Limited Price Indexation on all service proposed by the Trust to IBM recently, but not in the Nineties.

A.- Fund was not in surplus until mid-Nineties. [No reason given why that justified not proposing to honour what MIL785 says about pensions in payment.] Questioner suggested that was saying affordability was the issue; Kevin did not agree.

The Trust did propose something better but, because the something better was described qualitatively (as a proposal for "improvements" or some such) and never written as an actual number, the December 2000 statement is not contradicted. [In December 2000 the trust described the historical position thus: "In principle the trustee proposes an increase and the company approves or disapproves. In practice there have not been two sets of figures, one for what was proposed and one for what was approved because those numbers have been the same." That gives the impression that the trust did not propose anything better than what was achieved. Note that members cannot insist on seeing the actual letters and board minutes about the "proposal", even if there are some.]

There was also discussion of whether IBM's historical pensions in payment (PIP) practice was in the bottom 5% or actually the worst amongst comparable companies. Kevin did not have data with him but promised to tell the questioner the name of at least one comparable company that had a worse PIP practice, if there was one, when he was able to check his records.

There was also discussion of pension characteristics other than PIP. [Were you ever told "Your PIP will be dreadful because some other characteristic of your pension is good"? I was told the opposite. For 28 years I was told, and it was the practice, that all the IBM UK benefits were good. It is documented that PIP comes within "all compensation and benefit matters".]

Q - Will IBM UK take a "Pensions Holiday" this year?

A - No. [This depends on what you think a "Pensions Holiday" is. Kevin thinks that if IBM UK contributes £1 or more then there is no pensions holiday. Others think that if IBM contributes £1 less than what would be needed if the fund had no reserves then it is taking a pensions holiday. The figures from the actuarial report 2000 are that the company will pay £19M in 2002. The average effect from a full contribution holiday (over 1998-2000) was £81M per year. If there were no reserves at all IBM would have had to pay in at least £110M. So perhaps one could reasonably say IBM is taking about 4/5ths of a full contribution holiday.]

Q - (Various on transfers, accounting and profits.)

A - Everyone agrees that if the money purchase plan had not been funded from the final salary funds then IBM would have paid the cost of the money purchase plan. [So the reserves of the two funds added together would have increased by the amount IBM paid.] Everyone agrees that extra reserves are good for the members. [This is not because the members own the funds. It is because more reserves mean more security and less likelihood of debilitating erosion of pension values.] So "no transfers" would have improved the position of the members, relative to the "with transfers" scenario that actually happened; the question is whether the position of the IBM shareholders in the "no transfers" scenario would be worse than in the "with transfers" scenario.

One answer is "They must be, otherwise nobody would have had a reason to want the transfers". But that is not an accountant's answer. The accountants note that for an individual: if you pay off some of your mortgage with cash you are not (instantly) any better or any worse off, although you have less cash. If company A ran the final salary scheme and company B ran the money purchase scheme then the transfers would hurt company A and benefit company B. When company A and company B are the same, the accountants say the effect balances.

[What people find intuitively dubious about the accountant's view of the pensions situation is the equating of the hurt and the gain in a situation where a third party is involved (The members of the final salary plan). The gain to company B is very specific - company B avoids a known amount of payment at a particular time. The loss to company A is less specific, because of the nature of final salary schemes. Company A need not lose anything immediately - the immediate money comes from funds it does not own. Company A may, or may not, eventually have to put into the final salary scheme replacement for what was lost - that depends on the investment performance of the final salary funds.  So the potential exists, definitely in the short term and possibly in the long term, for company B to gain more than company A loses. It is the final salary scheme that supplies the difference. When company A and company B are the same that company has an overall gain.

It is worth noting that the accountancy view (that a cash benefit to the company is not profit if the company's obligations to the members remain the same) could be applied to a direct payment to the company (as opposed to a transfer or holiday) from the final salary funds. The government does not share that view; such payments are only allowed under stringent conditions and are taxed.

It is also worth noting that improved cash flow can be profitable in itself.  A company which gets a free loan from the funds of a final salary scheme has its borrowing requirement  reduced, and inflation will reduce the true cost of repayment. (I am a company director and I know that if I arranged a free loan from that company to me the government would regard it as analogous to taking remuneration.)

So matters are more complicated than the Trust's position - that the issue is one of retiree ignorance in not distinguishing profit from cash flow. ]

However, accountancy regulations are written the way they are, and nobody suggested that it is not within the letter of the accounting regulations to show the shareholders as no better off for the transfers.

Q - About what questions the trust is willing to answer.

A - For the particular matter used as an example, £31M explained only as "miscellaneous", Kevin said it was a waste of time and money to answer enquiries about it since it represented only about one percent of the funds and about £1000 per member. He wasn't prepared to give an opinion on whether it would have been a waste to explain it if ten times as much was involved.

On the general question of what questions will be replied to Kevin said that a member can ask any question they like and the trust can choose whether to answer it or not. [This is not correct. Because of Common Law and the Disclosure Regulations there are some enquiries that the trust must respond to, and respond within two months. My experience of making a request under these regulations is that after about a couple of months you get a reply misquoting your request so as to make it fall outside the regulations.]

In response to an earlier request for information about the progress of complaints to the Pensions Ombudsman, Martin Hughes reported to the meeting that the Ombudsman's Office recently posted a message [on this website] informing members that the initial investigation material for all the complaints had now been handed to a Special Legal Investigator.

Kevin Waller said the trust does not read the website. [ Do you think he meant this literally, or that officially they do not read it? Unless they have made a pact not to look, it seems hardly credible as a statement of fact. How would Kevin know? Wouldn't we expect at least the elected trustees to regard it as their duty to monitor what members think?]

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