McCloud pension consultation judgment

Watch our webinars and guidance on the Government consultation on unfair discrimination in the pension scheme. The need to know, how it will affect you and what you should do now.

Location: UK
Audience: All doctors
Updated: Monday 22 November 2021
Piggybank illustration

In 2015, the Government made changes to reform the majority of public service pension schemes. These reforms did not apply to members within 10 years of their normal pension age on the 31 March 2012 - who remained in their legacy schemes with 'transitional protection'.

Judges, firefighters and doctors (via the BMA) brought legal cases against the Government for this.

Following these legal actions, the Government conceded that the protection offered to older but not younger members resulted in unlawful age discrimination.

In order to remedy this, they released a consultation in summer 2020 which outlined the options to rectify the discrimination. The BMA submitted a detailed response to the consultation.

Lobbying the Government

Read more about the most recent developments in our lobbying the Treasury on these pensions issues.

 

View BMA action

How this will affect you

The Government published a consultation response in February 2021.

BMA pensions webinars

The BMA pensions committee held a series of webinars on the implications of the outcomes for doctors. To reveal the webinars below, please sign in, if you are not already.

Which pension scheme you are in

NHS pension scheme Date you joined the scheme
1995 section Before April 2008
2008 section Between April 2008 and April 2015
2015 scheme After 1 April 2015

From 1 April 2022, the Government plan is to move all active members to the 2015 scheme and to close the 1995 and 2008 sections.

Use the NHSBSA tool to identify which scheme you are contributing to.

Eligibility

The government’s current position is that those who started their service on or before 31 March 2012 and remained in service on 1 April 2015 are in scope of the consultation outcomes.

This means that anyone who first joined between 31 March 2012 and 1 April 2015 are not eligible for the remedy. Therefore, they will not be able to choose to accrue benefits for the remedy period under a legacy scheme.

 

The remedy period

The only solution at the time was to 'level up' and offer those younger members who transitioned to the 2015 scheme the option to remain in their legacy scheme (1995/2008) for the remedy period (1 April 2015 to 31 March 2022).

After the remedy period, all scheme members will move to the 2015 scheme.

Members will be asked to decide at the time of retirement which scheme they would like to be a member of for the remedy period.

This means that all affected members will be placed back in their legacy scheme for the remedy period until their benefits become payable.

Up until then, we expect that the schemes will produce annual statements that demonstrate the value of your pension during the remedy period for both options ie the legacy scheme and 2015 scheme.

Members in scope and remedy period

Before 2012 Members in scope
If you joined the pension scheme before 31 March 2012.
2012 - 2015 Unprotected period
Members joining during this period not in scope.
2015 - 2022 Remedy period
Period for which members can choose legacy or reformed benefits.
2022 Move to 2015 scheme
Future benefits in 2015 scheme from 1 April 2022.
2023 Remedy period membership reverts to legacy scheme
The 7 year period membership is changed to be in 1995/2008 scheme.
Retirement Choice at retirement
Choose whether to remain in legacy period or move to 2015 scheme.

Retired members

Those who have already retired and/or received a pension award will be offered a choice between the 2015 scheme or their legacy scheme for the duration of the remedy period.

The Government plans to develop a process to allow those in the 2015 scheme to be treated as a member of their legacy scheme for the remedy period. This should be an option before the new legislation is introduced in October 2023.

The scheme will contact those who fall into this category to make a choice retrospectively. Where members choose to change schemes, they may in some cases have to repay benefits that they have already received.

 

Tax implications

BMA position on interest

The BMA argued that any money that was owed to the member should attract interest. However, we felt that in cases where the member owed money to the scheme, this should not attract interest.

This was because the scheme had not suffered any loss from not receiving this money from the member. At the last valuation, the NHS pension scheme was already in surplus.

We felt that charging interest on any money owed by the member, through no fault of their own, was a further detriment being applied to those who had been discriminated against.

Reversing past decisions

Due to tax treatment for those who are members of both the legacy and 2015 schemes being particularly harsh, some members may have made decisions like:

  • opting out of the scheme
  • reducing their work commitments
  • cancelling added years contracts
  • taking early retirement.

In many cases, these decisions would not have been made had members not suffered this unlawful age discrimination.

