As the details of the McCloud Remedy continue to unfold, we analyse the effects the government reforms have on your NHS pension scheme. If you need a recap of the history please go to the summary at the end of this article. Otherwise please read on…
How will the McCloud Remedy affect YOU?
1. Annual allowance calculations: Are you due a tax rebate or a scheme pays reduction?
Many members will be painfully aware that the 2015 pension scheme is more generous than the 1995 or 2008 schemes and will have faced substantial tax charges as a result of breaching their annual allowance in recent years.
Moving service back to the legacy scheme could mean that any annual allowance charge that has been levied could be reduced or even eradicated. The reason behind this is the accrual rate in the ’95 or 2008 scheme is not as generous as the 2015 scheme. Before you start to google ‘accrual rate’ – simply put, it is the rate at which you amass pension benefits. This is expressed as a fraction, the lower the fraction, the more generous the scheme. The 1995 scheme accrual rate is 1/80th, and the 2015 scheme is 1/54th. If the old schemes are less generous then you do not amass as much pension benefit. The amount you are deemed to have contributed is less, so in a majority of cases, we expect to see lower annual allowance figures.
It will be wise to revisit your annual allowance position, particularly if you have paid a liability, be that through scheme pays or via your tax return. However, remember if you are due to pay a charge please do continue to do so. If your revised figures mean the charge disappears or reduces you will need to contact your accountant to resolve any rebate due. If you have utilised scheme pays then you will need to contact the pensions agency.
To check your figures, we recommend requesting your latest annual allowance figures for the previous tax year from the NHS pension scheme in July of each year to obtain your most recent year’s accrual and deemed value. Set an annual reminder on your phone!
The annual allowance figures that will reflect the changes are expected in October of 2023.
2. The lifetime allowance – more good news
By way of a recap, the Lifetime Allowance (LTA) is the total value of benefits you can build up from all registered pension schemes without incurring a tax charge. All pension benefits you build up use a percentage of your lifetime allowance. This includes pensions outside the NHS pension scheme (apart from the state pension).
What is the impact of the McCloud case on your lifetime allowance? If you elect to retain service in your legacy scheme, re-joining the 2015 scheme in April 2022, then you could see your pension having a lower value against the lifetime allowance.
It is using the same reasoning as the annual allowance, in that the old schemes are less generous, therefore you accrue less pension and consequently a lower pension means you have a lower value against the lifetime allowance.
I speak to many who have concerns about the lifetime allowance and they will be thinking it’s good news if the chance of a breach is lowered. I expect they will be reading and maybe asking if the old schemes are less generous then do I really want to move schemes – this leads me nicely onto the next point…
3. Do I have a choice about what scheme I’m in now?
The simple answer is no – you don’t. However, when it’s time for you to claim your pension benefits, you will be asked if you want to receive legacy scheme or reformed scheme pension benefits for your service between 01 April 2015 and 31 March 2022. This process is called the ‘Underpin’.
NHS pensions will provide you with information at the time to help you make your decision. Asking you to make this choice when you retire means you will know exactly what you’re entitled to under each option, making it easier to decide what’s best for you.
We have already discussed the new scheme being more generous than the older schemes, but we need to highlight that the retirement age, the point at which you can draw benefits without penalty is much older in the 2015 scheme than the legacy schemes. Therefore, the age at which you wish to draw your pension is crucial to your decision. I see a lot of cases where people are unsure as to what age they wish to retire, and some are opting for retirement and return. Having to make an election now when you may be many years from retirement and unsure of what the future holds would be unfair as it would have significant financial consequences.
The government intends for processes to be in place by 01 October 2023 to support members in making their choice on retirement. Your service for the remedy period will be automatically moved into your legacy scheme until you’ve made your choice.
By 01 October 2023, any continuous service you have between 01 April 2015 and 31 March 2022 will be placed into your legacy scheme. More information will be provided by NHS pensions on how this change will happen, and what to do if this impacts your circumstances in due course. However, for now, all processes remain the same, so there’s nothing you need to do. NHS pensions will contact all affected members directly when action is required.
