Pensions (Ardersier Employees)
The members' business debate is on motion S1M-1463, in the name of Margaret Ewing, on the McDermott UK pension plan and former Ardersier employees. The debate will be concluded without any question being put. It would help if members who wish to participate in the debate pressed their request-to-speak buttons as soon as possible.
Motion debated,
That the Parliament notes that more than 1,500 former employees of the Ardersier fabrication yard were compulsory contributors to the McDermott UK pension plan which was first introduced in 1975; further notes that subscriptions continued to be collected until five years ago when McDermott joined with Brown and Root at Nigg to form the Barmac joint venture; expresses concern that the Louisiana-based McDermott International are now planning to take 65% of the £31 million left in the pension plan as part of the process of winding up the pension plan, expresses its support for the campaign to reverse this action by McDermott International, and calls on them to distribute the surplus fairly amongst those workers who paid into the fund.
I thank every member from across the political spectrum in Scotland who signed the motion and I thank those who remain to participate in the debate. That reflects a unity of purpose that is essential to the issue.
The issue is important and directly affects people who are mainly in the north of Scotland, but a general principle about pension schemes is also at stake. I fought for a Scottish Parliament to deliver social justice. The motion is part of that.
The motion deals with McDermott's pension plan and the fact that 65 per cent of its £31 million surplus of funds is to be retained by the company. Moral and ethical aspects underpin the issue. The Parliament must take a clear stance. I say to the minister that even if at times there are no immediate solutions, our considered opinion must be registered and brought to bear on private companies and on public responsibility.
This morning, I heard on "Good Morning Scotland" that McDermott's head office in Louisiana had refused to pass comment on our deliberations this evening. At least the company is aware that we are talking about the issue. The message that we send to the company, to its customers and to its former employees is for it to give us an honest response to the united concerns that will be expressed this evening in the Scottish Parliament.
To help those in the chamber who may not be fully aware of the background, I will attempt to give a brief explanation of a complex situation. The McDermott UK pension plan was compulsory when it was introduced in 1975. Subscriptions continued to be collected until five years ago, when McDermott joined with Brown and Root to create BARMAC. Throughout that period, as a result of its pension plan, McDermott received reductions in national insurance contributions. That is a not insubstantial financial concession that many other businesses would welcome.
Part of the problem lies in pension law. Section 76(3) of the Pensions Act 1995 does not apply to this situation; it gives more rights to pension plan members and allows them to elect trustees to help them look after their interests. The trustees that were appointed by McDermott were at senior management level as the majority of plan members were made redundant in 1993 or were excluded from the plan in 1995. With the formation of BARMAC in June 1995, the entire McDermott Ardersier work force was excluded from the pension plan and their pension benefits were deferred.
In October 2000, McDermott announced that the best estimate of the surplus was approximately £31 million, once Legal & General had secured the benefits. Under the plan's trust deed, the founder of McDermott International will decide how to use the funds. I find it extremely difficult to understand how decisions about the funds were moved from the trustees to the founder. I cannot trace the legislation that enabled that to happen.
Thirty-five per cent of the surplus is to be used for the benefit of plan members. The balance, which I appreciate must be net of tax, is to go to the company. I have tried to find a resolution, as has the Amalgamated Engineering and Electrical Union—which may yet bring legal action. We seem always to hit a brick wall, despite the fact that local McDermott personnel have a long and proud reputation of being co-operative with their work force and their employees.
Over the past month, along with Councillor Jimmy Gray and the AEEU, I have been pursuing the matter with the Treasury. I want to refer briefly to responses that I have received from Melanie Johnson, a junior Treasury minister. She said that she could not
"comment about the affairs of particular pension schemes and companies"
but that
"it should not be possible for an employer to exert undue influence on a pension fund to the detriment of members' benefits and rights."
Nevertheless, McDermott has retained 65 per cent of the money that was paid in by individuals. Current tax rules do not require that surpluses be dealt with in any particular way. That is probably a huge flaw in our pension law, which should be addressed. I want the Parliament to look seriously at the issues and I want recommendations to be made to the Treasury and to the company involved.
