In simple terms, the McCloud Remedy is a legal decision that allows certain public sector workers to choose theest pension option after discriminatory rules with the previous pension schemes were found to be unjust.
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In simple terms, the McCloud Remedy is a legal decision that allows certain public sector workers to choose the best pension option for them, after discriminatory rules with the previous pension schemes were found to be unjust.
However, behind the ruling, years of NHS pension payments, taxation and potential errors lies a web of figures that if not looked at correctly could impact on your decision and ultimately have an impact on your financial future.
At NHS Pension Claims we present an easy to understand report surrounding your choice but for those who are interested in the McCloud Remedy, here we provide a more detailed description of the McCloud Remedy Ruling.
The Government plan to return NHS Pension Scheme members who moved to the 2015 CARE scheme, back into their legacy scheme (1995/2008), for their pensionable service. This is known as ‘Remediable Service’. HM Government use the term ‘rollback’ in their McCloud Remedy consultation.
A choice, at retirement, will be offered of whether a member will receive legacy scheme benefits of 2015 CARE benefits for their remediable service. The deadline set by the Public Service Pensions and Judicial Offices Act 2022 for the retrospective part of the McCloud Remedy to come into effect is 1st October 2023.
It is vital to remedy unequal treatment, by reverting to the most beneficial option. Members will be given the choice of which scheme benefits they wish to receive for the remedy period, from the date the reformed scheme was introduced to the date the legacy scheme was closed for further accrual.
NHS Pension Scheme members must meet all 4 of the eligibility conditions set out in section 1 of the 2022 act, in order to have remediable service and be in scope of the McCloud remedy. The 4 conditions are that:
The first stage of the McCloud remedy is to return any remediable service that is in the 2015 scheme back to the member’s remedy section of the legacy scheme. The remedy section of the legacy scheme is the section of the NHS Pension Scheme the remedy member was a member of before their move to the 2015 scheme from 1 April 2015. This is ‘rollback’ which will take place when the draft regulations come into force, on 1 October 2023.
Remedy members will then be given a choice of benefits for their remediable service:
· legacy scheme benefits
· 2015 scheme equivalent benefits
Where the choice is for 2015 scheme equivalent benefits, the rolled back remediable service remains in the legacy scheme, it doesn’t move back to the 2015 scheme. The 2015 scheme equivalent benefits will be payable from the legacy scheme.
Active and deferred members will receive their first RSS by 1 April 2025 or such later date as the scheme manager considers reasonable after considering the circumstances of a particular member or class of members. This RSS will give benefit information based on remediable service in the member’s remedy section of the legacy scheme and also for 2015 scheme equivalent benefits, both payable from the legacy scheme.
Active members will then receive an annual RSS as part of their Total Reward Statement until they make a deferred choice election. For members who are deferred (no longer contributing to their NHS pension but are not yet taking their NHS pension benefits), they can request an annual RSS where it is not provided in their Total Reward Statement.
For members within a specific group, who may have underpaid or overpaid contributions as a consequence of their immediate choice election, their Remediable Service Statement (RSS) will provide the details of the amounts that may become owed to the scheme.
The member may then agree with the scheme manager as to how that amount might be paid, either by a single payment, via an instalment plan, or via a deduction to future benefits.
Transitional arrangements introduced from 1 April 2015 allow members to continue with a purchase of legacy scheme additional pension (being made by regular monthly contributions) after joining the 2015 scheme. In addition, the same transitional arrangements (mentioned in connection with regulation 17) allow members to claim 1995 section additional pension at their chosen birthday (age 60) without retiring or leaving NHS employment.
The 2022 act permits scheme regulations to allow members to enter into new voluntary contribution arrangements in the legacy scheme. Regulation 25 confers that right on members and sets out the process for making an application for entering into such an arrangement to purchase additional pension. or an application to be accepted, the scheme manager must be satisfied that the member would have entered into that arrangement during their period of remediable service but for the discrimination.
Where an application is accepted and the member enters into an arrangement, the member will owe additional contributions net of tax relief (or where relevant an amount representing tax relief) and interest for that additional pension.
The intention is that the member will need to submit an application to enter into such an arrangement within 6 months of an RSS first being issued to them and, if that application is accepted, that the arrangement is entered into within 12 months of the RSS first being issued. More information on how to apply to enter into remedial arrangements to purchase additional pension will be published on the NHS Pensions website from 1 October 2023.
