What is pension clawback, and is your retirement at risk?

Telegraph

17-06-2025

Pension clawback is an outdated feature that's still embedded in some final salary pension schemes, which could see your retirement income cut once you reach state pension age.
Clawback has become controversial. Over the years it has taken people by surprise and negatively affected their retirement plans. Women have been hit particularly hard by the rules.
Over the years, many final salary schemes, also known as defined benefit schemes, which guarantee a set income for life, have changed their rules or phased out pension clawback, choosing to either cap it or scrap it. But there are still some that are affected.
Here, Telegraph Money explains what pension clawback is, what impact it can have, and what you can do about it.
What is pension clawback?
How is pension clawback calculated?
What impact could pension clawback have on my savings?
What can I do about pension clawback?
Will the Government abolish pension clawback?
What is pension clawback?
Pension clawback, which can also be referred to as 'pension integration' or 'bridging pension', is an outdated feature of some defined benefit workplace schemes.
It dates back to 1948, when the state pension was first introduced and linked to defined benefit schemes. Clawback aimed to prevent individuals or schemes from overpaying on pension contributions, on the assumption that the state pension would top up the retiree's income, enabling the employer to offset some National Insurance costs.
The state pension and defined benefit schemes are no longer linked, and these 'National Insurance modification' rules were abolished in 1980, but some work schemes are still designed around them.
Lisa Picardo, from PensionBee, said: 'When an employee reaches the state pension age, this practice allows employers to 'claw back' some of the pension contributions made.'
This penalty cuts the workplace pension based on the assumption your state pension will 'top-up' the shortfall.
Ms Picardo added: 'The problem is, this can result in an unexpected noticeable drop in income just as someone reaches a milestone they've been working towards their whole working lives.'
How is pension clawback calculated?
Pension clawback is taken as a fixed cash amount, calculated based on your years of service linked to the affected pension scheme, when you reach or have reached state pension age.
This means that employees who have worked for the same number of years can have the same amount of money deducted from their pension payout, even though they did very different jobs and earned very different amounts.
This is in contrast to other types of pension fees, which are often charged as a percentage of your pot.
Who is affected?
Anyone with a defined benefit pension that includes these rules can be affected by pension clawback. However, some will notice the effects more keenly – as pension clawback deducted from the pension is a fixed cash amount, it disproportionately affects those with smaller pension pots and lower pension incomes. Women, early retirees and lower-paid workers are often the hardest hit.