A cross-party group of MPs and Unite the union have demanded justice for current and former HSBC employees, after it was revealed that many of their pensions are being reduced by up to £2,500 per year.
MPs met (today 21 November) to hear about how a process known as 'clawback' has significantly reduced the pension income of over 50,000 employees who joined the Midland Bank and then HSBC between 1975 and 1996.
"Clawback' is the practice of cutting an employee's company pension on the grounds that they will also receive a state pension. It disproportionately affects the lowest paid, and, due to poor communication by HSBC and Midland Bank, most employees it affects were not aware that it would apply to them until their retirement.
The newly-formed All-Party Parliamentary Group of MPs, backed by Unite, the country's largest union representing finance workers, is calling on HSBC to compensate those affected and for the company's chief executive to attend the group's next meeting and answer to MPs.
The Rt Hon Frank Field MP, chair of the Work and Pensions select committee, said: "More and more major employers have either scaled back, capped or scrapped the clawback of state pensions from the occupational pensions they pay out, and rightly so – the policy is an anachronism.
"HSBC would incur a cost of around £400 million to cancel it for long serving employees who are coming up to retirement and discovering to their dismay that they will lose the equivalent of their state pension. Not a small sum, but it should be set against the bank's last reported profit of £10.1bn – a profit that dedicated and long-serving bank staff, often on low pay, contributed to over decades of work.
Sharon McGeough-Adams, who worked for Midland Bank/HSBC for 37 years and now helps to coordinate the Midland Clawback campaign group, said: "Clawback was never communicated to us in a clear and consistent manner.
"It was further confused by calling it a 'state deduction', even though it has nothing to do with the state or 'contracting out'. Now many of the lowest paid workers, mainly women, have been plunged into financial hardship.
'Clawback' is misleadingly referred to by the bank as a 'state deduction', even though it is the company that is reducing the pension rather than the state.
It is calculated using years of service and the basic state pension rather than the amount of pension received from HSBC, which means it disproportionately penalises the lowest paid and women forced to take career breaks to raise children.
Due to poor communication by both the Midland Bank and later HSBC, most current and former employees whose pensions are subject to clawback – those who had service between 1 January 1975 and 30 June 1996 – only found out when they reached state pension age and their income suddenly dropped.
Case study: Barbara joined Midland Bank in 1965. When she became entitled to her state pension at 60, HSBC reduced her annual pension income by £1,009 a year. This was cut from a gross pension of just £3,507, amounting to a 30 per cent loss. In contrast, a senior manager with a pension of £75,000 would lose just three per cent of their pension income.
Integrated pensions became statute in 1948 to help reduce the cost of the newly introduced national insurance contributions for employers by allowing clawback. It helped, as it was linked to a then low level of state pension. As the state pension increased the impact on the lowest paid became crippling and the public sector and many companies capped or cancelled clawback.
However, in 1974, almost 30 years later Midland Bank decided to implement this archaic practice. HSBC, who acquired Midland Bank, continued to call the pension a 2/3rd final salary scheme and not an integrated pension.
They refer to the clawback as state deduction. The bank closed the scheme to new entrants in 1996 on the basis that the world had moved on and it was no longer appropriate to continue a non-contributory final salary pension scheme. Yet they continue clawback because "it was a common feature of schemes in the 1970s" so must continue.
Midland Bank recruited staff with the promise of a 2/3rd final salary pension but did not say it was only 2/3rds if part of the state pension was included in the figures. Midland Bank did not make information on clawback easily available to staff, nor was it mentioned on induction or initial training courses. Booklets were not given out or were held at regional centres.
Ian Stuart, the CEO of HSBC UK, wrote to all post 1974 Midland DBS scheme members in January 2018, after campaign pressure, explaining the process of state deduction, some 40 years too late for those affected.