The McCloud remedy for public sector pensions

The McCloud remedy is the fix for a finding of unlawful discrimination in the 2015 reforms of public sector pensions. In December 2018 the Court of Appeal found that the transitional protection arrangements applied in the judicial and firefighters pension schemes gave rise to unlawful discrimination, and in July 2019 the government confirmed that a remedy period would be introduced¹. The remedy period runs from 1 April 2015 to 31 March 2022 for most schemes, and affected members are offered the choice of which scheme benefits they wish to receive, the legacy scheme or the reformed 2015 scheme, for those years¹.

In practice the remedy works in two stages. First, everyone affected is put back into their old, legacy scheme for the remedy period, a step often called rollback. Second, when the time comes, each member chooses whether to keep the legacy scheme benefits or the reformed scheme benefits for those years, whichever is better for them. Official guidance says you may be affected if you were a member of a public service pension scheme before 1 April 2012 and continued to be in service after the start of the remedy period for your scheme².

What the McCloud remedy is and why it exists

The name comes from one of the court cases that challenged the 2015 public sector pension reforms. When the reforms moved members from older final salary schemes into new career average schemes, older members close to retirement were given transitional protection so they could stay in the legacy scheme for longer. Younger members were moved straight into the new scheme. Following legal challenges, the Court of Appeal found in December 2018 that these transitional protection arrangements gave rise to unlawful discrimination, and the government confirmed in July 2019 that a remedy period would be introduced¹.

The discrimination was about how members were treated differently from each other, not about the quality of the new schemes. The court's finding meant the government had to remove the discrimination and compensate the members who lost out. The method chosen was to treat affected members as if the discrimination had never happened for a defined window, the remedy period, and then let each member decide which scheme's benefits served them better for those years¹.

The remedy is being delivered through regulations for each scheme, with a common structure set by the Public Service Pensions (Judicial Office) Act 2019 and the Public Service Pensions Act 2021 framework, and tax rules that apply across the UK. The tax side is handled by the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023, which came into force on 6 April 2023 and apply to England, Wales, Scotland and Northern Ireland⁵.

The remedy period and who is covered: 1 April 2015 to 31 March 2022

For most schemes, the remedy period is 1 April 2015 to 31 March 2022². The same dates apply in the individual schemes' own remedy documents: the Scottish Teachers' Pension Scheme consultation defines the remedy period as the period between 1 April 2015 and 31 March 2022⁶, and the Civil Service Pension Scheme consultation covers members with remediable service in the remedy period 1 April 2015 to 31 March 2022⁷.

The eligibility test in the official guidance is membership of a public service pension scheme before 1 April 2012, together with continued service after the start of the remedy period for your scheme². The guidance also sets out a category of protected member: a Chapter 1 or Chapter 2 member who remained in the legacy scheme for the whole of the remedy period, or a Chapter 3 member who would have been entitled to the final salary underpin when they started taking their benefits².

The chapters refer to how a member's benefits are being handled under the remedy, and the practical effect is that different groups are treated in different ways. What matters for most members is simpler: whether you were in the scheme before 1 April 2012, and whether you were still in service when the remedy period began. If both are true, the remedy is likely to apply to you and your scheme will contact you about it.

Transitional protection was the problem, not the career average schemes

It is worth being clear about what the courts actually found wrong. The 2015 reforms replaced final salary schemes with career average schemes across the public sector. A defined benefit pension, sometimes known as a final salary or career average scheme, is a workplace pension based on your salary and how long you have worked for your employer⁸. Both types are defined benefit pensions: the promise is about how much you receive, not how investments perform.

The discrimination was not that career average schemes are worse. It was that the transitional protection, which let older members stay in the legacy scheme for longer while younger members were moved across, treated members differently based on age. The Court of Appeal found that these arrangements gave rise to unlawful discrimination¹, and the remedy responds to that finding.

Because the problem was the unequal protection rather than the new schemes themselves, the remedy does not scrap the career average schemes. Members continue to build up benefits in the reformed schemes after the remedy period, and the choice offered at retirement is genuinely two-sided: for some members the legacy final salary benefits for the remedy years will be worth more, for others the reformed scheme benefits will be, depending on things like how their salary moved over their career. The scheme recalculates both and shows you the comparison before you decide.

Final salary or career average: how the choice works

The choice at the heart of the remedy is between two ways of calculating the same seven years of pension. A final salary scheme bases your pension on your pay near the end of your career: guidance gives the example of a scheme where the pension is based on 1/80 of final salary for each year of membership, so someone who started paying in at 35 and retires at 55 would get 20/80 of final salary, and retiring at 65 would give 30/80⁹. A career average scheme bases each year's pension on that year's pay, with each year's amount then increased by a set rate over time.