I am conscious of the time, I know that other members want to speak and I want the debate to be constructive. I know that the minister has been involved in other issues today that are important to the Highlands and Islands, but is this not exactly the kind of situation where Highlands and Islands MSPs, irrespective of their political allegiance, should have been represented at the Highlands and Islands convention so that we could have discussed the issue? Elected members have a right and a responsibility to speak out on behalf of their constituents.
There is also the role of the Executive to consider. What liaison has there been with the Treasury about the pension plan? What liaison has there been between the Executive and McDermott International in Louisiana? Those who have been given the privilege of being ministers have a responsibility to ensure that our concerns are reflected.
We must ensure that what we say in the chamber today is relayed clearly to all who are involved and that the body of consensus that I know exists shows a will to rectify the injustice. I hope that the debate will point a way and that the minister and the Executive will follow that way.
I thank Margaret Ewing for initiating this debate on an issue that is important to many people in the inner Moray firth area and beyond.
McDermott's refusal to honour its commitments to its former work force rankles deeply in our area. I pay tribute to the AEEU, which has worked hard to progress the matter. Jimmy Gray has been on the phone to us constantly about it. If hard work guaranteed success, he would certainly have success. The hourly-paid work force in the oil fabrication industry was always aware that the industry did not offer a long-term, secure future. The knowledge that a substantial nest egg was building up for them in the McDermott pension fund at least gave the employees some security to look forward to.
As we know, when McDermott Fabricators combined with Brown and Root to become BARMAC, the workers who transferred to BARMAC found that they were no longer considered to be active members of the pension fund, but deferred members. That decision affected 80 per cent of the former McDermott Fabricators work force of 1,800. Those deferred members now find that the money that they paid into the fund is being raided by a super-rich American company. As far back as 1988, the AEEU asked McDermott for elected trustees to represent the interests of the members of the pension scheme. McDermott refused.
In 1995, the hourly-paid workers employed by BARMAC were put out of the pension scheme. In 1997, McDermott nominated four senior managers as trustees. The current McDermott work force was notified, but not the former employees who were by then working for BARMAC. The trustees had a responsibility to those who paid into the fund. How did they behave? Whom did they consult? Whose interests did they have at heart: the former work force or the company? Did they transfer their powers to the company? We do not know. We need answers to those questions. McDermott stonewalls and refuses to carry out its responsibilities. It is outrageous that a billion-dollar company should make itself richer with the money paid by its hourly-paid work force in the past. Indeed, all companies in the oil industry have a duty in that area.
The local authority standing committee on oil fabrication has called for a fund to be set up, with contributions from the oil industry. That would help communities to diversify once the oil industry pulls out. The oil companies are reluctant to participate. However, in areas such as the inner Moray firth, where there has been such a swings and roundabouts situation with jobs, there should have been a fund to help people into other jobs and into training when the oil fabrication eventually ceased.
The local enterprise companies and the Executive have done well, however, and unemployment has fallen considerably since the dark days when the yards closed. Why, though, should it be left to the public purse to pick up the pieces? The oil fabrication companies have a responsibility. I urge the Executive to use its influence in that area and to progress the claims of McDermott's former work force.
Today's debate on the future of McDermott pensions is both worth while and justified, although it is a matter of considerable regret that we need to have it at all. Indeed, it is very unfortunate that what is essentially a matter between employee and employer has had to come this far and that the situation has not been rectified earlier. It is bad enough for people to lose their jobs, but the extra distress that this episode is adding to the lives of individuals and their families is utterly disgraceful.
There are many people to congratulate on bringing the matter to the attention of the chamber. All of us will have received a letter from Councillor Jimmy Gray highlighting the problems and plight faced by all those involved in the scheme. Margaret Ewing also deserves great praise for lodging this evening's motion, and I congratulate her on securing the debate.
People who have invested in an occupational pension scheme have a right to expect fair treatment and a decent income. They should not feel that they are losing out to any other source. Insult is being added to injury. Indeed, the sole purpose of the pension plan was to provide retiral benefits for the plan members and their dependants. Surpluses should go to the employees who have lost their jobs. Those who contributed to the fund did not intend that McDermott shareholders should benefit. They are understandably frustrated and furious that that may ultimately be what happens.
This Parliament must send out a strong message to all concerned that we find the situation unacceptable. I am sure that the local community will do the same. It is simply not right that such a loyal and skilled work force, some of whom are nearing retirement, should be treated in such a contemptible fashion.
