The HSBC 'clawback' fiasco

🔸 Plus: Get ready for £5 coffee 🔸 Rents set new record highs in and out of London 🔸 12,000 millionaires left the UK, making a man who sells private jets sad 🔸

May 01, 2024

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Why you should care about the HSBC ‘clawback’ nightmare

On Friday, 3 May, HSBC will hold its annual general meeting for shareholders in London. For the sixth year in a row, its bosses will hear from former employees who are angry that the company is clawing back part of their pensions.

There are 51,000 people affected by the HSBC clawback. Many of them worked in local branches of Midland Bank, which HSBC acquired in 1992.

They accepted lower wages because the pension plan was “gold-plated” — it paid a fixed sum forever, based on their salary. It was only in the last few years that they realised HSBC would reduce their pensions if they also received a state pension from the government.

The clawbacks were wildly disproportionate, according to evidence submitted to Parliament by the Midland (HSBC) Clawback Campaign.

“For example, a senior manager retiring on a pension of £150,000 a year might suffer a clawback on reaching [state pension age] of £2,500 or just 1.7% whereas a junior clerk with the same job start and end dates might retire on a pension of only £10,000 a year and yet also suffer clawback of £2,500 at SPA but which equates to 25% of their pension.”

One guy told the Birmingham Mail that HSBC was reducing his pension by 18.5% via the clawback. Another said her pension was cut by £1,200 a year. Another lost 22%. A woman told the BBC her £6,400 pension was cut by £1,800.

Most companies got rid of clawbacks

HSBC adopted the policy in 1975 when pension clawbacks were encouraged by the government to make it cheaper for companies to provide defined-benefit retirement plans. The bank insists the policy is legal and changing it retroactively would be unfair to other retirees. HSBC says it warned staff that there would be a clawback — but the staff say the warning came in such oblique language that no one understood it. You can read the bank’s side of the argument on page 32 of this document.

Over the years, most companies stopped using clawbacks because, for obvious reasons, they were incredibly unpopular.

Time passed.

Everyone at HSBC forgot about the clawback thing.

HSBC’s Midland employees began retiring en masse in 2012 — and ended up receiving a lot less in their pensions than they thought they would get.

Here’s the kick in the teeth

At the same AGM on Friday, HSBC will ask its shareholders to remove the cap on its bankers’ bonuses. The bonus cap was imposed by the EU in 2014 in an attempt to reduce the risky behaviour that triggered the 2008 final crisis. (The thinking was that high bonuses incentivised bankers to take too many investment risks, leading to periodic bank collapses.)

Removing the bonus cap will do nothing for the Midland workers affected by the clawback. But it will be highly lucrative for the bank’s top echelon of “material risk takers”, according to The Guardian:

“Its latest annual report revealed that 512 of its bankers earned more than €1m, 18 of whom were paid more than €5m. One unidentified banker, and its highest earner, was paid between €12m and €13m. HSBC said its chief executive, Noel Quinn, was paid £10.6m – or about €12.4m – in 2023.”

HSBC booked $30 billion in profit last year. More than enough to look after the Midland staff.
Clearly, HSBC ought to do the right thing and end the clawback provision.
And maybe the government ought to step in and make this behaviour illegal.

This kind of infuriating nonsense is why we started Moneyin2

People need to know that it is common for “guaranteed” savings and investment plans to not deliver what they promised.

We certainly would never discourage you from joining your workplace pension plan — they are still one of the best free-money deals out there.

But right now, there are 5,050 defined-benefit pension plans listed as being administered by the Pension Protection Fund. The PPF is where “gold-plated”, final salary, money-for-life pensions end up when the companies that created them go bankrupt. Without the company contributing to them, the PPF generally deducts about 10% from your pension just to keep your plan alive.

You need a plan

You can’t even rely on the government. Just ask Women Against State Pension Inequality, who were told in 1995 that the female retirement age would go up from 60 to 65 (to make it equal with men’s) in phases, through the year 2020. Except that in 2011, the government unexpectedly moved the end-date to 2018 — forcing about 3 million women to work years longer than expected.

You — yes, you — will become eligible to receive state pension benefits when you’re 66. But the government is considering raising that to 71 — that’s a whole five more years of work, if you haven’t planned ahead.

This is why Moneyin2 exists, to help you think and plan ahead.

It’s why we encourage you to save and invest regularly, with your own money, building assets and wealth in private accounts that you own, rather than relying solely on the government or your employer to do the right thing.

The best person to look after you — is you.

Use Moneyin2’s guide to get your financial act together:

And for dessert …

Get ready for £5 coffee. Black Sheep Coffee is already charging £5.19 for a flat white in London and experts say the rest of the country will follow suit.
UK rents set a pair of new, ugly records. rent outside London is on average now £1,291 a month, up 8.5% on last year. London rent is £2,633, up 5.3%.
12,000 millionaires have left the UK since 2017 and it’s hurting London’s private jet business. The Russians left because of the war. The Chinese and the Americans left during Covid and didn’t come back. “It is a bit of an issue,” said Steve Varsano, who runs The Jet Business, a private plane salesroom on Park Lane.
Changpeng “CZ” Zhao, the founder of Binance, the world’s largest crypto exchange, was sentenced to four months in US prison. He had been charged with allowing criminals and terrorists to trade on the platform.
For every job opening at Revolut there are 500 applicants. The online bank wants to hire 3,500 people this year.
Apollo Global Management is accused of taking out life insurance on strangers. Buying insurance on the lives of people you don’t know — betting they’ll die, basically — is generally illegal.

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Photos: Can Pac Swire via Flickr; Black Sheep Coffee.