McCloud Update
The other current hot topic in NHS pensions is the McCloud remedy. As you may know, members of the NHS pension scheme were transitioned into the new 2015 pension scheme from April 2015, with older members being transitioned later, and some members already nearing retirement being exempt completely from the new scheme. The main difference between the previous 1995 pension scheme and the new 2015 pension scheme is the normal retirement date, which is age 60 for the 1995 pension and linked to state pension age for the 2015 scheme.
The McCloud case was based on age discrimination and the government are now remedying this by reverting all members back into the 1995 pension scheme for the seven-year period from April 2015 to March 2022. All members will then join the 2015 pension scheme from April 2022 regardless of age.
The Government recently released legislation which sets out how the schemes need to action the remedy, and the timing for doing so. However, the specific guidance for the NHS scheme is still to be released.
The rollback of service must be done by 1 October 2023, with pension built up in the new scheme being returned to the 1995/2008 schemes (legacy schemes). Additional Pension and service transferred in from another scheme will remain in the 2015 scheme.
Where a pension has already been put into payment, the retiree will be provided with a remedial service statement. They then have 6 months to decide whether to have their benefits paid under the legacy scheme instead. If they don’t make an election by the end of the 6 month period the scheme will calculate the pension under the legacy scheme at the original date of retirement and pay any arrears.
Annual allowance calculations will be reworked for the seven-year remedy period and the growth will be treated as arising in the legacy scheme (ie 1995 or 2008) for each of those seven tax years (ie those tax years will be revisited). NHS Pensions will need to send an annual allowance statement to members by 6 October 2024 or 6 months from the end of the election period if later
If scheme pays has already been used and the McCloud remediation results in the annual allowance tax charge being higher, the member can make a new election for the additional tax and the deadline for this will be 6 July 2025 (or 2 years later for those who are already in receipt of their pension). HMRC will issue guidance in due course to explain the process where scheme pays has not been used and how to reclaim/pay annual allowance tax.
There can be slight differences in some cases with regards to how the actual superannuation contributions are calculated in each scheme so there may also be an adjustment required to the superannuation already paid in these years. Any overpaid contributions will be dealt with through a compensation and an adjustment will be made to reflect the excess tax relief received. If contributions have been underpaid, the NHS can decide whether to request a single lump sum or instalments and also whether to reduce the amount owed to reflect any lost tax relief.
Those who chose to transfer from the 1995 to 2008 scheme under the “Choice 2” exercise will also be given the opportunity to revise this decision and return to the 1995 scheme.
