Pension integration (or ‘clawback’)

When the State Pension was introduced in 1948, it was recognised that some employees in the public and private sectors already had occupational pensions. A state pension paid in addition could provide them with incomes in retirement which would not be not far short of retiring salary.  Also, where the occupational scheme was contributory, the total contributions required might be quite heavy. Provision was therefore made for occupational pension schemes to take account of the new State Pension.

Public service schemes included a reduction in pensions at State Pension age (SPA) to avoid duplication of benefits. These ‘national insurance modification’ rules were abolished from 1980.

Private sector occupational schemes also included such arrangements in their rules, which are sometimes described by the term “pension integration,“ clawback or bridging pension.

On 16 November 2017, Pensions Minister Guy Opperman said he had received a number of representations on the HSBC scheme and its clawback policy. Such arrangements were set in scheme rules and it would not be right to compel schemes to withdraw them

The Department for Work and Pensions has received a number of recent representations on the HSBC defined benefit occupational pension about its pension clawback policy from individuals and from Members of Parliament writing on their behalf.

This is one of a number of what are sometimes called integrated pension schemes. These schemes were designed to avoid additional contributions from sponsors and members by taking account of some or all of the State Pension when calculating the amount of occupational pension payable. The arrangement is set out in scheme rules which would have been available to members when they joined the scheme.

Such arrangements are not a requirement of Department for Work and Pensions legislation. It would not be right to compel schemes to withdraw this integration arrangement. That would amount to a retrospective change imposing significant additional unplanned costs. Pension scheme rules on the calculation of benefits are many and varied, and must remain a matter for employers and scheme trustees to decide (PQ 112545).

An Early Day Motion in the name of Jim Cunningham in the 2017-19 Parliament, which got 42 signatures, called on the Government to “abolish pension clawback schemes and to ensure that older people have security and dignity in retirement.”

The HSBC Trustee provided a detailed explanation of the steps it had taken to communicate the impact of the State Pension deduction in a letter to the Work and Pensions Committee on 12 January 2018.

Groups campaigning on this issue include the Midland Bank Clawback Campaign and Unite the union. An All Party Parliamentary Group on Pension Clawback has been set up to campaign for HSBC to remove clawback from its post-1974 Defined Benefit Pension Scheme. It is also working to raise awareness of pension clawback more generally, especially in cases where it has been poorly communicated, and to highlight its discriminatory impacts.

 This note looks at the background and campaign to change the rules in the early 2000s.