The 2023 tax regulations modify existing pensions tax legislation to make a number of technical changes to the tax treatment of those impacted by the remedy only. They aim to put individuals, as far as possible, in the tax position they would have been in had the discrimination not happened. They do not amend pensions tax legislation and so do not apply more widely.
The 2023 tax regulations address the tax position following the introduction of the remedy. They:
Remedy members have the assurance that a scheme pays election on a voluntary basis after the mandatory scheme deadline has passed, will be accepted and the annual allowance charge paid by the scheme. Unlike with mandatory scheme pays, the scheme would not be jointly liable for the annual allowance charge. As such the member remains responsible for the charge and any interest charges where it is paid later than HMRC’s normal self-assessment tax return deadline.
Where following rollback the recalculated pension input amount for tax year 2019 to 2020 is lower this will result in the 2019 to 2020 annual allowance charge either reducing or being extinguished, meaning that the pensioner remedy member’s NHS pension benefits have been underpaid.
As the member has always been paid the underpaid amount, they will see no actual change to their benefits in payment. Behind the scenes, and for accountancy purposes, the cost of paying the ‘underpaid’ 2019 to 2020 benefit amount will fall on the NHS Pension Scheme. Regulation 53 then gives the scheme manager the power to repay an amount equal to the compensation payments to NHS England from the NHS Pension Scheme.
In some cases, the remedy alone may not put the member back to the financial position they would have been had the discrimination not occurred. As such, the 2022 act permits the scheme manager to pay amounts to members, or to the personal representatives of deceased members, as compensation for compensable losses.
Regulation 55 sets out that compensation may be paid under the 2022 act and in accordance with the 2022 directions. These directions stipulate that scheme managers must comply with the directions in exercising their powers to pay compensation. They set out that compensation may be paid to remedy any financial loss suffered as a result of the discrimination or as a consequence of the steps taken under the 2022 act to remedy the discrimination. Scheme managers can also provide compensation for any overpaid tax that cannot be corrected via the tax system as a result of the statutory time limits for correction of tax in previous years.
The 2022 directions also require that compensation can only be paid once an application is made to the scheme manager. The 2022 directions also set out the high-level process for seeking compensation for overpaid annual allowance and lifetime allowance charges.
Compensation can only be paid if an application is made in accordance with the 2022 directions, and that any compensation decision must be explained and appealable. More details on the application process for compensation will be made available via the NHS pensions website in advance of 1 October 2023, the date from which we intend to accept applications. All applications will be considered on a case-by-case basis.
Schemes will be able to provide compensation where a member has incurred reasonable additional costs as a result of an agent, i.e. a tax adviser or accountant, having to resubmit information to HMRC.
Scheme regulations must include provisions for indirect compensation where a tax charge has been paid by the scheme on behalf of the member. In the NHS Pension Scheme this might be relevant where a member has paid a tax charge through the scheme pays facility. The scheme pays facility - at the member’s request - pays an annual allowance charge on behalf of the member and reduces the member’s pension by an appropriate amount.
Where a member has paid an annual allowance charge amount through the scheme pays facility, and that amount has been overpaid following the implementation of the remedy, regulations stipulate that the scheme manager must correct that overpayment by altering the reduction that was made to the member’s pension benefits. This alteration should reflect the lower tax charge.
This regulation also invokes the 2022 directions which state that the decision to provide indirect compensation be determined taking a principles-based approach and the amount of indirect compensation to be provided must be decided in consultation with the scheme actuary. The 2022 directions also require the scheme manager, when calculating the indirect compensation, to apply actuarial factors that were in force when the original reduction to the member’s pension was calculated. This will make sure that the member’s indirect compensation, through the alteration of a pension reduction, puts them into the position they would have been in - in terms of the tax charge - had the discrimination not occurred.
Part of the regulations that considers the calculation and application of interest and the process of paying amounts owed from the NHS Pension Scheme to a member, or from a member to the NHS Pension Scheme as a consequence of the remedy.
Where there have been underpayments or overpayments, the scheme will apply and calculate interest on the amount owed, net of tax relief where applicable. The scheme manager is to apply and calculate interest in accordance with the 2022 directions. For these amounts interest will not be calculated in accordance with existing NHS Pension Schemes Regulations.
Where a member owes an amount to the scheme, compound interest should be calculated daily, using the National Savings and Investments (NS&I) equivalent savings rate.
