PARLIAMENTARY DEBATE
Pension Funds - 23 April 2025 (Commons/Commons Chamber)

Pension funds hold not just financial value but moral weight. How we treat our pensioners, and how we invest in the future of the hard-working people of this country, says everything about the kind of society we are. I want to bring to the House’s attention one of the most concerning injustices faced by thousands of former HSBC employees, particularly women: the use of an outdated, punitive policy known as pension clawback.

I support the Midland Clawback Campaign, which seeks justice for the 51,000 affected members of the Midland bank pension scheme, now administered by HSBC, who were misled about the nature of their retirement income and are being short-changed as a result. Unlike most other institutions, which phased out clawback in the 1980s, HSBC continues to enforce it in its most punitive form. Clawback was originally introduced in 1948 to offset national insurance costs when the state pension was created. Midland bank introduced clawback to its pension scheme in 1975 as a cost-saving measure.

Former employees were told that they would receive a defined-benefit pension at two thirds of their final salary, in addition to their state pension. Instead, when they reached state pension age, HSBC began deducting a portion of their occupational pension, calling it a “state deduction”.

I have a constituent who has worked for 44 years at Midland bank and HSBC. They were promised a pension of two thirds of their final salary, but they now face a 16% cut—that is over £1,700 per annum—because of the so-called state deduction. They were never told that the scheme was integrated, and even private pension reviews failed to explain it. Does the hon. Member agree that that lack of transparency is unacceptable and that workers like my constituent deserve answers?

I fully agree. The term itself is misleading. The money is not being taken by the state; it actually goes back to HSBC. Had it been labelled properly, as an integrated pension deduction, many people would have asked questions much earlier.

I thank my hon. Friend for securing the debate. Sue, a constituent of mine, is trying to obtain her full HSBC pension, but because of a clawback deduction by her former employer that has no alignment with the salary she earned, she is losing out on £244 each month. That is unfair and has plunged many pensioners—primarily women—into poverty. Does my hon. Friend agree that the Minister must seriously consider what support can be provided for people like Sue, who have been left with significant financial difficulties?

Absolutely. I will ask the Minister to take action later in my remarks.

My constituents Phil and Ann have contacted me about the so-called clawback policy, which would see them lose about £2,000 a year from their pensions when they reach state pension age. They, like many former employees, believe that this is an unfair and morally questionable approach. Does the hon. Lady agree that that cannot be the right approach and that it must be reconsidered?

Yes. The hon. Member makes a good point.

The lack of transparency allowed this policy to persist under the radar. The formula used is regressive and unfair. For a start, the deduction is based on the full state pension rate one year before retirement, not on salary or actual state pension received. It is then divided by 80 and multiplied by years worked. The result? The longer someone worked and the less they earned, the more they lose. That injustice falls heaviest on women.

Former Midland bank and HSBC workers who had a defined-benefit pension saw deductions from their pension entitlement at state pension age, to take account of the payment of the state pension. Those deductions had no link to salary or pension received. Lower-earning staff members, mostly women, were particularly affected, including my constituent Angela Blockwell. Does the hon. Member agree that that inequality must finally be recognised and that pension clawbacks must be abolished for all?

Yes, the practice is a relic from the past and needs to be abolished.

Women have historically occupied lower-paid roles at Midland bank and HSBC. They have taken career breaks to care for children or elderly parents, or have been placed on new contracts with clawback attached—often without being told the implications for their pension rights. HSBC claims that there is no discrimination because the policy applies to all, but indirect discrimination is defined as a policy that appears neutral but disproportionately harms a particular group.

A female constituent of mine who has worked for HSBC UK for over 35 years has seen her pension reduced by approximately £850 a year because of a clawback clause that she was never properly informed about when she joined the bank’s defined-benefit scheme. Does the hon. Member agree that HSBC needs to engage properly with the affected employees?

I thank the hon. Member for that valuable point. I have a message for HSBC later in my remarks.

