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Pension integration (or 'clawback')

Published Thursday, February 15, 2018

Looks at rules under which some occupational pensions have historically been adjusted to take account of the State Pension introduced in the late 1940s

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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, currently with 35 signatures says:

That this House notes that employees of HSBC Midland Bank's Defined Benefit Occupational Pension Scheme believe that they were not adequately made aware of the clawback feature; further notes that this feature reduces the bank's pension contribution when basic state pension becomes payable; is concerned that this means that many staff were denied the opportunity to make additional financial plans for their retirement; further notes that other banks have not applied, or have withdrawn, this scheme; and calls 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.

This note explains the background to the rules and the campaign to change them in the early 2000s.

Commons Briefing papers SN01121

Author: Djuna Thurley

Topic: Pensions

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