In Martin, the Pensions Ombudsman had to consider the position of the trustees of the IBM Pension Plan, who had agreed to amend their scheme rules to give effect to the employer's decision to restrict the extent to which future salary increases would be pensionable.
IBM (the Plan's sponsoring employer) had re-structured its pension arrangements. Members had been given a choice: (i) they could stay in the defined benefit section of the scheme, in which case 50% of any future salary increases would be non-pensionable, or (ii) they could join the defined contribution section and receive enhanced employer contributions; and all future salary increases would be fully pensionable. The employer had run roadshows, issued Q&A documents and allowed employees to use a comparator tool, so that they could consider which option to take. Consequently, the Plan's trustees amended the definition of pensionable salary to reflect the changes instigated by IBM.
A member who had elected to stay in the defined benefit section now challenged the trustees' decision before the Pension Ombudsman. Essentially, the member's claim was two-fold: (i) the member claimed that the trustees had not fully considered all relevant factors when taking their decision to amend the definition of pensionable salary; and (ii) that, in agreeing to make that amendment, the trustees had not acted in members' best interests. Amongst the supporting arguments, the member claimed that the trustees could have negotiated more robustly with IBM, had failed to exact a quid pro quo, and had treated the process as a "tick box exercise" without looking behind IBM's assertion that it simply could not afford to continue with the benefit structure as it then was.
The Ombudsman did not uphold the complaint. He concluded that the change to pensionable salary had been within the terms of the Plan's amendment power. He also noted that the trustees were probably bound to administer the scheme in accordance with the new contractual terms in any event (following the South West Trains principle). The Ombudsman asserted clearly that "it is not for the trustee to interfere with the ordinary contractual relationship between IBM and its employees and the basis on which IBM chose to offer salary increases is a contractual (employment) matter".
The Ombudsman found that the trustees had, in fact, given due regard to members' interests and that "the importance of maintaining good relations with IBM so as to protect, so far as possible, the members' future security of employment are highly-relevant factors for the trustee to take into account".
In response to the member's contention that his consent to the changes had not been valid, the Ombudsman concluded that:
- Members had given their express consent;
- There had been no illegitimate economic pressure on the members when making their decision;
- The elements of a legal contract were present (for example, consideration and affirmation); and
- Alternative options were available to the members.
The case could be distinguished from that in Re IMG, as in the latter case members had been presented with a fait accompli and had no real choice over the changes at issue (broadly, a conversion of defined benefits into defined contribution benefits).
Comment: This case follows on from the earlier determination in Barton, in which the Ombudsman also appeared to interpret IMG restrictively (in blessing the severance of a final salary link, notwithstanding the existence of a Courage-style amendment power restrictions). As such, the pragmatic tone in Martin will be welcomed by employers who have restructured their pension arrangements, especially by those who used the South West Trains route to alter pension terms through members' contracts of employment. However, it should be noted that the Ombudsman's task was made easier in this case by the fact that members were given a real choice as to their future arrangements.