The McCloud remedy

When the NHS, teachers’, Civil Service, local government and other schemes moved to new career average schemes, older members close to retirement were allowed to stay in their old final salary schemes while younger members were moved across. The courts found that age discrimination and ruled it unlawful. The McCloud remedy gives everyone affected the better of the two sets of benefits for the period in question.

What went wrong in the reforms

The reformed public service schemes replaced older schemes that mostly paid a pension based on final salary. They are the NHS 2015 Scheme, the Teachers’ Pension Scheme career average section, Civil Service alpha, and the reformed police and firefighters’ schemes. To soften the change, members within a set distance of their old normal pension age were given transitional protection and could stay in the legacy scheme.

Younger members got no such protection. Judges and firefighters challenged this, and the Court of Appeal ruled in the McCloud and Sargeant cases that the protection discriminated by age. McCloud was the judges’ case and Sargeant the firefighters’. The government accepted that the ruling applied across the public service schemes.

The period covered by the fix is called the remedy period. It runs from the start of the reformed schemes to the point when the legacy schemes closed to further build-up for everyone. After that, all active members in the affected schemes build pension in the reformed scheme, whatever their age.

How the fix works in the unfunded schemes

The Public Service Pensions and Judicial Offices Act 2022 sets out the remedy. For the NHS, teachers’, Civil Service, armed forces, police and firefighters’ schemes, it has two parts.

First, everyone with service in the remedy period was rolled back into their legacy scheme for that period. Members who had been moved into the reformed scheme now have that service counted in the legacy scheme again. That means the NHS 1995 or 2008 section, the older teachers’ final salary arrangements, or Civil Service classic, premium or nuvos.

Second, members choose how that service is treated when they retire. This is called the deferred choice underpin. At that point the scheme shows you the benefits for your remedy period service under both the legacy and the reformed rules, and you pick whichever suits you. Someone retiring early might prefer the legacy scheme’s lower pension age. Someone whose pay rose a lot late in their career might find one option gives more pension than the other.

If you retired before the remedy came in, the scheme contacts you with a choice instead of waiting. Some members also had other benefits recalculated, such as ill-health or death benefits, and contribution adjustments are made where the two schemes charged different rates.

How the LGPS is different

The Local Government Pension Scheme in England and Wales handles it another way. When the LGPS was reformed it included an underpin for older members only: a check comparing career average pension with what the final salary scheme would have given. The remedy extends that underpin to younger qualifying members.

So in the LGPS there is no roll-back and no choice to make. When you take your pension, the fund checks whether your remedy period pension would have been higher under the final salary rules and adds any difference automatically. If your career average pension was already the higher figure, nothing is added. Scotland and Northern Ireland run their own versions of the LGPS with matching changes.

Who is affected

You are in scope if you were a member of a public service pension scheme before the reformed schemes started and had service in the remedy period. Small gaps in service are allowed under the rules, though longer breaks can take you out of scope. Members who joined only after the reforms are not affected.

That takes in many long-serving nurses, teachers, civil servants, council staff, police officers and firefighters. It also covers people who have since left and have deferred benefits, and people who have already retired.

What you receive and what to check

Each scheme has sent, or will send, a statement for your remedy period service. NHS members in England and Wales get a remediable service statement showing both sets of benefits, and the teachers’ and Civil Service schemes give similar information through their own member services. The statements are estimates and are updated as your pay and service change.

Check that your remedy period service dates, your employers and your pay look right. Errors in pay or service come from employer data, so they are corrected through the employer that submitted them, starting with payroll or the pensions team. If the scheme’s response does not settle it, each scheme has an internal dispute resolution procedure, and The Pensions Ombudsman deals with complaints that cannot be settled there.

There are tax effects too. Moving service between schemes can change the value of your pension growth in past years for annual allowance purposes, and HMRC has arrangements to recalculate charges paid or owed. Senior staff who were near the annual allowance should read their revised pension savings statements carefully.

Making the retirement choice

The scheme will not choose for you. When you retire you receive figures for both options for the remedy period, including the yearly pension and any lump sum. The difference can be large or very small depending on your pay history and the age you retire. Pension age matters too. The legacy sections generally had a lower normal pension age than the reformed schemes, whose pension age follows your State Pension age.

MoneyHelper offers free, impartial help with what the figures mean, and your union may run pension sessions. For a personal recommendation you would need a regulated financial adviser. The scheme administrator can explain how the choice works and the deadline for making it.