If members have already retired before the settlement is finalised they can change their pension for the years since 01 April 2015. Retirees from both legacy and reformed schemes who were in service on or before 31 March 2012, and on or after 01 April 2015 will be offered the choice as to which arrangement they wish to be in for the remedy period.
Anything else to consider?
The McCloud Remedy changes will continue to trigger new questions. We are still working on how these changes will affect your ill health retirement pension (IHRP) and if the ‘underpin’ will kick in when you draw your IHRP or just at retirement. These questions will be answered so do keep in touch, as we will endeavour to post news as soon as we have it!
McCloud Remedy Summary
At the time of the pension reform, NHS members closest to retirement were protected from moving to the reformed NHS pension scheme (2015 section) and could therefore remain in their legacy schemes (1995 and the 2008 sections) of their original pension scheme.
Pension members with full protection did not have to move to the 2015 NHS pension scheme at all, while members with tapered protection were permitted to remain in their legacy scheme for longer, with their move to the reformed scheme delayed beyond 01 April 2015.
In December 2018, the Court of Appeal found these protections discriminatory against younger scheme members. This discrimination has become known as the ‘McCloud Judgment’.
The government is now implementing the McCloud Remedy to remove this discrimination and ensure equal treatment for all members of the NHS pension scheme. ‘The McCloud Remedy’ will remove the age discrimination judged to have arisen in the NHS pension scheme. Many of you have received letters about this from your Trust.
If you have any questions regarding any of the issues raised in this article, please do contact your adviser or ask us in the comments box below.
i have mental heath officers status and plan to retire next may when im 55 .I was moved into new 2015 scheme in december 2019 how will Mccloud judgement effect me Will i be better off moving back to 95 scheme for years 2019 to 22
Dear Paula,
We would need to know the details of your circumstances to be able to put you in a position where you can make an informed choice as to which is the most appropriate course of action. There are several factors to take into account, as you rightly state the McCloud judgement, and the corresponding impact on the annual and lifetime allowances. We offer a service which can provide this detail should you wish to take it further, so do feel free to get in touch.
Best wishes, Owen
Hi,
I have been working from 1999 for NHS.
I have health issues and want to retire soon.
I will be 58 in few months.
Can I claim the pension as per ‘98 contract.??
Hi there
You can take your pension, but there will be an actuarial reduction for taking your pension before the age of 60 (the normal retirement age associated with the NHS 1995 pension scheme), which I assume most of your service is affiliated with. If your health issues mean that you could retire on Ill-health grounds, then you would potentially receive an enhancement to your pension benefits and no actuarial reduction.
I hope this helps.
Best wishes, Owen
Hi,
I’m going to be retiring early with all at 1995, save for time from March 2022. Is there any better time to retire, calendar wise? I was looking at Mid January but it’s been suggested that April would be better as the 2015 scheme would have been updated then and wouldn’t be by January. Is that right?
Dear Richard
This falls into advice territory, so a quick response via a blog is not appropriate. We would need to look into your specific circumstances. I can say that you would need to factor in that if you retired in April as opposed to January, you may benefit from the full inflationary lift in your pension, which is currently 4.5%.
Feel free to get in touch if you would like further more detailed advice.
Best wishes, Owen
Hi. Thanks for the article! When I was offered the choice of transferring from the 1995 Pension scheme to the 2008 scheme, in the Pension Choice exercise of 2012, I refused. In the Pension Choice 2 exercise of 2015 I made the decision to transfer my 1995 benefit to the 2008 scheme because I was informed that I would NOW only be able to now take 15 years (in my case) of legacy scheme pension benefits unreduced at age 60 (instead of the full 26 years previously available). I figured 15 years was not enough and I would most likely have to keep working until 65 because of this so transferring to the 2008 scheme seemed to make sense (as it paid more at age 65).