We should be doing everything in our power to reward those who save, instead of punishing them for their desire to be prudent. As the average proportion of savings has fallen from more than 10 per cent of earnings in 1997 to just 3 per cent this year, that desire should be given even more credence.
McDermott and the Ardersier yard have made a big contribution to the Highland economy and the wider community and it would be somewhat disappointing if the company left on such rotten terms. It seems absurd that those who have paid in the past should be treated in such a way, and I encourage McDermott to take the necessary steps to appease its pension fund holders.
It seems absurd that McDermott should continue to ignore requests from the work force for meaningful discussions with the trade unions that represent former workers at the Ardersier yard. Instead, McDermott has sent a standard reply to all the plan members who wrote complaining of the company's intention to retain 65 per cent—which equates to £22 million—of the declared £33.8 million surplus. That is nothing short of scandalous.
The cross-party support that has been evidenced here reflects the strength of feeling about the issue and McDermott International cannot fail to act on the calls to reverse the planned action. As things stand at the moment, the pension plan members have had no input, no consultation and no say in the winding up of the McDermott pension plan and the dispersal of its funds, despite the fact that the majority of the contributions paid into the plan have come from plan members.
Senior management were appointed—self-appointed—as trustees to the plan in 1997. Since the majority of plan members were made redundant in 1993, or excluded from the plan in 1995, those trustees have never met, consulted or even spoken to the pension plan members whose interests are entrusted to them. Prior to the redundancies in 1993, the unions made repeated unsuccessful attempts to have member trustees elected, but McDermott refused—surprise. In 1995, legislation was introduced to give more rights to pension plan members and to allow them to have trustees elected to look after their interests. Unfortunately, as we have heard from Margaret Ewing, the introduction of that legislation coincided with the formation of the McDermott-Brown and Root joint venture company, BARMAC.
With the formation of BARMAC in June 1995, all the McDermott work force at Ardersier were excluded from the pension plan and had their pension benefits deferred. In 1997, when McDermott appointed its own senior managers as trustees of the plan—self-appointed and without consultation—it notified the few remaining active plan members of the appointments. No notification was given to the majority of the plan members, who by this time were, compulsorily, deferred beneficiaries.
It is imperative that the maximum political pressure is exerted on McDermott International to have meaningful talks with the unions and representatives of the McDermott UK pension plan. That should be done with some urgency, as the clock is ticking on the statutory wind-up process. Any money that is in the fund should be distributed fairly among all those who have contributed over the years. It is an insult to all former employees that little more than a third of the profits of this compulsory scheme will be returned to them. I suggest that the cash must be recognised as part of the employees' original investment. It is money to which they are entitled and which they deserve.
McDermott International should be in no doubt that the Scottish Parliament will not rest until justice is done.
This debate is about the many men and women who will lose the valuable pension rights that, as many members of all parties have said, they should have as of right. It is about many of my constituents who are in that category. It is about Mr William Humphreys of Inverness, Mr James Walker of Nairn, Mr David Shaw of Inverness and others who have written to me to express their views and feelings now they are in the situation that many members have described.
A sentiment that constituents commonly express is that McDermott was a good employer that made a large contribution to the economy of the area. That is appreciated. It is not ignored and it is not forgotten. Jimmy Gray made that point when we met him earlier today. The message that we are sending to the company today is that we want it to live up to the claim on its website that it is moral and ethical.
The issue that underlies the debate is the fact that the law allows the notional surplus of an occupational pension scheme to be used by the employer and, in effect, taken from the potential beneficiaries, both present and future.
I do not want to introduce a note of discord, but I have to say that the practice was first allowed in the late 1980s, by Mrs Thatcher. It has not been stopped since, so I do not think that anyone is suggesting that there has been illegality. The taking of a surplus from a pension fund has not been outlawed. It could have been, but it has not been. Let us be clear about that. The current Government has had four years to end it.
This is, of course, a complicated issue, but McDermott must acknowledge and act upon specific points. For example, in the calculation of the so-called surplus, it is assumed that no one retires early and that no one becomes disabled. Those assumptions are wrong. Their application in the calculation of the so-called surplus artificially inflates the size of the surplus. Those are just two specific points; I know that there are more. As Margaret Ewing mentioned, this may subsequently be the subject of legal action. One hopes that that will not be necessary.