The Government have said that they will consider the reversal of such decisions on a case by case basis. More information is needed and we will provide further guidance on this in due course.

BMA position on reversing decisions

The BMA strongly opposed this as we felt that members should automatically be able to purchase any lost pension entitlement and claim for financial costs.

We feel that no member should be disadvantaged because of the government’s unlawful discrimination. And, as such, members should be placed in the same position as if the discrimination had never occurred.

A case-by case approach would be impractical and much more difficult for both members and scheme administrators.

What to do now

There is nothing that you need to do now.

We do recommend checking that your pension records are up to date. You can do this now by logging onto your total reward statement which summarises your pension benefits.

GPs in England

There are issues for GPs in England getting up to date and accurate pension statements. PCSE (Primary Care Services) are expected to launch a new portal for this in the coming months. This will allow you to see your pension record for the previous six years and the current year.

Once PCSE have processed your forms, they update NHS pensions where the final record is kept.

If you identify any gaps or inaccuracies, you can email [email protected] We advise that you keep a record of all forms and amounts that you send to PCSE just in case you are required to provide them as evidence in the future.

Timeline
2021-2022
  • You do not need to make any decisions.
  • Familiarise yourself with the background.
  • Consider what information you may need post 2022.
2022-2024
  • Move into 2015 scheme post 1 April 2022.
  • Membership prior to 1 April 2015 moved back to legacy scheme.
  • Annual allowance tax recalculated.
  • Consider any contingent decisions and whether to reverse them
  • BMA continuing to argue for simple eligibility
Retirement
  • At retirement choose whether to remain in legacy period or move to reformed scheme
  • Government will ensure members do not bear the cost of any additional AA charge that is directly caused by choosing the reformed benefits

Recent developments and next steps

In July 2021, the Public Service Pensions and Judicial Officers Bill to enact the remedy to the 'McCloud' age discrimination was published and it is in the process of going through Parliament.

We have analysed the Bill in detail and while it does make the necessary provisions to enact the remedy, there is insufficient detail on how 'contingent decisions' will be managed and greater clarity on the tax implications is still required.

We provided a briefing to peers on the Bill, in advance of the first committee stage, and we continue to feed into this process.

Cost control mechanism for public sector pension schemes

In August 2021, we responded to a Treasury consultation on proposed changes to reform the cost control mechanism for public sector pension schemes. We expressed our disappointment that the proposals did not address the cost floor breach identified in 2018.

We also noted the absence of any proposal from the UK government on how this amendment to the NHS pension scheme provided opportunities to implement remedies on the back of the McCloud decision. We cautioned that a 'one size fits all' approach may not be correct for the public sector pension schemes.

SCAPE discount rate methodology

Alongside this consultation, we also responded to a further Treasury consultation on proposals to reform the SCAPE discount rate methodology.

The SCAPE discount rate is a discount rate used in the valuation of unfunded public service pension schemes to set employer contribution rates.

We highlighted our concern that the cost floor breach had not been addressed, and raised other concerns around the undermining of the stability objective within the discount rate.

In particular, we were concerned about an 'economic check' being introduced that would potentially allow Government to not implement steps to remedy a cost floor breach. Despite this, the Government has indicated it will be progressing with its changes and we are keeping this under review.

Cost control

In October 2021, the Treasury published amended directions relating to the cost control element of the 2016 valuations, alongside the Government Actuary’s response to the proposed changes.

These directions seek to unlawfully use the 'surplus' arising from the 2016 valuation, which should have resulted in improved benefits for members, to finance the cost of the McCloud remedy.

We are adamant that members should not pay the price of the McCloud remedy in this way. We issued a pre-action protocol letter challenging the Government’s actions

There are also several issues that have not been addressed by the Government’s response. We will continue to highlight these and campaign on behalf of members.

Issues not covered
  • Re-establishing pension benefits, including death in service and ill-health retirement for those advised to leave the scheme because of pensions taxation. Members should be automatically entitled to the full restoration of such benefits.
  • Members to be provided with clear and detailed information in a timely manner in relation to their benefits under both schemes, including the impact of the remedy period being in either the legacy or the 2015 scheme.
  • Any financial advice needed to be taken by members for the consequences of the unlawful transfer, eg due to tax implications, should be reimbursed by the Government.