The date that decides how the choice reaches you is 1 October 2023. If on that date you had not yet started to take your benefits, any benefits you built up during the remedy period are classed as legacy scheme benefits, calculated on the basis of legacy scheme membership³. This is rollback: for now, your remedy period years sit in the old scheme. When you come to retire, you will be offered the choice of which scheme benefits you wish to receive for those years, the legacy scheme or the reformed scheme¹.

If on 1 October 2023 you had already started to take some of your benefits, or you are the legal personal representative of a member who died on or before that date, an immediate choice is made as to whether to receive legacy or new scheme benefits for the remedy period³. In other words, people already retired, and the families of members who have died, are asked to decide now rather than wait.

How the remedy works in the NHS Pension Scheme

The NHS Pension Scheme, like the other main public sector schemes, is implementing the remedy through its own regulations, and NHS Scotland's consultation on the implementation of the 2015 remedy sets out how the changes apply to its members¹⁰. The structure is the same as elsewhere: members with service in the remedy period have that service rolled back into the legacy scheme, and the choice between legacy and reformed benefits follows.

One point the NHS Scotland consultation covers in detail is what happens to payments that turn out to have been wrong. Where a member's benefits are recalculated and the costs decrease, any overpaid redundancy payment, and any overpaid additional contributions, will be refunded to the employer, who in turn returns this to the member¹⁰. This reflects a practical feature of the remedy: where a member received a redundancy pension that included remediable service, the recalculation can show that too much was paid in one direction or the other, and the correction flows back through the employer to the individual.

For NHS members the practical steps are the same as for other schemes. If you had not started taking your benefits on 1 October 2023, your remedy period service is treated as legacy scheme service until you retire, at which point the choice is offered. If you had already retired, expect the scheme to contact you about an immediate choice, and expect your annual allowance and lifetime allowance position to be reviewed at the same time, since a change in benefits can change the tax².

How the remedy works in the Teachers' Pension Scheme

The Teachers' Pension Scheme follows the same pattern. The Scottish Teachers' Pension Scheme consultation on the implementation of the 2015 remedy defines the remedy period as 1 April 2015 to 31 March 2022⁶, matching the standard period, and the Civil Service Pension Scheme consultation covers members with remediable service in the same period⁷. Teachers in England and Wales, through the Teachers' Pension Scheme, and teachers in Scotland, through the Scottish scheme, are each handled by their own scheme's regulations, but the eligibility test and the remedy period are the same.

For teachers, as for other members, the position on 1 October 2023 decides the route. Members still in service and not yet drawing their pension have their remedy period benefits classed as legacy scheme benefits until retirement³. Members who had retired, or the families of members who had died, face the immediate choice between legacy and new scheme benefits³.

The tax framework that supports the remedy across the schemes was introduced to ensure the pensions tax framework applies as intended to the public service pension reforms, the McCloud case, remedy¹¹. That means the recalculations teachers see, both the revised benefits and any revised tax charges, are made under rules designed for this situation rather than under the ordinary tax rules for pension changes.

The LGPS underpin: a different kind of protection

The Local Government Pension Scheme works differently from the other main public sector schemes, and so does its remedy. Rather than offering members a choice between two sets of benefits at retirement, the LGPS uses an underpin: a guarantee that a member's benefits will be no less favourable than they would have been under the old rules. The Scottish Government's consultation on the LGPS remedy describes this as addressing the McCloud discrimination by extending underpin protection to the younger members of the scheme whom the courts found had been treated unlawfully¹².

The practical difference matters. In the NHS, Teachers' and other schemes, the remedy produces an active choice: two calculations, and a member picks one. In the LGPS, the protection is automatic: the underpin compares what the member actually built up with what they would have built up under the legacy arrangement, and the member receives whichever is greater, without needing to make a decision. Members of the LGPS therefore do not face the remedy choice that members of other schemes do.

The LGPS is also structurally different from the other schemes: it is administered locally, with assets currently split over 86 administering authorities and 8 pools¹³. That means the remedy is implemented through regulations that each administering authority applies, and members deal with their own local fund rather than a single national administrator. The eligibility test is the same as elsewhere, membership before 1 April 2012 with continued service, and the underpin applies to the same remedy period.