Other companies are notorious for using their employees' pension fund money. One is AI Welders in Inverness, who—as members will recollect—did so in 1991. A long campaign against Verson, which owned the company at the time, resulted in the preservation of that important engineering business for the north of Scotland. Another was Mr Robert Maxwell, but for the sake of decorousness I will not say anything about him or mention the name of his associate.
If—as I believe—McDermott International wishes to preserve its good reputation in the north of Scotland; if it wishes to be seen as the moral and ethical company that it professes to be on its website; and if it does not want to be associated in any way with Robert Maxwell and all his works, it must do the decent thing, negotiate with Mr Gray and his colleagues in the union and give justice to the McDermott International work force.
I congratulate Margaret Ewing on securing this debate. Her motion has attracted much cross-party support, which is an indication—if any were needed—of the strength of feeling on this issue.
I welcome representatives of the McDermott pension plan action group and the Amalgamated Engineering and Electrical Union to the gallery. They have put much time and effort into ensuring that justice is done for themselves and other members of the pension plan.
Like other members, I have contacted McDermott International to find out the reasoning behind its decision to wind up the plan and to give part of the surplus to its shareholders. McDermott International has benefited from a reduction in national insurance and has not contributed to the pension plan since the mid-1980s; it has benefited from the plan in the past and sadly its wish to continue to benefit is very evident.
McDermott International's response has been wholly inadequate. In its first letter to me, the company stated that if there is a winding-up of the plan and a surplus is in existence, it has
"sole discretion to direct the destination of that ‘surplus'."
McDermott International has exercised that discretion. It has made a choice. It has decided to benefit its shareholders instead of making a significant difference to the future of many workers and ex-workers who have loyally served the company in the past.
The company has also failed to engage properly with the campaign by workers. I was astonished by its constant refusal to meet with unions; however, a meeting finally took place on 3 April. Why has the company been so unwilling to engage properly with the very people who worked for it? It says that it has fulfilled all its obligations to plan members, but if it is so sure of its case, why has it been so reluctant to defend its actions?
I hope that members recall that we are not talking about a few hundred—or indeed a few thousand—pounds that McDermott International wishes to keep, but about 65 per cent of the £31 million left in the pension plan. That is an enormous sum of money in anyone's books. The company claims that it has been more than generous, but when the disabled workers who contributed to the pension do not receive any disability pension, how can such a claim stand up?
The issue can be summed up in the two words fairness and justice. For many years, McDermott International has been able to count on the support and loyalty of a dedicated work force and the company has made an important contribution to Ardersier, where it was held in high esteem. By seeking to keep money that morally belongs to workers, it has damaged its reputation. That damage has been compounded by the way it has high-handedly brushed aside the views and concerns of its workers.
I hope that all parties can send a clear message to McDermott International that its decision must be reversed. It must fully take on board the concerns of its employees and ex-employees and ensure that those people receive the money they are morally entitled to.
I join colleagues in thanking Margaret Ewing for securing this debate. I should begin by stressing that pensions policy is a reserved matter, but we have followed this particular pension issue closely.
Margaret Ewing is absolutely right to say that the chamber's considered opinion should be registered. I hope that that clear and unequivocal message leaves this chamber tonight. She asked what the Executive's role has been over the past while. The First Minister has been in touch with McDermott, which, as members have recognised, has an excellent reputation for employee relations, and with employee representatives. He has been concerned about whether, on this occasion, complying with the letter of the law is sufficient.
McDermott has committed to complying not only with the letter of the law, but with the spirit of the law. The First Minister's concern has been shared by the Secretary of State for Scotland, Helen Liddell, who has also been actively involved in the matter. I have no difficulty recognising Mrs Ewing's efforts on behalf of the workers, and it is right that we should also recognise the sterling work that David Stewart MP has carried out on behalf of his constituents.