Campaigners have presented robust evidence, including research by the University of Exeter, showing the disproportionate impact on women and low-paid staff. One of the recommendations in the University of Exeter report is for policymakers—us—to consider the suitability of the equal pay provisions that have not been available to members of the post-1974 Midland bank pension scheme, despite evidence of the disproportionate impact on women. When campaigners turned to the Equality and Human Rights Commission, the Department for Work and Pensions and the Government Equalities Office, they were passed from pillar to post. No one took responsibility; no one acted. Equality law does not cover pensions.

Let us not forget that HSBC’s pension fund currently stands at £4.1 billion in surplus after liabilities, but the estimated cost of ending clawback is just £450 million. HSBC has the resources; what it lacks is the will.

My Wellington constituent, Mike, who is a former Midland bank employee, has seen his pension go down in value by 13% because of the failure of HSBC to honour its obligations. He tells me that the state—in other words, the taxpayer—will be making up some of his income as a result. Given the level of profit that my hon. Friend has revealed, is it not totally wrong that the taxpayer is bearing the burden of the obligation that the corporate giant should be paying itself?

My hon. Friend is absolutely right. It is unfair and we need to ensure that HSBC is accountable.

In correspondence with MPs, the bank states that because clawback is lawful, its policy is acceptable, but I say: lawful does not mean just. This Parliament has a duty to act when the law permits injustice. We need to modernise pension legislation to ensure that it reflects today’s values of fairness, transparency and equality. After the WASPI—Women Against State Pension Inequality—pension injustice, we must be alert to further pension scandals.

I commend the hon. Lady for securing the debate. The fact that there are so many hon. Members in the Chamber is an indication of the interest that she has created through her Adjournment debate, so well done to her. There were an estimated 12.95 million state pensioners in Great Britain in 2024-25. As the hon. Lady has said, the WASPI women have been hard done by because of Government decisions made without consideration. There is an onus on all of us in this House to ensure that pension funds are profitable and sustainable. Does the hon. Lady agree that in tandem with enforcing work-based pensions, we must ensure that state pensions can catch up, so that there will still be such a thing as state pensions for the 40-year-olds who are paying their national insurance today, believing that their state pension will be there for them when it comes to the time that they need it?

I thank the hon. Member for raising that important issue. Absolutely, we need to ensure that the Government have a long-term outlook, so that the young working British people of today will be able to retire on a comfortable pension.

We urgently need a full review of pension clawback practices. Many constituents have written to me about other unfair pension schemes, including former police officers and people on occupational pensions that are not protected from inflation.

I thank my hon. Friend for making that important point. We need legal reform to ensure that pensions in payment are finally brought under the protection of equality law. We also need greater transparency and accountability from pension providers, especially those entrusted with the retirement futures of hard-working people. HSBC’s clawback policy is discriminatory in its impact, misleading in its language and fundamentally unjust in its effect. I therefore urge the Minister to bring forward legislation to put an end to this outdated practice and to finally stand up for those whose voices have gone unheard for far too long. Clawback is just one part of a broken pension system; we must also ask where our pension funds are invested and what future we are buying with that money.

I am grateful to my hon. Friend for laying out the case for change so well. She talks about the investments that pension funds are making. I worked for more than a decade in the investment industry, and many of my clients were big public pension funds. More recently, I served as a trustee of one of the largest public pension funds in the country. One of the things that pensioners contacted me about was where their money was going. They would ask, “Is it being used to fund fossil fuel extraction?” or “Is it being used to support some unsavoury regimes around the world?” Does my hon. Friend agree that pensioners should have more power to have a say over what goes on with their money?

I fully agree. It is really important that pensions reflect ethics and morality and that the people investing in them have a voice. It is no longer good enough to see pensions in isolation from sustainability, ethics or morality. Whether it is because of the way in which funds are clawed back from low-paid pensioners or the way in which they are funnelled into destructive, high-emission industries, the system is crying out for reform.

