Pension clawback, or state deduction, has been poorly understood by savers and caused “significant financial implications and distress”, particularly amongst women, research by the University of Exeter Law School has revealed.

Pension clawback is where money is deducted from a private pension once the pensioner begins receiving the state pension, with the worker’s pension from their employer reduced once they hit state pension age.

The research looked at the method of state pension integration used for Midland Bank employees in particular, revealing that this has been poorly understood by and had significant impact upon many members of the pension scheme, particularly where they have retired before state pension age and had their occupational pension reduced on reaching state pension age.

It also found that the impact has been particularly acute for women, arguing that the Equality Act 2010 has offered inadequate protection given this.

Although the report suggested that the employer and scheme have followed the legal and communication requirements, it argued that policymakers should consider the appropriateness of legislation that permits the various methods of state pension integration.

In particular, the report argued that policymakers should amend the legislation and develop guidance on communication about pension clawback, particularly that used by Midland Bank.

In addition to this, it suggested that policymakers should pass legislation requiring sponsoring employers and trustees to review their use of pension clawback, and if necessary inform and consult with affected members and provide mitigation for detrimental impact.

The report also encouraged sponsoring employers and trustees of occupational pension schemes that use any form of state pension integration to proactively conduct a thorough review of this practice to see if it is appropriate going forwards.

Commenting on the findings, University of Exeter Law School Dr David Barrett, stated: “Members had very little understanding of state pension integration, in particular what it is, how it works and why it exists.

"This lack of understanding has led participants to seek further explanation and enabled the clearer and louder discourses and narratives of the Midland Clawback Campaign to prevail over those provided by the bank.

“A particular cause of this lack of understanding is the term ‘state deduction’ which is used by the bank to refer to state pension integration and which participants have largely interpreted to mean a deduction by the state rather than by the scheme.

“There were many negative feelings around state pension integration from members, of which many stem from the frustration of feeling that they have not had their concerns adequately listened to by their employer and the particularly strong impact that it has on women.”

Adding to this, University of Exeter Law School, Dr James Kolaczkowski, said: “State pension integration was originally permitted to reduce the increased burden of contributing to both an occupational pension and the national insurance scheme.

“The social, political and economic environment has significantly changed since 1948 but the ability to apply state pension integration has not. It is therefore a legitimate question for policymakers to consider whether the legal framework surrounding state pension integration is adequate.”

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