The McCloud Ruling and Who’s Affected

Background to the McCloud Judgement

In 2015, the government introduced reforms to most public service pension schemes, which included the Career Average Revalued Earnings (CARE) 2015 HSC Pension Scheme. Members that were closest to retirement at the time were protected from moving to the reformed schemes, and could therefore remain in their legacy schemes.

In the HSC, the legacy schemes refer to the 1995 and the 2008 Sections of the scheme. Members with full protection did not have to move to the 2015 Scheme at all, and members with tapered protection were permitted to remain in their legacy scheme for longer, with their move to the reformed scheme delayed beyond 1 April 2015.

In December 2018, the Court of Appeal found these protections to be discriminatory against younger members. This has become known as the ‘McCloud judgment’.

The government has created legislation to implement a remedy to remove this discrimination and ensure equal treatment going forward.

McCloud Remedy Part 1 – All active members of the HSC Pension Scheme are now in the CARE Scheme

The 1995 and 2008 (Legacy) Sections of the HSC Pension Scheme, closed on 31 March 2022 and all staff that were contributing to those schemes on that date were automatically moved to the CARE Scheme on 1 April 2022.

Members will keep all pension that they have earned in the 1995/2008 Sections before 1 April 2022, and the calculation of these benefits will still be linked to the member’s final salary.

Members can continue to access these 1995/2008 pension benefits in line with the existing rules for each section of the scheme.

Moving members to the CARE Scheme means that many individuals will have built up pension in more than one section of the HSC Pension Scheme over their career. At retirement, pension pots are therefore likely to be made up of more than one set of benefits.

Each section of the scheme has different rules about how pension benefits from that section are calculated and when they can be claimed.

McCloud Remedy Part 2 – Affected Members will be offered a choice about their pension benefits for the remedy period

To address the discrimination that has already occurred, affected members will be asked to make a choice about whether they would like to receive Legacy (1995 or 2008) Section benefits or CARE Scheme benefits for the period between 1 April 2015 to 31 March 2022. This is the period over which members were treated differently according to their age, and is known as the remedy period.

Previous Public Sector Service

If you’ve got previous service in another public sector scheme prior to joining the HSC Pension Scheme, you should complete and return the Public Service Pension History Form.

The below video provides an overview of McCloud and what it means for you:

• Which members are affected by the Remedy?

  Members who joined the HSC Pension Scheme on or before 31 March 2012 and who were still members of the scheme on 1 April 2015 are eligible for the remedy, regardless of whether they previously received full, tapered or no protection.

  This includes current members of staff, those that have already retired or no longer work for the HSC and those that have passed away. Staff that joined the scheme on or after 1 April 2022 are not affected.

  Members must have Continuous Pensionable Public Service, without a five year break of service.

• What does this mean for members?

  The McCloud Remedy is made up of 2 parts:

  1. To ensure equal treatment from 1 April 2022, all active members of the HSC Pension Scheme are now in the 2015 Scheme.

  2. To address the inequality that has already occurred, affected members will be offered a choice about their pension benefits for the period over which the inequality occurred i.e. the remedy period.

• When to expect your McCloud choice communication?

  HSC Pension Service have been working through significant complexities to put in place the McCloud Remedy for affected members. To date we have made substantial progress towards implementing the remedy so affected members can make their choice with confidence.

  From December 2024, members who apply for retirement will be offered their choice in the form of a Remediable Service Statement (RSS). The RSS will show Option A and Option B. You must only choose one option.

  *There will be a small number of members with particularly complex pensions who may not receive their choice on retirement.  We will contact these members at a later date.

   

  **Please note: It takes HSCPS on average six months to fully process a retirement application, this should be considered in advance of your proposed retirement date. This can only be started once HSCPS has received all of the member’s information and their RSS choice. Please ensure all forms including your AW6 and RSS are fully completed (using our online Pension Commutation Calculator for members wanting to make a lump sum choice) before submitting, as any missing information will delay your pension.

  ***Members already retired will be contacted in due course.

• What if you are planning to retire now?

  Within the coming months, members who apply for retirement will be offered their choice in the form of a Remediable Service Statement (RSS). The RSS will show Option A and Option B.  You must only choose one option.

   

  Each option will include the standard amount of lump sum you will receive depending on your choice. If you want to increase your lump sum by commuting part of your pension, you will have the option to do so on the RSS before you return it for processing. We cannot process your RSS without this decision. Please read the guidance notes on your pension application and visit our online calculator at Pension Commutation Calculator to help you decide.

