Govt consultation seeks to ‘tidy up’ controversial ‘clawback’ practice

The Department for Work and Pensions (DWP) has launched a consultation aimed at “tidying up” the way schemes operate integration, also known as clawback, to bring it in line with the rising state pension age.

The draft Equality Act (Amendment) Order, which was published last week (16 January), will enable schemes to apply a reduction to members’ pension payments once the member has reached the relevant new state pension age, without breaching equality requirements.

Currently, some occupational schemes pay one rate of pension when a member reaches pensionable age, reducing the rate when the member reaches 65. However, from 6 December 2018, the state pension age increased beyond 65 for both men and women, meaning the current clawback system no longer works.

Last November, a group of cross-party MPs teamed up with Unite to "demand justice" clawback, arguing that it “disproportionally affects the lowest paid”.

Commenting on the consultation, Royal London director of policy, Steve Webb, said: “I assume this is mainly a tidying up exercise to maintain the status quo, though there is a chance that people will use this consultation to raise other issues.”

According to Webb, nobody has been able to demonstrate in court that it is a discriminatory practice.

“Pension freedoms mean that people are starting to think more creatively about having one form of pension income or capital to allow them to retire a bit earlier (eg 60) which acts as a bridge until state pension cuts in,” Webb added.   

“A scheme that offers you a good income at 60 and then at SPA you see no change in your total income because you are now getting a lower scheme pension, but a state pension on top, is not necessarily a bad thing – as long as the communications have been done properly so members know what they are going to get.”

In 2017, Pensions Minister Guy Opperman said the government has no plans to legislate to compel schemes to withdraw an integration arrangement, also known as a clawback scheme.

“It is a decision for employers and trustees to operate ‘clawback’ or ’integrated’ pension scheme arrangements,” Opperman said.

Opperman has previously said that compelling schemes to withdraw a clawback scheme would amount to a retrospective change that would impose significant additional unplanned costs on schemes.

The consultation will be open for responses until 30 January 2019.

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