Where the scheme owes an amount to the member, simple interest should be calculated daily using a rate, currently 8%, up to 28 days after a remediable service statement is issued. Interest should then be calculated using the NS&I equivalent savings rate thereafter.
Where the scheme owes an amount to the member for recurring underpayments, interest will be calculated on the aggregate amount from the mid-point between the date of the first underpayment and the date 28 days after an RSS is issued at 8%, and at the NS&I equivalent savings rate thereafter. Where the scheme owes the member for a one-off underpayment interest will be applied from the date of the initial underpayment to the date 28 days after the RSS is issued at 8%, and at the NS&I equivalent savings rate thereafter.
The scheme manager may apply an average where the interest rate has varied over the period the amount was underpaid or overpaid.
Where interest is owed on overpaid annual allowance by the scheme, interest must be calculated on that amount in accordance with the provisions of the Taxes (Interest Rate) Regulations 1989. This is the rate which HMRC use for refunds or late payments.
If there are any overpayments or underpayments not covered by the 2022 directions, the scheme manager may determine the rate and method of calculation. This must be communicated to the relevant member and the member has a right of appeal about how the interest has been calculated. This only applies where interest rates are determined by the scheme manager and not amounts covered by the 2022 directions.
In such circumstances, the scheme manager must inform the member that an amount is owed. The member may then agree with the scheme manager as to how that amount might be paid, either by a single payment, via an instalment plan, or via a deduction to future benefits.
This regulation also sets out the scheme manager and member may agree to vary such an agreement. Where the member fails to pay the net amount owed, the scheme manager may deduct amounts from future benefits as it considers reasonable, after notifying the member, until that net amount is fully paid.
In such circumstances, the scheme manager must pay the amount to the member in a single payment as soon as reasonably practical after either the amount owed is determined, or where the scheme manager requires additional information from the member, as soon as reasonably practicable after the scheme manager receives that information.
When amounts are owed by a person - remedy member, personal representative, or beneficiary - to the legacy scheme may be reduced or waived. Liabilities include, but are not restricted to, repaying overpaid benefits or paying an amount in respect of underpaid member contributions.
The use of powers to waive or reduce liabilities, under the 2022 act and 2022 directions, is expected to be limited to those situations where the liability has arisen from an unavoidable operation of the McCloud remedy. For example, this could arise where benefits in respect of remediable service all being in either the legacy scheme or 2015 scheme are lower than the mixed service pension benefits in payment as a consequence of having tapered protection. Amounts owed to the scheme are also likely to arise in limited situations as a result of an immediate choice election where the immediate choice election for alternative scheme benefits in respect of their remediable service causes lower benefits being retrospectively payable, for a fully protected or unprotected member.
In these circumstances an overpayment of benefits will occur meaning that the pensioner member or beneficiary owes money to the legacy scheme.
The 2022 directions specify that scheme regulations must include certain provisions under which the scheme manager may exercise any powers to waive or reduce such a liability. These include:
· having regard to the particular circumstances of the person whom the liability is owed
· applying a presumption in favour of recovering the liability unless uneconomic to do so
· considering, where appropriate, to apply interest, which could be in addition to, or instead of a waiver or reduction (see regulation 60)
The scheme manager, when determining whether monies owed to the legacy scheme are to be waived or reduced, will use existing overpayment policy which incorporates the government’s Managing Public Money Guidance. This will provide consistency with existing practice and policy governing overpayments made by the NHS Pension Scheme. Within this policy the scheme manager may agree to an individual repayment plan where it is considered that immediate payment of the liability, in full or in part, would result in unreasonable hardship to the individual owing the money to the scheme.
Use the link below for the full Government consultation paper published on the 14th March 2023 in regards to the McCloud Remedy.
McCloud remedy part 2: proposed changes to NHS Pension Schemes Regulations 2023 - GOV.UK (www.gov.uk)
Additional information surrounding the McCloud Remedy ruling can be found on the BMA website.
Our fee will form part of your McCloud Remedy Claim to NHS Pensions as a "reasonable claimed expense for an agent / tax adviser" so our service should not cost you anything.
The invoiced cost for our NHS Pension Claims service Level 2 is £1,995 inclusive of VAT and Level 3 is £TBA inclusive of VAT. This includes your initial £995 non-refundable deposit.
Registering your interest is the first step, with no obligation to proceed with a claim.
NHS Pension Claims are a member of the Medical Professional Partnership. We specialise in helping NHS Doctors and NHS Executives with their McCloud Remedy claims. Further information can be found on our About Us page.
