IBM UK snuffs 'final salary' pensions
Bow to the 'Productivity objective'
IBM UK has shelved its "final salary" pension plan, pulling this prime benefit out from under about 28 per cent of its workforce.
With an email sent to employees at about 5:30pm UK time - after most employees had likely gone home for the day - IBM UK and Ireland general manager Brendon Riley announced the end of the company's Defined Benefit pension scheme, which would have guaranteed retired employees a predefined portion of their final salary.
"In the wake of a volatile economic environment, pension schemes around the world and here in the UK are being assessed by many companies for affordability and long-term sustainability," the email reads. "For IBM UK also, the rapidly-rising costs and liabilities associated with the provision of Defined Benefit pensions is placing pressure on our long-term ability to invest for future growth and operate in an intensely competitive global market.
"Recent trends in the economic environment have now accelerated the need for IBM UK to take further steps to mitigate the impact of these external factors and enable the Company to retain its leadership position moving forward."
IBM UK did not immediately respond to our requests for comment. But we contacted the company after UK business hours. IBM US pointed us back to the UK.
The company retains its Defined Contribution or "money purchase" plan, where employees contribute portions of their salaries to a pension fund where they assume the risk - not IBM. There's no guarantee on how much they'll eventually get out of it. About 28 per cent of the company is still on the Defined Benefit plan, and the remaining 72 per cent is on Defined Contribution schemes.
The Defined Benefit plan will be closed to further accrual - i.e. employees can no longer build up additional benefits under the plan - in April 2010. And until then, salary increases will no longer count towards the plan. Once they end their Defined Benefits memberships, employees have the option of joining the Defined Contribution plan.
With his email, Riley also said IBM would improve the Defined Contribution plan. Currently, if an employee contributes three per cent of his salary, IBM will contribute eight per cent. The "proposal" for the future matching scheme would see IBM contribute "up to 2% on top" of that eight per cent. "For example, if an employee elects a contribution of 4%, IBM will contribute 9%," Riley says. "If an employee elects a contribution of 5%, IBM will contribute 10%." This will not affect some employees already on the plan.
According to an IBM UK employee speaking to The Reg, IBM UK has already reduced the final salary percentage the Defined Benefit plan would pay out. "This was supposed to make the scheme 'safe,'" says this employee, who's under the final salary plan, "so they've effectively gone back on their word."
"I'm fuming," he adds. "It has totally thrown our futures into doubt."
But IBM sees this as a future upgrade. "I understand that the proposed changes that I am announcing today will be sensitive and difficult for many," Riley writes. "However, I believe that these proposals are both responsible and necessary for IBM UK at this time, in order for us to achieve sustainable progress against our Productivity objective, strengthen our long-term competitiveness and ensure our future industry leadership."
Earlier in his email, Riley blames the change on a "recent trends in the economic environment." But Big Blue is one of the few tech giants still churning out profits on par with with pre-Meltdown financials.
IBM has sent us the following statement:
Taking action to maintain competitiveness in the marketplace and introduce greater predictability to long-term pension provision costs, IBM UK communicated to its employees initiation of a consultation process regarding a package of pensions-related proposals. These proposals include enhancements to the defined contribution plan for all IBM UK employees, and closure of the defined benefit plans for existing members.
You're all missing the point here - this is about workforce reduction
I think the contributors below have missed the real sting in the IBM announcement, which is the change to the early retirement provisions.
It's been pretty obvious for several years that defined benefits schemes are on the way out, so it comes as little surprise that IBM is shutting it's scheme. The terms are not bad - employees keep the accrued benefits and in future contibute to a money purchase scheme with significant company support.
However, the big change is in early retirement provisions for those with accrued defined benefit pensions. This really matters as IT is a business where few people work right up to retirement age. Things change so fast that almost everyone ends up taking early retirement.. Over many years the deal has been that when a change comes along that means you have to retrain (again), there has been an alternative for the over 50s to take reasonably generous early retirement terms, usually supplemented by a voluntary redundancy package.
IBM's voluntary redundancy packages have got steadily fewer and steadily meaner meaner over the years, and have now disappeared completely. So the carrot is being replaced replaced by the stick and IBM will now effectively fine people over 50 who want to stay on in the comany beyond next April, by reducing their pensions.
Under the current early retirment terms, employees loose 3% of their pension for each year by which they retire early. Under the proposed changes this will become 7%, so someone planing to retire 5 years early will loose 35% of their pension rather than 15% - a huge difference. For someone planning to retire 10 years early it almost wipes out their pension. But those eligeable to retire early (i.e. over 50) can keep the current early retirement provisions by retiring before April next year.
So for anyone now in their early 50s this is is a no-brainer. Expect a huge exodus from the company of those in their 50s in March next year.
What a clever and Machiavellien way of achieving a redundancy program - making a high proportion of those over 50 leave the company without paying any redundancy money and without contravening age descrimination legislation!
One downside is a huge loss of trust between IBM management and its employess, which should matter for a company that makes "Trust and personal responsibility in all relationships" one of it's core values. But maybe that was just bullshit too.
SHAFTED BELOW GOT IT RIGHT Why the Unite Union is being inundated with new IBM members
SHAFTED BELOW GOT IT RIGHT Why the Unite Union is being inundated with new IBM members!! It is not just the closure but the negative and Real Change in T&Cs, IBM basically gets a no cost form redundancies of the longer serving, higher paid employees. Read SHAFTED below. Remember if IBM get away with it then your next! so be warned....
Reality is Scary
IBM executives are of course on totally different remuneration and pension schemes. IBM UK cannot afford to fund redundancies, this scheme can therefore be seen to offer at this time of Pensions being in the News etc an opportunity of both enabling to reduce staff levels of the generally higher paid (longer serving employees) without redundancy payments and change in Pension terms. As there is a Pension carrot and big stick as you will loose out on Pension by staying (depending on how old you are). By moving in April 2010 to new scheme No early retirement at 60 but now 63 and if you do then decide to take early retirement instead of losing 3% per yer before early retirement (60) it will be 6 or 7%. So why stay and moved to new terms!?
Want to learn more then go to the Associate of Members of IBM UK Pensions Plans web site (AMIPP) for all the News There is over a 1000 comments.