State Pension Integration: Expectations and Equality
Barrett, D; Kolaczkowski, J
Date: 24 April 2023
Report
Publisher
University of Exeter
Abstract
Executive Summary
This report explores the practice of state pension integration in the post
1974 Midland Section of the HSBC Bank (UK) Pension Scheme (referred to
throughout this report as the ‘post 1974 Midland Section'). Through a
review of documentation, interviews with members and a survey of
members it explores communications ...
Executive Summary
This report explores the practice of state pension integration in the post
1974 Midland Section of the HSBC Bank (UK) Pension Scheme (referred to
throughout this report as the ‘post 1974 Midland Section'). Through a
review of documentation, interviews with members and a survey of
members it explores communications around state pension integration
and whether the practice has unequal results on particular groups.
The term state pension integration can be used to describe the practice
of adjusting a defined benefit occupational pension scheme to take
account of the state pension. Adjustment to take account of the state
pension can take various forms, for example a pension scheme may
change what counts as pensionable salary, or change the calculation of
the pension itself, which can be done using a variety of different methods.
Where the pension calculation is adjusted, this can result in a reduction to
a pension in payment if a member starts to receive their occupational
pension before the state pension. This method of state pension
integration has the potential to cause significant concern to members
and is the focus of our research. Although it can refer to different
methods, we typically use the term state pension integration in this
report to refer to this particular practice of adjusting an occupational
pension, unless the context requires a wider interpretation. A rationale of
all types of state pension integration was to reduce the increased burden
of contribution to an occupational pension and the national insurance
scheme (when this was introduced in 1948) while still ensuring that
employees received a pension sufficient to meet their needs once they
retired. The social, political and economic context 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
State Pension Integration: Expectations and Equality
5
whether the legal framework surrounding state pension integration is
adequate. This report focuses upon the method of state pension
integration used in the post 1974 Midland Section, it identifies issues that
have arisen through the communications to members, and identifies
potential inequality that may arise from the method used.
The issue of communication
In relation to the communication, we reviewed all publicly available
documents and those sent to us (which ranged from 1974 to 2018) and
found that communications from the bank and trustees consistently
mentioned state pension integration and this was discussed in almost
identical ways in the documents. These words met the relevant legal rules
that have existed since 1986 (when communication requirements were
introduced). However, from the interviews, it is clear that participants
had very little awareness of state pension integration as a feature of their
pension (with the majority only becoming aware of state pension
integration in 2017/18). It is also clear from the interviews that members
had very little understanding of state pension integration (in particular
what it is, how it works and why it exists). Given that the relevant legal
rules around communication were met, but members still lacked
awareness and understanding of state pension integration we have
recommended improvements in this area which are summarised below.
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The issue of inequality
In relation to inequality, through the survey we explored the relationship
between the proportion of the amount deducted due to state pension
integration in comparison to the pension amount against three protected
characteristics under the Equality Act 2010 (sex, race and disability). We
found that only sex had a significant effect on the proportion of the
amount deducted due to state pension integration compared to the
pension amount. The fact that pensions (as pay) are dealt with differently
in relation to sex in the Equality Act 2010 (through the equal pay
provisions rather than through direct and indirect discrimination
provisions) means that the practice of deductions made due to state
pension integration cannot be challenged under the Equality Act 2010.
This conclusion would be different if another protected characteristic was
at issue, where indirect discrimination could be argued. Although the sex
inequality produced by state pension integration deductions cannot be
challenged under the Equality Act 2010, the interviews illustrate the
effect of compounding inequality on many of the female participants. We
have recommended improvements in this area which are summarised
below.
Law School
Faculty of Humanities, Arts and Social Sciences
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