   

  Once you have received your RSS, you will have three months from the date of issue to make a choice. This choice is final and cannot be reversed or revoked at a later date, so please take time to consider both options and submit your choice as soon as possible.

   

  Return your completed and signed form to RSSRETURN@HSCNI.NET. Please be aware that we cannot accept incomplete forms and they will be returned to you. This may result in delayed payment of your pension benefits.

   

  If no decision has been received, you will automatically receive the Legacy option for the remedy period.

   

  *There will be a small number of members with particularly complex pensions who may not receive their choice on retirement.  We will contact these members at a later date.

   

  **Please note: It takes HSCPS on average six months to fully process a retirement application, this should be considered in advance of your proposed retirement date. This can only be started once HSCPS has received all of the member’s information and their RSS choice. Please ensure all forms including your AW6 and RSS are fully completed (using our online Pension Commutation Calculator for members wanting to make a lump sum choice) before submitting, as any missing information will delay your pension.

• What about members that have already retired?

  HSC Pension Service will contact these affected members directly and offer them a retrospective choice, through the RSS, to help them make this choice.

  If a member chooses to keep their existing benefits, no changes will be needed. If a member chooses to receive different pension benefits for the remedy period, adjustments will be made to their pension payments accordingly. Any changes will be backdated to the date of retirement.

  A retrospective choice will also be offered to members that have taken ill health retirement and to the beneficiaries of members that have died during the remedy period.

  Updates on progress will be made to our members and pensioner newsletters and I will ensure the website is kept up to date.

• You do not need to pay to get your McCloud choice

  Some companies charge fees to help members with their McCloud choice. You do not need to use a paid service – doing this will not mean you’re given your choice any sooner or affect the options you have.

  HSC Pension Service will automatically contact all eligible members as soon as it is possible and give you the information you need to help you make your decision.

  For the majority of members, their choice will be straightforward, and guidance will be provided to help them make an informed decision. The Department of Health and Social Care (DHSC) has said that they expect only a small number of affected members will require support from an independent financial adviser or accountant regarding their McCloud remedy.

  Where the small number of members with particularly complex circumstances seek advice and the department agrees that this advice was required, please visit our HSC Cost Claim Back Scheme section of the website for further information.

• Can I request my choice sooner?

  You do not need to do anything to get your choice – we’ll automatically contact remedy members before April 2025. For most remedy members, waiting to hear from us will not have any negative effect on their options, but we understand there are some circumstances where remedy members need to make their choice more urgently.

  You can ask to make your choice sooner if one of the following applies:

  • You’re a retired member with a shortened life expectancy of less than 12 months. You can apply to get your choice as soon as possible whether your benefits have been paid as one lump sum or you receive them as monthly payments.
  • You’re still working but you’ve received a diagnosis of serious ill health that may mean you’re eligible for Tier 2 ill health pension benefits – which you can apply to take as a single lump sum if you have a shortened life expectancy of less than 12 months.

  This means you’ll be able to decide sooner about the benefits that are right for you and for your family.

  You can also ask to make your choice sooner if you are in receipt of benefits and meet all the following criteria:

  • you had ‘tapered protection’ from moving to the CARE Scheme – this means you were able to stay in the 1995/2008 Scheme after 1 April 2015, but had to move into the CARE Scheme before 31 March 2022
  • you had Special Class or Mental Health Officer (MHO) status during this period
  • you reached the Scheme’s maximum service limit of 45 years during this period, or you would have done so had you not moved into the CARE Scheme

  For a small number of remedy members who meet all the criteria above and already in receipt of benefits, you may need to repay overpaid pension depending on which Scheme benefits you choose. The sooner you can make your choice, the less you may need to repay.

  To request your choice early, please Contact Us and we’ll get back to you within 7 to 10 working days. Please let us know which of the reasons from the list above apply, so we can give you the appropriate support quickly.

• Special Class Status Members

  After 1 April 2022, staff with Special Class or Mental Health Officer status are able to take any pension earned in the 1995 Section of the scheme without reduction from age 55, providing that they continue to meet the eligibility criteria.

  Benefits accrued in the CARE Scheme can be claimed from age 55 but an actuarial reduction will be applied if claimed before State Pension Age.

• What are the Pension Tax Considerations?

  For the majority of scheme members, the remedy will not have an impact on their pension tax position.