As we look ahead to COP30, billions of pounds of local government pension schemes are still invested in fossil fuels and in industries that drive deforestation, biodiversity loss and wildlife extinction. If we are to build a just and sustainable future, we must build a just and sustainable pension system that protects not only people in retirement, but the planet and generations to come.

Everyone deserves a secure retirement. For many, their occupational pension is an essential part of that. Having spent years paying into a pension scheme, it matters to all of us that they get a decent pension out. It must be decent in the sense of being adequate for their needs and decent in terms of providing the benefits that they were promised.

I am pleased that the hon. Member for Stratford-on-Avon (Manuela Perteghella) has secured this debate and spoken so well during it on a topic deeply relevant to all our constituents—after all, we are all either a pensioner or planning on becoming one at some point. I thank her and everyone else who has spoken. We have heard about a wide range of issues, relevant to different pension schemes and different pensioners. I will not comment in great detail on specific pension schemes, although I am sure that specific employers will have heard hon. Members’ points this evening.

I will respond in more general terms to the points that the hon. Member for Stratford-on-Avon and others have raised. She raised the issue of integrated pension schemes, which are sometimes called clawback schemes. I appreciate that that type of scheme can be controversial, thanks to the change in the private pension income involved. All of us sympathise with anyone who expected a straightforward income increase when their state pension kicked in, only to find that things were much more complicated than that. I have read and listened to representations on this issue myself.

As with all defined benefit schemes, integrated schemes are required to pay out the full value of the promised pensions to each member, as set out in their scheme rules. That provides certainty, security and a base on which savers can build their retirement plans. Integrating an occupational pension scheme with the state pension was a core design of some schemes, and that has pros and cons. It used to be a common feature of final salary schemes, covering almost half of schemes, according to one survey from the early 2000s, although it is far less common today, partly for some of the reasons that the hon. Lady set out.

The original aim was to provide a smooth level of pension income throughout retirement that started before the state pension age was reached, with a higher amount of occupational pension paid before state pension age, followed by a reduction in the occupational pension when the member received their state pension. The amount of the reduction is required to be set out in the pension scheme rules, and it is therefore very important that the rules are clearly communicated to those involved, as my hon. Friend the Member for Doncaster East and the Isle of Axholme (Lee Pitcher) made clear.

While the aims of integrated pensions are clear, it would, of course, be a big shock to anyone to see their occupational pension reduced upon receiving the state pension if they had not expected it. It is therefore important for employees to understand the pension benefits they can get from their scheme, and the Government place great weight on the importance of that clear communication, without which no one can plan properly for the future.

All schemes are required by law to provide every member with basic information about the scheme, either before they join or very shortly afterwards. That includes an explanation of the contributions in the case of some of the schemes mentioned today, which were on the employer side only, but also how benefits were calculated— exactly the integrated clawback mechanisms we are talking about this evening. If savers have not received clear communication in the form required by law, they must have avenues of redress. They can bring a complaint to their scheme’s internal dispute procedure, but if that does not resolve the issue, the Pensions Ombudsman is there to act.

There have been some calls tonight for the Government to compel the withdrawal of integration arrangements—those calls have been common for some time, and I have heard them. I recognise some of the arguments being made, but I owe it to this House to be clear that we cannot retrospectively change the benefits schemes offered to their members. Any legislative change would affect all integrated schemes, risking the future of some that are less well funded. However, I do want to engage with the question of pension fairness, which so many Members from across the House have raised this evening. While the law is very clear that men and women must be treated equally within any scheme, I understand the points that have been raised about the effects of those scheme rules, which are felt very unequally indeed.