The McCloud judgement indicates that I would now be potentially eligible for an extra 7 years (22 years total in my case instead of 15) unreduced pension benefits at age 60 as the Government had discriminated against younger members. This is a big difference and the opportunity of retiring nearer age 60 may have been possible (had I stayed in the 1995 scheme) if I had been informed I would have 22 years of unreduced pension at age 60 instead of 15 years . I would have made a different decision, in 2015 (Pension Choice 2), had the discrimination not occurred and I not been misinformed in 2015!
I feel I should be able to reverse my decision, in 2015 Pension Choice 2, and transfer my existing benefits from the 2008 scheme back to the 1995 scheme. If I need to try and prove that I would have made a different decision in 2015, had the discrimination not occurred, how can I go about this? I wonder if I would need a Solicitor? Or would Financial Advisor be able to help?
Dear Alex,
I believe you are asking if there is any recourse. The answer is possibly, but we don’t yet know for certain.
This could potentially fall under the Contingent Decisions section of McCloud (particularly as you transitioned under pension choices 2)
We’re still waiting to see the final legislation. Sorry we can’t give a definitive answer at this time.
Best wishes, Owen
Yes same for me, in that I made decisions based on the fact that I was automatically moved onto the 2015 scheme in 2017 as part of an age based trajectory I believe. Had I known the actions would be over turned I would have made different decisions at that time and have lost 4 years of contributions. I’m interested to know if there will be any recompense but at present no one can give me an answer despite writing to the pensions agency as I retire in Dec of this year.
Hi there,
Anything at the moment would be speculation. However, it is obvious that significant numbers of people changed their plans/made different decisions around the time of being moved (“unlawfully” – as it now transpires) onto the 2015 scheme. There may be an opportunity to “get years back”, but obviously, this would in the first instance, require a payment from the affected member; four years of contributions could be very significant – the additional pension may well make that a good investment!
However, the process wouldn’t stop there….it only starts there! Pension inputs added years, AVC’s/FSAVC’s, annual allowance, threshold income, adjusted income, lifetime allowance etc. etc. are just some of the other factors that would need to be considered! All in all, to say “it’s pretty complex”…would be a significant understatement! As I say, anything at the moment is speculation, but I am pretty sure there will be a significant number of BMA members who will want this issue raised.
Best wishes, Owen
Hello
I moves to the 2008 section from 1995 section as part of Choice. I did this after the introduction of the 2015 scheme and as a result of it being introduced.
I wonder, as I know there are more like me but maybe not many, where that leaves me in relation to McLeod as I joined 2008 in 2016/17 but had been in 1995 in 2015 but those benefits were moved into 2008.
Am I still eligible for McLeod as I had been in 1995 for 17+ years?
Do my benefits refer back to 2008 or 1995?
If 2008, and my decision to move to 2008 was based on implementation of 2015, now deemed unlawful, should I in fact be returned to 1995?
Hi there
McCloud will be applicable to you.
Best wishes, Owen
I took my 1995 pension April’20 age 55years as in special class status. I returned to work on reduced hours which I am still doing.
My employers failed to advise me I could still pay into a pension. I discovered I could pay into a pension scheme 13 months later so joined nest pension scheme and my employers pay into it. I believe now from April’23 I can stop the nest pension and join the NHS 2015 scheme.
My question is will I have the opportunity to make up payments to the 2015 scheme that I could have paid into from April’20 if that had been an option then. Also will me joining the 2015 scheme affect my current 1995 pension payments?
Hi there,
This is a complex case and one we cannot answer on a blog. If you would like to contact us one of our advisers can talk you through your options.
Best wishes, Owen
Dear Owen
What is the accrual rate for GPs in the 1995 pension versus the 2015 pension ? My understanding is that 2015 = 1/54 = 1.85% and 1995 = 1.4%. Therefore 1995 growth as a fraction of 2015 growth = 1.4 / 1.85 = 0.75, but can be collected without acturial reduction at aged 60 whereas 2105 retirement age is 67.
