The practice, known as "pensions clawback", uses archaic rules dating back to 1948 to justify reducing pension benefits by anything up to the full value of the Basic State Pension. Barclays Bank, BP and Marks & Spencer are just three of the FTSE 100 companies who use it.
Kerry Pollard, Labour MP for St Albans tabled an Early day Motion yesterday urging the Government to end the practice as part of its full review of pension policy.
More than 90 MPs have lent support to the campaign. William Hague, the Tory party leader, has also expressed an interest. If the campaign were successful, more than 40 per cent of FTSE 100 companies would be forced to step up their contributions to pension schemes.
Under the practice, more than 2.5 million pensioners throughout the UK see their pension benefits reduced by up to pounds 3,300 a year.
Employers use rules introduced in 1948 - originally designed to make the state pension affordable - to claw back the value of part of a pensioner's basic state pension. The practice is justified on the grounds that employers have contributed to the basic state pension through National Insurance.
While the practice is legal, pension fund consultants and unions believe it runs directly against the government's policy of having two separate tiers of pension provision, the basic state pension and a secondary pension on top of that.
Barclays Bank, which has a pension fund surplus estimated at more than pounds 2bn, recently faced angry protests from 50 pensioners at its AGM. They complained that they were losing up to pounds 1,682 a year each because of pensions clawback.
Over the past three years, companies such as Friends Provident, Scottish Widows and NatWest have ditched pensions clawback. However, Cadbury-Schweppes, Heinz, IBM, Kodak and Nestle still persist with it.
Unifi, the Barclays union, said awareness of the practice among employees was "pitiful". Barry Jones, a spokesman, said: "This is wrong on all kinds of levels. Pension funds in the finance sector are awash with money. Morally, there is no justification for not paying this money to individual pensioners."Reuse content