IBM: Success For Members In Remedies Hearing

Last April we reported on the ruling of the High Court that IBM UK had breached its duty of good faith to certain of its employees and former employees. The breach was triggered by the way in which it closed the DB sections of its pension schemes to future accrual, introduced a new early retirement policy and non-pensionability agreements (NPAs) for future salary increases. The remedies flowing from those breaches have now been considered in a second judgment and the findings of the judge are broadly in favour of the members.

Non-pensionability agreements

The issue with perhaps the broadest potential relevance to other schemes is the NPAs. Members who signed these had agreed that any future salary increase they might receive would be non-pensionable. In the first judgment it was held that the NPAs had been obtained in breach of contract (being in breach of the implied term of trust and confidence). In the remedies judgment it has now been held that the non-pensionability term that formed part of the varied employment contract (once the salary increase was accepted) was not enforceable against members. Members who signed NPAs are therefore entitled to have their salary increases treated as pensionable (albeit subject to a previous NPA that was held still to be effective).

Some employees refused to sign an NPA and so did not receive salary increases at all. These individuals are not entitled to claim back-dated salary increases but will be entitled to claim damages if they are able to establish a loss by reference to the salary increases they would have received plus the value of the equivalent lost pension.

The detailed findings on NPAs could have important implications for employers and trustees of schemes where NPAs (or agreements partially restricting the pensionability of salary increases) are in place or are currently being considered. We will be issuing further guidance on this in due course.

Closure to future accrual

The exclusion notices which purported to end DB accrual were held to be voidable and can be set aside at the election of the member. The effect of this is that a member who was subject to an exclusion notice can now request back-dated DB benefit accrual. This would entail the reversal of DC accrual during the same period and so could be very complex to achieve.

If IBM UK wants to now end DB accrual it will be required...