Is this correct?
Thank you
Hi there,
I wouldn’t go as far as fractioning the ’95 scheme and the 2015 scheme or vice-versa – there is no need to. The 2015 scheme does have a greater accrual rate but it also doesn’t have an automatic right to lump sum which, of course, the ’95 scheme does! So whilst the schemes can be compared, it’s not quite as simple as saying 1/54 and 1.4%.
Best wishes, Owen
Very useful article thank you.
Two questions on the McCloud remedy.
Hope to take my pension at 57, 58 or 59 ( currently 54). Can I request the adjusted figures for legacy scheme with a view to retirement at age 57 but then depending on the figures decide to take my pension at 58, 59 or even 60. It will be hard to make a plan for retirement without the figures being available – for example, if the adjustment for retiring early is too much then I would need to retire a year or two later.
Having paid a tax charge to HMRC for breaching annual allowance over £40K for 2 years. If my annual allowance is reduced or eradicated due to the McCloud rememdy will HMRC also re-pay me the interest that I was charged for paying my tax charge late. As a GP the growth statement for 20/21 was only available by Oct 2022 ( yet the payment on account for this was due in Jan 21 and July 22). So the tax liability was only known and declared to HMRC after the event. Hence HMRC charged interest for the late payment in addition to the tax charge.
Thank you
Hi there
At this point, only the TRS can give you that sort of information. I realise this isn’t necessarily accurate for GPs, further to Capita’s handling of GPs’ pension records(!)), but certainly, for the next 18 months or so the NHS are unlikely to be in a position to be able to give you what amounts to a running total of what your benefits are – they are completely overstretched as it is. Beyond that, I think they may well put calculators in place to help members because this question arises all the time.
I think it is unlikely that HMRC will repay interest. However, it may be a case of shouting loudest and often to see if they respond!
Best wishes, Owen
Do your services include non Doctors & Dentists?
I have a very complicated dispute in the offing with My employer and the NHS pensions agency and I struggling to get simple independent advice.
Thanks
Hi there,
We specialise in advising medics and lawyers, as this is where our expertise lies. It seems like you may need legal advice, not financial advice, but please feel free to contact us for clarification.
Best wishes, Owen
Hi,
Just doing some research as I ponder retirement in a couple of years.
Situation is in 2016 I moved roles and took a £20k salary drop. My salary by 31/03/22 was still slightly lower, but now 2024, it is above the 2016 and will continue to rise.
Question is, accrual fractions aside, where is the legacy final salary taken from, 31/03/22 or the retirement date as it occurs in the future?
Hi there
Your legacy pension (1995) is based on the best income of your last three years service immediately before retirement (unless you had put “protection” in place that means the protected income was larger).
Best wishes, Owen
Hi,
I retired with tier 2 Ill health pension in May 2019 aged 56, can I assume that I will be offered the benefits of 2015 scheme ? My reading indicates that my retirement age will be 67 in 2015 scheme as compared with 60 in 1995. Even with 50% compared to 2/3 of enhanced years , it seems I will accrue at least 2 extra years pensionable service .I also took out an added years contract .
.again I assume that the benefits calculated in 2015 scheme potentially for 9 years could boost my pension.
Am I in the right ball park with my reading.
Awaiting my remedy statement with interest
Regards
Dave
Hi there
Your ill-health retirement pension has been paid since 2019. At that time, the relevant calculations would have been done across both schemes, and you would have not been able to voluntarily join the 2015 scheme. However, under the McCloud approach, members are being offered a “choice” of how they wish to take benefits across the 1995 and 2015 schemes. My feeling is that this will also be the case for you, although we are coming at things from a different angle/approach because of ill-health retirement. I agree with your logic – under the 2015 scheme, more benefits are potentially payable. I’d be very interested to hear how you get on because it is quite an unusual situation.
Best wishes, Owen