Ombudsman backs hsbc trustees in ‘Pensions Clawback’
The Pensions Ombudsman has forced a member of the HSBC Bank (UK) Pension Scheme to repay £4,400 because of the bank’s controversial ‘clawback’ rule, siding with the banking giant in what is seen by a campaign group as discriminatory practice.
HSBC has previously been in the spotlight over its clawback rule, whereby a member’s defined benefit pension is reduced by up to £2,500 a year once they reach state pension age. The reduction is based on length of service and applied regardless of the size of the pension, meaning those on lower pension incomes are most impacted. The rule dates back to 1975 and what was then Midland Bank, which later became part of HSBC.
The bank was not the only company applying it, but while other large employers – including the civil service – abandoned the policy decades ago, HSBC, whose main DB scheme had a funding level of 108% in late 2018, is intent on continuing to apply the reduction policy that hits the lower paid hardest.
Member on monthly pension of £340 forced to repay £4,400 for clawback
In 2018, Mrs R objected to having to repay £4,403 to the HSBC scheme after administrator Willis Towers Watson had failed to apply the controversial deduction to her pension since 2010. She also saw her ongoing gross pension of £339.99 a month reduced by £53.20.
Mrs R said when she joined Midland Bank in 1986, she was automatically enrolled in the scheme and not given documentation or advice on how the pensions reduction would be applied. The trustees, on the other hand, maintained that what the bank called a ‘relevant deduction’ or ‘state deduction’ had been explained in scheme booklets, as well as a letter to Mrs R from 2005, which the pensioner said she did not recall.
The ombudsman’s adjudicator did not question the use of the term ‘state deduction’ or how the term might be understood. Campaigners say the term was coined by Midland Bank itself and is misleading, as some pensioners thought it referred to contracting out of SERPS.
The adjudicator also found that the scheme booklet from 1990 explained the ‘state deduction’, upholding the trustees’ view on overpayment, but still awarded Mrs R £500 for the “significant distress and inconvenience caused” by the administrator’s mistake.
HSBC: Clawback ‘might seem’ to impact women more yet ‘is not discriminatory’
The ‘state deduction’, also known as ‘pensions clawback’, affects about 51,000 HSBC scheme members and is being fought by roughly 10,000 who have organised themselves by forming the Midland Clawback Campaign. The group, supported by union Unite and a still to be reformed All-Party Parliamentary Group chaired by Clive Betts MP, managed to bring a shareholder resolution again at this year’s virtual annual general meeting of HSBC, having done so in 2019. The campaigners had also planned to stage a protest outside the AGM held in April, but the demonstration could not take place because of Covid-19.
The bank recommended that its shareholders vote against the resolution as it “is not in the best interests of all shareholders”, saying the affected pensioners have enjoyed a non-contributory DB scheme while the current workforce is enrolled in a defined contribution scheme. It did not suggest improving the current DC provision. Around 97% of the shareholders rejected the resolution.
The campaigners, on the other hand, argue that theirs is the only one of HSBC’s DB schemes that has the clawback applied, and that starting salaries were increased significantly around the time the bank introduced its DC scheme as a way to compensate employees.
The bank also stated that “we have carried out an extensive review of the communication of the State Deduction, as has the Trustee of the scheme”, arguing that this had been referenced in member guides since 1975. The campaigners have asked for the statement to be backed up by evidence but say they have not received any from the bank.
Steve Bradbury, vice chair of the Midland Clawback Campaign, said the group will continue to bring shareholder resolutions to future AGMs. He considers the clawback, although legal, morally reprehensible and discriminatory, saying that it penalises the lower paid employees at the bank such as cashiers, who were predominantly women.
Bradbury said that HSBC “enforce to the letter of the law”, adding: “I am horrified at all the stuff I’ve seen from them in the last 10 years.”
The group has begun to publish case studies of people affected by the clawback on its website to illustrate the effect it has on individuals. One pensioner, Yvonne, is seeing a £5,000 pension a year cut by £1,460 because of the rule, while another, Virginia, is having a £6,000 annual pension cut by £1,200.
In its response to the shareholder resolution, HSBC said that “the State Deduction might seem to impact lower earning employees, many of whom are female, but is not discriminatory in nature”. It did not explain why it considers it not to be discriminatory.
To see if the bank’s policy affects women more – and could therefore constitute sex discrimination – the group has created a template for members to build a database. So far, the worst affected are women, said Bradbury, who added that some have had their pensions cut by as much as 30% at state pension age.
The group is considering its options for legal action with solicitors Cooke, Young & Keidan as well as various university legal departments, but Bradbury acknowledged that “it’s a David and Goliath situation”.
The campaigners had also previously involved the Equality and Human Rights Commission, but the body has so far not taken the issue further after initial informal requests for information from HSBC.
The HSBC pension trustees did not respond to requests for comment.
Article by Sandra Wolf
Editor | mallowstreet