Campaigners battling one of the world’s biggest banks over the “grossly unfair” way it treats the pensions paid to some former workers are getting ready for a David and Goliath showdown next month.
The practice is called “clawback” and it involves cutting an employee’s company pension on the grounds that they also receive the state pension. It allows employers to deduct from company pension payments some or all of the basic state pension amount.
It is estimated that about 52,000 former employees of HSBC are affected, and an action group has succeeded in demanding the matter be put to a shareholder vote, while protests are planned for outside the AGM venue on 12 April.
The practice – which only applies to defined benefit occupational pension schemes – is legal but mostly frowned upon. Often the first time people become aware of it is when they reach state pension age – which may be years after they start receiving their company pension – and discover that their income has been reduced. HSBC is one of the employers that makes a deduction, and some of its ex-staff argue they are losing out on up to £2,500 a year.
The bank rejects their claims and says the policy is not unfair or discriminatory.
Among those affected is Sharon McGeough-Adams, 61, who started working for Midland Bank (which was taken over by HSBC in the early 1990s) in 1976 and retired in 2013. She says she will suffer a deduction of £2,317 a year when she reaches 66 in September 2023 – nearly £200 a month. “For someone like me that’s a lot of money,” she says. McGeough-Adams is part of a campaign group that boasts around 10,000 members and is urging the bank to abolish or effectively remedy the practice.
“We are furious at HSBC. They have directed shareholders to vote against our resolution while at the same time asking them to vote for the board’s generous pay increases,” she says.
HSBC has told shareholders that scrapping the deductions would cost it about £450m. The bank isn’t short of a bob or two: last month it reported a 16% rise in 2018 pretax profits to $19.9bn (£15.4bn). The timing is also unfortunate for HSBC, which is embroiled in a row over bumper executive pensions.
Twenty years ago the practice was quite widely used by UK employers: during the late 1990s unions claimed more than 2.5 million pensioners were having money “grabbed back” by their former employers.
However many major employers have either never made use of integration, or withdrawn it partially or fully, or capped the amount. For example, in 1999 Barclays capped the maximum deduction at around £950 a year, and BP scrapped deductions the following year.
HSBC introduced the deductions in 1975, and the policy applies to about 52,000 members of its scheme who joined the bank between January 1975 and June 1996.
There is little or no common ground between the two sides. Campaigners say the practice is “grossly unfair and morally indefensible,” and that staff “were misled”. They also claim there is no link to salary or pension received, so it disproportionately penalises the less well-off. A senior manager retiring on a £75,000 annual pension might suffer a £2,500 a year deduction on reaching state pension age. However, a back office worker retiring on a £10,000 pension, with the same length of pensionable service, suffers the same deduction.
HSBC rejects the clawback label – it uses the term “state deduction”. It says this practice “is not unfair, disproportionate or discriminatory”, and has been clearly and consistently communicated to scheme members.
“At the time this feature was introduced in 1975, a large number of pension schemes integrated their pension benefits with the state pension, and a significant number of these schemes continue to contain similar features, albeit using different approaches to achieve the integration.”
The bank says a number of other UK banks have similar arrangements. And it adds that the overall pension benefit received by these members “was and remains market competitive”, particularly given that this section of the scheme operated on a final salary basis and was non-contributory until 2009.