  However, some members will be required to reassess their pension tax position for the seven-year remedy period, particularly in relation to the annual allowance due to a change in the value of their benefits over this period.

  All affected members will be returned to their legacy scheme for the remedy period, known as Rollback. HSC Pension Service will recalculate all affected members’ Annual Allowance for the remedy period based on their Legacy (1995 or 2008) scheme membership and will upload their revised Annual Allowance Remediable Pension Savings Statement (RPSS) figures to the Member Self Service Portal.

  This will have implications on historic annual allowance taxation and members will need to review their annual allowance liability for the remedy period. Most members will see no changes to their tax position as a result of the remedy; if a member has overpaid tax, they will receive a refund for in scope tax years and compensation for out of scope years.

  In the instances where a member’s tax liability does increase, in the vast majority of cases this will reflect an increase in the value of their pension benefits.

  Please visit HMRC’s Changes in Annual Allowance webpage for more information.

• Do Members need to do anything at Present?

  No. Members do not need to do anything at present. HSC Pension Service will roll back all affected member records to reflect service in the legacy scheme for the remedy period. HSC Pension Service will contact all affected retired members with their Choice relating to benefit accrual in the legacy or new scheme, perform all Annual Allowance revision calculations and update the member self-service portal.

  As more information becomes available HSC Pension Service will continue to inform members through our communication mediums of the Scheme Website, Member and Employer Newsletters and bespoke Pension Workshops.

• Other Pension Issues impacted by The McCloud Remedy:

  Election for retrospective provision to apply to opted-out service:

  A member who opted-out of the HSC Pension Scheme and meets the remedy eligibility criteria, or who would have met the eligibility criteria but for the opted-out service, will be able to apply to make an election to have the opted-out service during the remedy period reinstated in the legacy scheme. Only service within the remedy period can be reinstated.

  Purchase of Additional Pension During the Remedy Period:

  Unprotected members and taper protected members who have not yet retired and who took out an election to buy CARE scheme additional pension during the remedy period will, in the first instance, also move back to the member’s remedy section of the legacy scheme. The contributions paid for the extra benefits will be treated as if they had been paid to the member’s remedy section of the legacy scheme in the year that they were paid to the CARE scheme.

  The additional pension under the member’s remedy section of the legacy scheme will be costed for payment at normal pension age 60 if the member’s remedy section of the legacy scheme is the 1995 section and normal pension age 65 if the member’s remedy section of the legacy scheme is the 2008 section.

  Early retirement buy-out contributions (ERRBO):

  Members of the CARE scheme have an option to pay additional contributions to buy out the actuarial reduction that would normally apply on early retirement between age 65 and State Pension age (SPA). This is known as an ERRBO agreement.

  All affected members who paid ERRBO contributions are entitled to be paid a compensation payment equal to the ERRBO contributions the member paid during the remedy period, reduced by an amount representing tax relief. If the member chooses legacy scheme equivalent benefits for the remedy period, then compensation will become payable for ERRBO contributions paid by the member during the remedy period. A member who is entitled to an ERRBO compensation payment will have an option to defer the payment of that compensation until they make their remedy choice about which set of main scheme benefits to receive in respect of their remediable service.

  If the member chooses CARE scheme equivalent benefits for the remedy period and the ERRBO contributions would add value to those benefits either because an actuarial reduction would otherwise apply, or the benefits would be increased for retirement after SPA, the member may choose to forego compensation and instead become entitled to a benefit from the legacy section of an equivalent value to that which the ERRBO contributions would have attracted in the CARE scheme.

  Pension Sharing Orders (Pension on Divorce):

  Pension benefits can be one of the most valuable assets that individuals have. Consequently, the value of any pension benefits must be considered as part of a divorce settlement or on the dissolution of a civil partnership. A valuation of the pension benefits is calculated using a cash equivalent transfer value. Once pension assets have been identified and valued, the parties must agree, with the assistance of the court, how to use this value in any financial settlement.

  As a result of the remedy, it is possible that the valuation of the pension benefits, calculated on the ‘transfer day’, (the effective date of the relevant pension sharing order) might have been different had the member’s remediable service always been in the alternate scheme. This means that the pension credit member might have been given a different amount of pension credit. For the purposes of the McCloud remedy, only pension sharing orders with an effective date after 1 April 2015 are affected. The 2022 act does not give schemes the power to amend pension sharing orders, the sealed order is final, instead what the 2022 act does is give schemes the power in their regulations to adjust the pension debit and pension credit as a consequence of the McCloud remedy.