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As though broadcasting an eagerly-awaited episode of a blockbuster TV serial from the High Court, the latest tantalising instalment of IBM’s own drama was recently announced.

In previous episodes…

The backstory of this drama all revolves around IBM’s plan to limit its UK final salary pension liabilities – codenamed Project Waltz – which it began to put into effect in 2009. IBM set about this task promptly and decisively, before running into trouble in the form of a legal challenge from its employees, leading to the gargantuan courtroom drama*. 

IBM’s plans under Project Waltz were threefold: (i) to close its two main UK final salary pensions to further accrual (ii) to make its early retirement policy less generous, and (3) only to permit salary rises in future to employees who were scheme members if they agreed to sign up to “Non Pensionability Agreements”, so that any future rise would not count towards their pensionable salaries 

The last hearing in April 2014 had found against IBM on one of four substantive issues in dispute, that in pressing ahead with Project Waltz, IBM had breached both its duties under the Imperial case**, and its implied contractual duty of trust and confidence to its employees.

How did IBM breach those duties?

IBM could have implemented the Project Waltz reforms legitimately – generally an employer is free to choose the total reward package for its employees, so it can opt to make pensions less generous in future, but it was the way IBM went about the process, in its consultations and communication with the schemes’ members, that was the problem. It was fundamentally an issue of process rather than principle.

In simple terms, the result of how IBM had communicated with pension members during the course of the project had created what the judge considered to be reasonable expectations on the part of members – expectations that were then breached by IBM putting the Waltz reforms into effect

So what remedies can members claim for?

Closure to accrual in April 2011 

The way this was achieved – by IBM issuing members with “Exclusion Notices” was held to be voidable. This means members are entitled to be credited with pensionable service back to April 2011, up to such date as IBM terminates accrual effectively in future

On the issue of future closure, the judge was clear as to what IBM would need to do: to be effective it would have to send fresh exclusion notices which could not be retrospective, having first completed a fresh 60-day statutory consultation with members. If that consultation exercise was not properly carried out before new exclusion notices were sent, members would be able to obtain an injunction against IBM proceeding any further with closure, in addition to claiming damages.

The Non-Pensionability Agreements

The court found these to be unenforceable against members who had signed them, as IBM had secured the agreement of these members in breach of contract, so these members were entitled both to retain their salary increases, and have their pensionable salary uprated for these increases.

For those members who had refused to sign these, their remedies were slightly different. There could be no contractual breach, as with their colleagues who had signed up. That means they can only claim damages – for the salary increases they should have received, and the loss of pension accrual for these ‘lost’ increases.

Changes in the early retirement policy

IBM had chosen to amend its policy so that members would only (except in special circumstances) receive its consent to early retirement if doing so would be cost-neutral to the relevant scheme. This could mean that some members may have chosen to retire sooner than they might have done under the previous policy. Any member who had in fact done so because of the policy change, would be entitled to claim damages.

What can we draw from all this? 

IBM has already confirmed its intent to appeal the judgment, so we could just say, “wait and see”. In the meantime though, it does seem clear that the duty under the Imperial case**, and the duty of implied trust and confidence, which employers might have assumed over the last 20 or so years are not significant hurdles to being able to introduce pension changes, can in fact present some real obstacles.

Employers considering a pensions restructuring exercise need to be very alert to how any aspect of its communications with members might create reasonable expectations – expectations that could later stand in the way of implementing that exercise.

This post was contributed by James Gulliford. For more information, email blogs@gateleyuk.com.

*IBM UK Holdings and another v Dalgleish and another

**Imperial Group Pensions Trust Limited v Imperial Tobacco [1991] 1 WLR 589


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.