Union Unite is preparing to reballot employees at ICT company Fujitsu on strike action, in a long-running dispute that – among other things – involves a change to the ICL defined benefit section’s late retirement factor.
The Japanese company announced a restructuring a year ago, involving 1,800 job cuts in the UK, but the dispute also involves changes affecting DB members.
They should consider a court application
Penny Cogher, Irwin Mitchell
The pensions question became part of a national dispute for Fujitsu workers this year, with a total of 15 days of strike action between February and May. Unite members rejected the company’s latest offer by 92 per cent in August this year.
The part of the dispute relating to pensions centres on so-called late retirement factors. The late retirement factor gives scheme members who stay on past their normal retirement date a boost to their pension.
An actuarial valuation as at March 2015 established the £4bn DB section of the ICL Group Pension Plan was 84 per cent funded. In the wake of this, Fujitsu changed the LRF in the closed scheme to 5.25 per cent from previously 9 per cent a year in 2016, having already reduced it from 12 per cent in 2005. In the communication sent in 2005, members were told the new LRF would only apply on a forward basis.
LRF change applied retrospectively
As part of the latest LRF change, for employees beyond retirement age who had not started the retirement process, the new, lower factor is applied. Unlike in the 2005 change, this is backdated to their ‘normal pension date’, according to Unite.
Unite representative at Fujitsu Ian Allinson said: “The LRF had been changed previously, but never retrospectively.”
He said the trustees did not consult plan members before the changes were announced, adding that they had “a devastating effect on staff in their 60s, some of whom lost as much as 13 per cent of their pension overnight and were actually worse off than if they had left the company several years earlier”.
A Fujitsu spokesperson said actuarial factors are reviewed from time to time by the trustees taking advice from the actuary.
“Last year the trustees decided, as part of their duty to manage the scheme prudently, to change some of the factors,” the spokesperson added.
Affected members could go to court
Unite argued that the wording of the relevant pensions documentation implied the LRF was ongoing.
One scheme member, Mr N, took a complaint to the pensions ombudsman, who in January did not uphold it. The appeal period for the case has lapsed without an appeal being made.
Pensions ombudsman Anthony Arter wrote: “While I can see why Mr N has interpreted [the pension statement] as meaning that the LRF is applied on an ongoing basis, I cannot agree with this interpretation because the pension statement does not state what that factor will be. Examples are given in the pension statement based on 9 per cent and 12 per cent, but there is no suggestion that these are necessarily the factors that would be applied.”
However, not everyone sees it that way. About whether the LRF is an accrued benefit or not, Penny Cogher, partner at law firm Irwin Mitchell, said: “I would say it’s subject to debate and not as clear cut.”
She said she would argue that the LRF falls under section 67 and potentially under the amendment power. There would also be an equality angle, she added.
If an entire group of members was affected by the changes, “they should consider a court application”.
Was an expectation created?
Vikki Massarano, partner at Arc Pensions Law, was also surprised by the apparent ease with which the ombudsman took this decision.
“Had I been advising those trustees I maybe wouldn’t have been quite so confident of getting that outcome,” she said.
Although Massarano called accrued benefits a “woolly concept”, she agreed LRFs did not constitute such an accrued benefit.
But if taken further, the case could be influenced by the way the changes were communicated, she pointed out, particularly if some members were encouraged by the company to stay on based on specific LRFs.
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“It’s really important to think about what you say to people,” she said. “There is a fine line between making something simple enough so people can understand it, while maintaining enough accuracy that you’re not going to generate either inaccurate expectations or create an expectation that you then end up stuck with.”
David Weeks, co-chair of the Association of Member Nominated Trustees, said the case showed how difficult it is to take a benefit away from members that they think they have built up.
“If they were led to believe they were going to have a particular [rate] they ought to have it,” he said.
