• Tech firm wins court fight over ombudsman’s jurisdiction
• Closure of UK subsidiary’s scheme attacked in parliament
A US-based technology company accused in parliament of “effectively stealing” a substantial chunk of its former UK workers’ pensions has succeeded in its bid to prevent the pensions ombudsman from investigating a complaint about its retirement scheme.
EMC employs more than 50,000 people worldwide, including more than 800 across Britain, and earlier this year signed a major IT deal with the government to supply a range of specialist “cloud” services across the UK public sector.
However, the company – a major sponsor of Scottish rugby – has come under fire for allegedly abandoning the underfunded pension scheme of one of its UK subsidiaries and dumping the bill on the UK taxpayer, in a move that will leave former workers losing an estimated 25%-30% of their promised retirement incomes.
One of the EMC’s fiercest critics in the past has been business secretary Vince Cable, who in 2007 accused it in parliament of “systematically manipulating” the accounts of its UK division to “wipe out” its pension obligations.
The pensions ombudsman, the official body that looks into complaints about pension schemes, decided to launch an investigation after receiving a complaint of “maladministration causing injustice” from a member of the scheme. But EMC challenged the ombudsman’s decision, arguing the parent company fell outside the ombudsman’s jurisdiction, and that any ruling would be “unenforceable”.
Last month, the ombudsman asked the high court to decide whether it had the power to investigate, and on 14 December, the judge, Mr Justice Briggs, found in EMC’s favour, ruling that “it would not be proper for the ombudsman to assume jurisdiction”. This was despite a warning from the ombudsman that if EMC’s view was the correct one, it would be “easy” for other firms to avoid an investigation.
Based in Massachusetts, EMC describes itself as a global leader in IT. It revealed in October that it was sitting on more than $10bn in cash and investments. At the same time, it announced a rise in third-quarter revenues to $5.3bn. In the UK it has offices in locations including London, Manchester, Birmingham, Leeds, Bristol and Norwich.
The pensions row has been simmering for a decade. In 1999, EMC took over a company called Data General and in 2002 shut down its underfunded UK final salary scheme and began to wind it up.
A valuation carried out in 1997 had shown the scheme was in deficit by £2.5m, and by 2000 this had risen to £5m. However, EMC was not breaking the law as it stood then, as a loophole meant solvent employers were allowed to scrap pension schemes provided they met a now-discredited “minimum funding requirement” which did not guarantee the pensions of those yet to retire.
EMC did pay some money in: in the summer of 2002 the scheme trustees agreed to accept a £1.2m “compromise” payment from the US parent company “in full and final settlement of any claims for further payments,” according to court documents. They state that the UK operation “did not have sufficient funds to pay any debt” so the US parent had agreed to inject funds into the UK arm to enable it to pay the £1.2m into the scheme.
As there was not enough money in the scheme to pay workers’ full pensions, the government’s financial assistance scheme (FAS) had to step in. This was originally set up to help those who saw retirement incomes snatched away after their employers went bust. The Data General scheme – which has 671 members – qualified for FAS in 2008 and is due to fully transfer over to it early next year. As a result, much of the cost will be shouldered by the taxpayer.
The ombudsman became involved after a complaint from a scheme member, Ralph Dilley. He alleged that the scheme trustees were “misled” about the company’s financial position, and that information obtained after the compromise agreement was signed indicated EMC’s UK arm had been “stripped of its cash surplus”. Dilley believed the compromise agreement should be set aside and EMC ordered to make “substantial payments” into the scheme, according to the ombudsman.
EMC declined to comment and its solicitors referred the Guardian to the court judgment.
Cable’s criticisms in parliament
• In parliament in June 2003, Vince Cable addressed the issue of solvent profitable foreign corporations with UK workers in a separate legal entity. “That has been the case with rogue American companies such Parsons Engineering, EMC Corporation in south-west London, and the former Lufthansa subsidiary GlobeGround, which have effectively stolen a substantial part of their employees’ pensions, and also charged them the cost of the wind-up,” he said.
• In May 2006, Cable told MPs: “Overseas companies, such as Parsons Engineering and EMC Engineering in the US, are effectively defrauding their British pensioners by contriving an arrangement whereby they temporarily liquidate a British subsidiary, expunge their pension liabilities, offload them on to the British taxpayer and resume normal business, including the winning of large government contracts.”
• In June 2007, Cable told the Commons: “Some leading American companies – highly profitable companies such as EMC, EDS and Parsons – systematically manipulated their UK subsidiary accounts to create temporary insolvencies, wiping out their pension obligations. In those circumstances, will British pensioners be entitled to financial assistance scheme compensation, and will the minister then pursue the companies to compensate the British taxpayer?”