The current hot topic in NHS pensions is the McCloud remedy. As you may know, some 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 background
The main difference between the previous 1995 and 2008 pension sections (known as the legacy sections) and the new 2015 pension scheme is the normal retirement date, which is age 60 for the 1995 pension, 65 for the 2008 section 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 members who had joined the NHS pension scheme before 1 April 2012 and had been moved to the 2015 scheme after that date back into their legacy sections for the seven-year period from April 2015 to March 2022.
All members will then have joined the 2015 pension scheme from April 2022 regardless of age. At retirement members will then be given the choice as to whether they want the benefits to be calculated based on that seven-year period being in the legacy scheme or in the 2015 scheme so that the member can choose the best pension option for them.
The Government recently released legislation which sets out how the NHS Pension Scheme needs to action the remedy, and the timing for doing so.
Amendments to pension records
The rollback of service should have been completed by 1 October 2023, with pension built up in the new scheme being returned to the 1995/2008 legacy schemes.
Where a pension has already been put into payment, the retiree will be provided with a remedial service statement. This will take some time but this exercise for the vast majority will start from 1 April 2024. The retiree will then have six months to decide whether to have their benefits paid under the legacy scheme instead of their current pension and will calculate the pension under the legacy scheme at the original date of retirement and pay any arrears.
For active members their pension statements should start to show the pension as being back in the legacy scheme for the seven-year period. From 1 April 2025 these will be updated to show both the legacy calculation and the calculation should the member choose to remain in the 2015 scheme for that period.
Annual allowance tax charges
Annual allowance pension tax calculations (a tax charge on excessive pension growth) will be reworked for the seven-year remedy period and the growth will be treated as arising in the legacy scheme for each of those seven tax years. NHS Pensions will need to send a Remedial Pension Savings Statement to members by 6 October 2024. Both current and retired members impacted by the remedy will then need to reassess any changes in tax calculations over that seven-year period and submit these to HMRC. This could result in a refund in many cases but there will be cases where the tax is higher.
If 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 two years later for those who are already in receipt of their pension).
As members may need to take professional advice in resubmitting information to HMRC a compensation allowance will be available to cover any costs incurred up to £1000.
Other considerations
If a member had previously opted out of the scheme or made changes to additional contributions they were making then they may be able to rectify this decision if they can show their original course of action was due to them being put into the 2015 scheme incorrectly. The payment of back contributions will be needed to restore the benefits and an instalment process has been proposed.
Likewise members who have paid for additional contributions or early retirement buy outs in the 2015 scheme will be offered alternatives.
What to do now?
Impacted NHS Pension members will receive updated information over the next year. They will need to consider any actions that need to be put in place and if appropriate seek advice from a financial advisor expert in the NHS scheme.
More information can be found at https://www.medicsmoney.co.uk/the-mccloud-judgement-guide-by-medics-money/ where pages will be updated to contain the latest advice.