Tax corrections and refunds

Because the remedy changes pension benefits that were already taxed, it changes tax too. Changes to your benefits as a result of the remedy may mean your annual allowance tax position has changed: a previous annual allowance charge can be reduced, or a new or increased charge may be due². The same applies to the lifetime allowance: if you had a benefit crystallisation event during the remedy period, your lifetime allowance tax position may have changed, and again a previous charge can be reduced or a new or increased charge may be due².

The tax rules that make this work are in the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023, which came into force on 6 April 2023 and cover Income Tax, Capital Gains Tax and Inheritance Tax across England, Wales, Scotland and Northern Ireland⁵. They have since been amended, including by the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) (No. 2) Regulations 2023 and by later regulations applying to the tax year 2023-24 and subsequent years¹⁴.

HMRC has extended the time limits where tax charges have occurred as a result of the remedy, between 6 April 2019 and 5 April 2023³. This matters because pension growth in the remedy years is being recalculated years after the event, and without extended limits there would be no mechanism to correct the tax. Where the recalculation shows tax was overpaid, it can be repaid; where it shows tax is due, it becomes payable.

Deadlines to act on tax and overpayments

The deadlines fall into two groups: the extended time limits for annual allowance charges arising from the remedy between 6 April 2019 and 5 April 2023³, and a specific reporting deadline of 31 January 2031. That deadline applies to members affected by the remedy who were a pensioner, or the legal personal representative of a person who had died, before 1 October 2023, where tax was overpaid by the member: any charges or changes to previous charges must be reported by 31 January 2031⁴.

For members still building up benefits, there is no deadline to act on yet: the choice comes at retirement, and the scheme will initiate it. The deadlines that exist are on the tax side, and they mostly protect the member's right to a correction rather than imposing an obligation on everyone.

Members who left, and members who have died

Members do not need to have stayed in the scheme to the end of the remedy period to be covered. The remedy applies to members with continuous pensionable service between 1 April 2015 and 31 March 2022, or their retirement date if earlier². It also covers members who left after 31 March 2012 and returned within five years, where their pensionable service was in the legacy scheme or would have been but for the discrimination². A member with a break in service should ask their scheme directly how the remedy applies to them.

For members who have died, the remedy still applies. If a member died on or before 1 October 2023, the legal personal representative is offered an immediate choice between legacy and new scheme benefits for the remedy period³. Survivor benefits are recalculated on the same basis as the member's own benefits, so a surviving spouse, partner or child may see a change in what they receive once the choice is made. The lifetime allowance position is also reviewed where there was a benefit crystallisation event during the remedy period², which is often the case where a member has died.

Where protection and the remedy stop

The remedy is not a general uplift to public sector pensions. It applies only to members who meet the eligibility test, membership before 1 April 2012 with continued service, and only to benefits built up during the remedy period, 1 April 2015 to 31 March 2022 for most schemes². Service before 1 April 2015 is unaffected, because it was already in the legacy scheme. Service from 1 April 2022 onwards is unaffected, because from that point all members were in the reformed schemes on the same terms, which is what ended the discrimination.

The tax corrections are similarly bounded. The extended time limits apply only to tax charges that occurred as a result of the remedy between 6 April 2019 and 5 April 2023³, and the 31 January 2031 reporting deadline applies only to pensioners and personal representatives in the specific circumstances described⁴. Members whose benefits do not change as a result of the remedy will see no tax change either: the tax follows the benefits, not the existence of the remedy.

Finally, the remedy does not change the protections that sit around public sector pensions generally. These are defined benefit schemes, where the pension is based on salary and service rather than investment returns⁸, and they are not covered by the Financial Services Compensation Scheme in the way that personal pensions and transfer advice are. If you are considering transferring out of a public sector scheme, that is a separate decision with its own risks, and the remedy choice should be settled first.

Where to get help with the McCloud remedy

The first port of call for questions about your own position is your pension scheme: each scheme is running the remedy for its own members and will have your record, including your service history and your contact details. Keeping your contact details up to date with the scheme matters, because members who had retired before 1 October 2023 are being asked to make a choice, and that request will come from the scheme³.

For general help with pensions, Pension Wise offers free guidance on your pension options, and the Pensions Ombudsman handles complaints about how a scheme has administered the remedy. MoneyHelper also publishes support resources, including help for people struggling with money worries, which can be relevant where a tax bill or an overpayment is causing stress¹⁵. For the wider background on how these schemes work, see public sector pension schemes explained, and for the tax rules the remedy interacts with, see the pension annual allowance and the lifetime allowance.