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IBM plans to end final-salary pensions

The company is to launch a consultation with staff about stopping its final-salary pension scheme, while the plans have been criticised by the Unite union
Written by Tom Espiner, Contributor on

IBM is to consult UK staff about closing its final-salary pension scheme.

The technology giant announced on Wednesday that it is talking to employees about the measure, which it said was needed for the company to "maintain competitiveness". Of approximately 20,000 IBM UK staff, a quarter could be affected.

IBM closed the final-salary scheme to new members two years ago. The proposed closure would affect existing final-salary scheme members.

"Taking action to maintain competitiveness in the marketplace and introduce greater predictability to long-term pension provision costs, IBM UK communicated to UK employees [the] initiation of a consultation process regarding a package of pensions-related proposals," said an IBM statement.

The company said the proposals include changes to contributions for all IBM UK employees, as well as the closure of the final-salary scheme for existing members.

As part of the consultation process, IBM said it was setting up a body to present employee views formally to the company. Employees can ask questions and send feedback on the proposals during a 60-day consultation, which starts on 5 August. After this 60-day period, IBM will consider feedback and then make a final decision.

The pension proposals have been announced despite IBM posting strong worldwide results for Q1 2009. Patricia Murphy, vice president of investor relations for IBM, told investors in April that the company had ended the quarter with over $12bn (£7bn) of cash on hand and had reduced total debt by $3bn.

The company returned $2.3bn to shareholders, a drop of only one percent year-on-year, with $700m in dividends and $1.8bn of share repurchases. IBM was also one of the top-five companies in terms of business-intelligence software revenue in 2008.

Other blue-chip IT companies have proposed changes to pension schemes in the present depressed economic climate. In March, HP proposed that employees either pay more into its final-salary scheme or see a reduction in final pension, while BT in November 2008 proposed cutting its contribution rate and raising the retirement age to 65 years.

In February 2006 the Amicus union, which subsequently became Unite, accused IBM of closing its final-salary pension scheme "by the back door" when it proposed closing it to new members.

On Wednesday, Unite said IBM could afford to maintain the scheme, but wished to cut costs to make more money available for dividends, to buy back IBM shares and for acquisitions.

"IBM is a highly profitable company with substantial revenues and cash reserves," said Peter Skyte, Unite national officer. "The company, like others in the IT sector, is using the cover of the financial crisis to erode future pension benefits for long-serving and highly skilled people. This announcement demonstrates that company loyalty is too often regarded as a one-way street in the corporate world of 2009."

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