Pensions can be a minefield, especially when legislation changes and has an impact on the pensions you have been working hard to build. 

In the case of the McCloud judgement, the legislation has been ruled unlawful and if you are eligible you are left with a decision to make, we advise you to stay in the current scheme or revert back to your old scheme/s.

What is the McCloud judgement?

In 2015 new pension legislation came into effect (Public Service Pension Act 2013) for public sector schemes following on from a review by the Coalition Government of public sector pensions in 2010.  They thought the current scheme was too expensive to run and they made changes for a new framework for the 2015 Scheme Pension.

Initially, Judges and Firefighters claimed that the changes offered older members of the scheme an advantage on the grounds that transitional protection protected their benefits, whereas younger members wouldn’t benefit from this.

In December 2018 the Court of Appeal ruled in McCloud v Ministry of Justice that the changes were unlawful and to be discriminatory to younger members of the schemes.  The Government plan to remedy this.

Who is eligible for the McCloud Judgement?

  1. Employees who joined the Pension Scheme on or before 31st of March 2012.
  2. Members who were still active in the Pension Scheme on 1st of April 2015.
  3. Part of one of the following schemes:
  • NHS Pension Scheme
  • Teachers’ Pension Scheme
  • Local Government Pension Scheme
  • Firefighters Pension Scheme
  • Armed Forces Pension Scheme
  • Police Pension Scheme
  • Judicial Pension Scheme

 

The McCloud Remedy

Initial remedial actions will attempt to put people in the right position directly, but when this cannot happen (due to the tax system) you may be paid compensation.  This will be a result of paying too much tax and will be repaid by HMRC.  Where contributions have been overpaid, schemes will provide direct compensation to members.

The McCloud Remedy Actions to be taken:

  • The Government plan to remove age discrimination from pensions.
  • Previous schemes from 1995 and 2008 will close to all members on the 31st of March 2022.  You will be able to receive the proceeds under scheme rules at retirement but not accrue further benefits in your current pensions.
  • From the 1st of April 2022 all staff will be active members in the 2015 scheme.

What is the difference between the schemes – an NHS example?

1995 schemes – these are generally the most generous offering a guaranteed income for life-based on your final salary increasing with RPI inflation and an automatic tax-free lump sum.  The normal retirement age is 60 in this scheme.

2008 schemes – these are also final salary pensions providing a guaranteed RPI inflation-proof income for life; however, you must sacrifice some income to receive a tax-free lump sum. The normal retirement age is 65 in this scheme.

2015 schemes – this is a CARE (Career Average Earnings) scheme that is based on your income over several years rather than your final salary.  You will normally have to wait longer to receive the benefits from the scheme as the normal retirement age is the state pension age, currently 66 but will increase to 68 with the current planned increases to state pensions.  Also, this scheme will increase benefits with CPI rather than RPI.

Why isn’t everyone just being moved back into the previous schemes?

Some members will be better off in the new scheme when they reach retirement.  Therefore, you need to make a choice based on your individual circumstances. 

Retiring prior to the 1st of October 2023

If you are going to retire in the next 2 years enquire now to establish if you are impacted by this and to understand what your options are.

Retiring after the 1st of October 2023

You will be given a choice to keep your pensions where they are or to revert to your previous schemes under the government’s planned new system.

Other considerations

  • You may owe tax in the form of an annual or lifetime allowance or be due to a refund.
  • If your estate has received death benefits there may be additional funds to receive.
  • If you have taken benefits under ill-health retirement, you may receive more income as it might not have been classed as early retirement in the scheme you took benefits from due to the differences in the scheme’s retirement ages.

Top tips

  • Gather your pension statements.
  • Review the dates you joined each scheme.
  • If you don’t have your statements, contact your scheme for help on how to obtain them.
  • Consider when you would like to retire.
  • Discuss with your manager, colleagues and HR.

We appreciate this is complicated.  If in doubt we are here to help you understand the options with your pensions.

Rachel Tunnicliffe.