Computer giant IBM’s main UK final salary pension scheme was able to cover just 73% of its liabilities as at the end of 2003, according to a new actuarial valuation prepared by Watson Wyatt.
“If wound up at the end of 2003 coverage would have been 73%, leading to 52% pensions for those not already in payment,” a person familiar with the report told IPE. “Future increases would be zero on all pensions.”
The scheme is £900m (E1.28bn) in deficit as at December 2003 – compared with a £698m surplus at the previous valuation as at December 2000. The decline was mostly due to declining asset value.
The person added that “£3.235bn assets cover 78% of past service liability on an ongoing basis”.
During the three years to the end of December 2003, £50.3m was taken out of the final salary scheme to fund the company contributions to the money purchase scheme, the source said. Members objected to this to the Pension Ombudsman, although their complaint was not upheld.
IBM has said it will pay £181m into the fund in 2005, 2006 and 2007 in a bid to cut the deficit and pay for new liabilities arising.
“The summary and main conclusions seem to show how bad the fund was at the review date of December 31 2003 – that is, there was only 73% of the amount needed to cover estimated liabilities,” says a posting on the Association of Members of IBM UK Pension Plans web site.
Brian Williams, pensions trust finance manager at IBM UK Pensions Trust referred questions on the report to the press office, which declined to comment.
Watson Wyatt took over as scheme actuary from Aon in December 2003. Aon and its predecessor companies had been actuary of the scheme for
30 years.