The McDermott pension scheme was established specifically for McDermott's UK workers and the main concern that has been expressed is about the proposed allocation by the trustees of 65 per cent of the McDermott pension plan surplus to the company. That surplus is estimated to be around £31 million. McDermott International has informed the Executive that the clear purpose of the pension plan is to provide a specified level of retirement benefits for employees. In this instance, the pension plan's assets exceed the cost of the benefits. Nevertheless, the company decided that it would be appropriate to apply 35 per cent of the surplus to increase employees' and ex-employees' benefits over and above their entitlement under the plan. I understand that the company envisages that plan members will receive benefits that exceed those that were originally promised to them.
It might be useful to explain that, under trust law, neither the employer nor the scheme members own the assets of the pension scheme; the trustees hold the assets. They are under a strict legal duty to use them in accordance with the deed setting up the trust and the scheme rules. In the trust deed for each occupational pension scheme will be rules stating how a surplus will be treated. They are subject to any overriding legislative requirement.
The minister is talking about the trustees. Can he explain why the founder is making the decision about 65 per cent of the surplus?
As I explained, the trustees hold the assets. They are under a strict legal duty to use them in accordance with the deed that set up the trust and the scheme rules.
For schemes in which payment to the employer is permitted by the scheme rules, as is the case here, members have a right to challenge if they believe that the statutory criteria have not been met. A challenge to the trustees' decision can be made to the Occupational Pensions Regulatory Authority, which will investigate the case and decide whether to allow payment. The Occupational Pension Schemes Advisory Service provides independent advice to members on pension schemes. It has already indicated that McDermott appears to be acting within its rights and in accordance with trust law.
There are also Inland Revenue requirements regarding pension schemes, which include limits on the use of surpluses. Many tax relief schemes are associated with pension schemes and legislation is in place, under the Income and Corporation Taxes Act 1988, to ensure that pension funds do not receive undue tax relief by holding unnecessary surpluses. When a scheme holds funds in excess of 105 per cent of its liabilities, it must reduce the excess to retain full tax exemption. Employer/employee contribution holidays, improved benefits or taxable refunds to the employer can be used to achieve that, but the Inland Revenue must approve any plan for the removal of surplus.
In addition, legislation imposes a 40 per cent tax on a payment to an employer out of the funds that are held by an approved occupational pension scheme. That tax charge was put in place to recover the tax relief given on the contributions to the scheme and the tax-free build-up of funds. Before a payment can be made to an employer from a surplus, under the Pensions Act 1995 all current and future pensions in payment must be increased annually in line with the retail prices index up to a maximum of 5 per cent, including pensions accrued in the past; trustees must satisfy themselves that the use of the surplus is in the interests of the members; and members must have been notified of the proposal.
When a scheme commences winding up, the Inland Revenue requires confirmation that the benefits have been secured in accordance with the trust rules and within revenue limits, and that the trustees are compliant with the Pensions Act 1995.
We listen with interest to the description of the legal complexities and appreciate that these are serious matters, but is not the basic problem that the law permits the employer to extract a notional surplus from a pension scheme? That is a law that could have been changed over the past four years but which, unfortunately, has not been.
Those matters are debated in another place, as Mr Ewing knows.
As I have already said, the First Minister had a meeting with representatives of the former Ardersier employees in November last year. He raised his concerns about the winding-up proposals with the Secretary of State for Social Security, Alistair Darling, who confirmed that he has no powers to intervene in individual cases. As has been said, that position was understood and accepted by the trade union representatives, Jimmy Gray and Alan Burgess, both of whom are in the gallery. OPRA is the regulator appointed by the Secretary of State for Social Security for the purpose of intervening in individual cases.
The First Minister also wrote to the chairman of McDermott International, requesting him to reconsider the company's decision not to enter discussion with the members of the pension plan. I am pleased to say that a meeting between the representatives of the members and McDermott took place in Edinburgh on 3 April. As a result of that meeting, the regulatory authority has decided to delay payment of the surplus, which was due on 4 April. OPRA is seeking further confirmation that the trustees are compliant with section 76 of the Pensions Act 1995.
McDermott International has, in the meantime, informed the First Minister that it believes that the meeting on 3 April was beneficial to both parties. We hope that the outcome from the meeting presents a solution that goes towards meeting the needs of the pension plan members and is acceptable to the company.
I trust that the company will recognise what members from across the political spectrum have been saying in the chamber tonight. The parties in the Scottish Parliament are united in the attempt to secure legitimate benefits for the workers concerned.
Meeting closed at 17:42.