McCloud Remedy – How this will impact you, your pension and tax affairs?

When we speak to clients, it is surprising how many still don’t fully understand what the McCloud Remedy is and how it will impact them. It is crucial to understand the reasons behind these changes, the eligibility of those affected and the steps you need to take, including claiming compensation.

Background

On 1^st April 2015, the NHS Pensions Agency introduced a new section of the scheme known as “2015 Scheme”. Members were moved over to the 2015 scheme depending on their date of birth. Older GPs were fully protected and stayed in the 1995 or 2008 scheme, there was transitional protection for some members, but most moved over to the 2015 scheme on 1^st April 2015.

A legal challenge was made based on age discrimination for all public sector pension schemes including the NHS Pension Scheme. The challenge highlighted that the transitional protections introduced in 2015 disproportionately favoured older scheme members, discriminating against younger members. The court agreed with the challenge and as a result we have what is known as the “McCloud Remedy” which is being implemented to address the age discrimination. The remedy seeks to ensure that all public sector workers including GPs are treated equally in respect of their pension, regardless of age.

Who is affected by the McCloud Remedy?

• All members who moved over to the 2015 scheme at some point between 1^st April 2015 to 31^st March 2022. This will be members in the 1995 section who were born after 1^st April 1962, or members in the 2008 section who were born after 2^nd April 1957.
• And where you had pensionable service on or before 31^st March 2012.
• And where you had pensionable service at any time between 1^st April 2015 and 31^st March 2022.

Who is not affected by the McCloud Remedy?

Members who didn’t move over to the 2015 section are not affected by the McCloud Remedy, these will be:-

• Members in the 1995 section born before 1^st April 1962
• Members in the 2008 section born before 2^nd April 1957

What does the McCloud Remedy mean for your pension?

Pension benefits will automatically be rolled back to your legacy scheme (1995 or 2008), if you hadn’t started taking your pension benefits by 1^st October 2023. Pension benefits built up between 1^st April 2015 to 31^st March 2022 will be classed as legacy scheme benefits.

Members in receipt of their pension benefits on 30^th September 2023 will need to decide about where they want their remedy period benefits to go. NHS Pensions say that by 30^th April 2025 these members will have received their “Immediate Choice Election – Remediable Service Statements (RSS)”. You will have one year from receiving this statement to make your election to either have the benefits in your legacy scheme or the 2015 scheme.

Members who chose to move from the 1995 scheme to the 2008 scheme, will also need to make a choice about whether the seven years will be moved from 2015 to either the 1995 or 2008 scheme.

Members not in receipt of their pension, will need to decide at retirement about whether to have those seven years of benefits in their legacy scheme or the 2015 scheme.

Changes to annual allowance tax charges

As pension benefits will be rolled back to your legacy scheme this will mean the growth (pension input) for each of the years from 1^st April 2015 to 31^st March 2022 will change and so will the respective annual allowance tax charges.

As the pension growth will have changed, this also affects the calculation of the tapered annual allowance too.

This means the annual allowance position for every member affected by the McCloud Remedy, will need to be reviewed following the rollback.

HMRC have released a digital tool which will allow members’ accountants to submit updated information for the tax years from 1^st April 2015 to 31^st March 2022. This will also include declaring the annual allowance tax charge for 2022/23 which was not required to be reported on the recently submitted tax returns.

It is understood that NHS Pensions will be sending Remediable Service Statements to all affected members, which will show the benefits under the legacy scheme (1995/2008) and the 2015 scheme, allowing members to compare their benefits.

NHS Pensions will send a Remediable Pension Savings Statement (RPSS) for the Remedy Period from October 2024, to enable members and their accountants to submit updated information to HMRC by the deadline of 31^st January 2025.

Getting a refund for overpaid annual allowance tax charges

If your annual allowance tax charge for any of the remedy years is reduced as a result of the rollback, then a refund can be applied for via the HMRC digital service. HMRC will make the refund to either you or NHS Pensions depending on who originally paid the tax charge.

At the time of writing, we are waiting for NHS Pensions to confirm how amendments to scheme pay elections for the remedy years will be made.

Claiming compensation – NHS cost claim back scheme

GPs affected by the McCloud Remedy may be entitled to claim compensation to cover the cost of professional services. Claims in respect of accountancy fees to complete an application via the HMRC digital service is limited to £1,000 including VAT and claims for IFA advice to help make a decision about the choice of pension benefits is limited to £500 including VAT. This scheme does not cover the cost of tax payments, previous claims and losses relating to contingent decisions.