PENSIONS UPDATE 3

Spotlight on the Cap on Pensionable Salary & State Pension Reduction/Clawback

Following on from previous communications on pensions, we wish to further raise awareness of the Cap on Pensionable Salary and the State Pension Reduction (or clawback) that will be applied to reduce the annual pensions of some colleagues who are in LBG Defined Benefit Schemes, upon them becoming entitled to receive their state pension.

For an accessible version, please scroll past the images.

What is the Cap on Pensionable Salary?

For colleagues in an LBG Defined Benefit Scheme, pensionable pay has been subject to a 0% cap on increases since 2 April 2014. This means that that pensionable pay has not increased in line with increases to base pay from that date which will result in a significantly reduced retirement pension than would have been the case without the cap.

What is State Pension Reduction?

This is a clawback practice whereby LBG reduces annual company pensions of some colleagues on the basis that they will also receive the state pension (at state retirement age). This could be several years after they started receiving their annual company pension and will mean that their retirement income is reduced. Colleagues will be affected to a greater or lesser extent depending on the rules of which Defined Benefit Scheme they are in.

The data set out in the examples on page 2 are based on figures provided by colleagues obtained from their 2023 pension benefit statements. 

Individual circumstances may differ depending on which scheme colleagues are part of. 

Who is Affected by State Pension Reduction?

The reduction will be applied to the pensions of many colleagues who are in one of LBG’s Defined Benefit Schemes*. Although these schemes have been closed to new entrants for many years, thousands of colleagues remain members of a Defined Benefit Scheme and may be impacted when they reach their state pension age. Colleagues who are impacted are notified of this through their annual pension benefit statements - we recommend that colleagues check their statements to avoid surprises further down the line.

*LBG has confirmed to Unite that some sections of the Defined Benefit Schemes do not have State Pension Reduction as part of their benefit design so there will be no impact on colleagues in those schemes.

Is a State Pension Reduction a State Deduction?

No, it is not a state deduction - although there is no legal requirement for it to do so the reduction is something 

applied by LBG.

By How Much Will My Pension Be Reduced by State Pension Reduction?

The amount of clawback is calculated by using years of service and basic state pension - it is not based on the amount of pension received from LBG, which means it is likely to disproportionately impact the lowest paid, including female colleagues who have taken a career break to care for their children. There isn’t one uniform figure, and the calculation will vary depending on which scheme you are in; however, you can find an estimate of the reduction in the future benefits section of your annual pension statement that can be accessed via the single-sign on option at the foot of the page via Life@LBG - Pensions - Log in (single sign on) - Your Pension - Your 2023 Benefit Statement - Your Future Benefits  - State Benefit Reduction

Colleague Examples Showing the Impact of the Cap on Pensionable Salary

To determine the difference between a colleague pension based on their uncapped salary, in comparison with a pension based on a capped salary, we used a calculation that takes a colleague’s projected capped pension at normal retirement, multiplying it by their salary and dividing it by pensionable salary. The illustrations below, clearly demonstrate the negative (and in our view unfair) effect of the 0% cap on colleague pensions: -

Colleague A

Service: 29 years

Final Salary: £95,615

Accrual Rate: 1/60

Capped Salary: £56,204

Capped Pension at Normal Retirement: £26,540.34 (as per 2023 Benefit Statement)

Uncapped Pension at Normal Retirement: £26,540.34 x £95,615.00 ÷ £56,204.00 = £45,150.78

Based on the above, Colleague A will be worse off by £18,610.44 per annum than TheY would have been without the cap on pensionable salary.

Colleague B

Service: 32 years

Final Salary: £65,069

Accrual Rate: 1/60

Capped Salary: £30,284

Capped Pension at Normal Retirement: £16,196.09 (as per 2023 Benefit Statement)

Uncapped Pension at Normal Retirement: £16,196.09 x £65,069.00 ÷ £30,284.00 = £34,799.34

Based on the above, Colleague B will be worse off by £18,603.25 per annum than TheY would have been without the cap on pensionable salary.

Colleague Examples Showing the Impact of State Pension Reduction

The examples below, clearly demonstrate the negative impact of the State Pension Reduction on colleague pensions when they reach state pension age: -

Colleague C

Capped Pension at Normal Retirement: £14,107.71 (as per 2023 Benefit Statement)

Estimated State Pension Reduction: £2435.84 (as per 2023 Benefit Statement)

Pension after State Pension Reduction: £11,671.87.

Based on the above, Colleague C will lose an estimated £2435.84 of THEIR pension (per annum) when TheY reach state retirement age because of LBG applying a State Pension Reduction.

Colleague D

Capped Pension at Normal Retirement: £12,858.34 (as per 2023 Benefit Statement)

Estimated State Pension Reduction: £2315.37 (as per 2023 Benefit Statement)

Pension after State Pension Reduction: £10,542.97.

Based on the above, Colleague D will lose an estimated £2315.37 (per annum) when They reach Their state retirement age because of LBG applying a State Pension Reduction.

(NB - the colleague salary figures in the above examples are based on current salary amounts and do not reflect any increases between now and retirement and the number of years’ service at retirement have been rounded up or down to the nearest full year as appropriate).

What is Unite doing & how you can get involved!

Unite are committed to working on behalf of our members to ensure that they have access to a fair reward package (including pensions) that is commensurate with the hard work and loyalty that they deliver for LBG daily. The delivery of LBG’s 2023 and Q1 2024 results demonstrate a strong capital position for the Group. Based on this and combined with recent positive news on the reduction of the deficit on the LBG’s Defined Benefit Schemes, Unite feels that the time is right for a review of the deductions and restrictions applied to member pension payments. 

With your support we will seek to pursue dialogue with LBG with view to stopping the practice of applying clawback to the pensions of colleagues when they reach state retirement age, and to advocate for the review/removal of the 0% cap on pensionable salary imposed in 2014.

We regard both practices as unfair and very much regret the adverse impact they have on hardworking colleagues being able to live with security and dignity in retirement.

To give us the best chance of success in achieving positive movement on pensions (and our wider reward priorities) it is important for us to work together to ensure that your collective voice is heard and acted upon.

We are therefore urging colleagues to raise their concerns about the matters referred to above by contacting your Unite Team - LBG.SUPPORT@unitetheunion.org

Join the union today - uniteinlbg.org/join