The inequality of pensions more broadly is a big issue for society, particularly for women and lower earners over the years. I want to celebrate some progress that has been made, but also recognise how much more there is to do. On progress, the new state pension introduced after 2016 by the previous Government has made a significant difference in closing the gap between the average amounts received weekly by men and by women, to equalise those amounts in practice. The hon. Member for Strangford (Jim Shannon) mentioned the importance of the state pension—it is the bedrock of all of our pension savings—so that is progress that has been made. We have also seen significant progress on automatic enrolment, with 89% of eligible women now saving into a pension. That is a big change from the 2000s, when as few as 40% of women were saving into a pension pot.

However, there is much more to do. The gender pension gap, for which the Department for Work and Pensions now publishes figures the first time, is very large indeed. Some of that reflects some of the historical issues we have been discussing, but it also reflects our labour market. Women have lower employment rates, are much more likely to do part-time work, and are much more likely to be lower earners—for example, 3.9% of women work in low-paid work as opposed to 2.8% of men. Those underlying structural inequalities then manifest as pension inequality, which is one of the reasons why it is so important that reform of the state pension has moved towards a more equal treatment of women and men.

As for what the Government are doing about pension inequality, we will shortly set out a timeline for phase 2 of our pensions review, focusing on adequacy and, in particular, addressing some of these very important questions. Although people talk about pension adequacy on average across the whole population, it is very different for different groups, which is exactly why the pensions review will need to reflect on the questions raised. However, it also highlights the importance of some of the changes being brought through in the labour market by this Government, including through the Employment Rights Bill. That Bill will disproportionately benefit women, who are more often lower earners.

Turning to the question of indexation, some schemes do provide indexation above the legal minimum on a discretionary basis. Like the hon. Member for Surrey Heath (Dr Pinkerton), I sympathise with those members who had understood that they would receive ongoing discretionary increases, only to be let down. We take their concerns seriously; I have now met several groups of MPs on exactly this issue, and have asked the Department to work with the Pensions Regulator to understand why schemes are not making discretionary payments and to monitor trends.

Both trustees and employers need to think carefully about the effect of inflation on members’ benefits—that is especially true on the back of the exceptional inflation in recent years. Pension scheme trustees, after all, have a fiduciary duty to scheme members—a duty they should apply when considering discretionary increases. That is directly relevant to recently announced reforms on the use of surpluses in defined benefit schemes, as several Members have raised. Those reforms will make it easier for individual schemes to make decisions that improve outcomes for sponsoring employers and members. That could include discretionary benefit increases, where trustees can consider the situation of those members who would benefit from such rises and whether the scheme has a history of making such payments. Trustees will, in negotiation with the employer, be responsible for determining how members may benefit from any release of surplus.

I thank Members who have contributed this evening, in particular the hon. Member for Stratford-on-Avon. We all benefit from the opportunity to address this important topic. As the Minister for Pensions, it is my priority to ensure that people who work hard can enjoy the retirement they are owed. That is what this Government will always do.

My hon. Friend the Member for Hazel Grove (Lisa Smart) asked whether pensioners might be given more control over where their pension funds are invested. That issue has also arisen recently in terms of whether pension funds can be invested in defence companies in the UK. Will the Minister comment on that?

I thank the hon. Member for the reminder to respond to that point. He will know that trustees already have a responsibility to invest in the interests of their members and that the law requires trustees of significant schemes—with more than 100 members—to set out a clear statement of their investment principles. The hon. Member for Hazel Grove (Lisa Smart) mentioned some of the issues they will want to consider in that. That is how trustees provide clarity to their savers. There is also then scope for individuals, particularly in larger pension schemes on the defined contribution side, to make choices about where they invest their funds. We see that, for example, with the National Employment Savings Trust, the Government-backed pension scheme, where individuals make different choices on the grounds of ethical issues across the board, including defence, as mentioned by the hon. Member for Honiton and Sidmouth (Richard Foord). I thank him for his intervention and for reminding me to come back on that point before concluding.

It is important that we offer people secure retirements. That is the job of this Government, it is my job as the Pensions Minister, and it is what our pensions review is focusing on doing. It is what this Government will always do.

Question put and agreed to.