McCloud Judgment – Changes to Public Sector Pension Schemes

On 1^st October 2023, the McCloud remedy regulations came into force to remove age discrimination across public sector pension schemes.

What is the McCloud judgment?

In 2010, the government determined that the cost of public sector pension provision was not sustainable and in 2015, reforms were made to public service pension schemes, which meant some members moved from Final Salary into new Career Average Revalued Earnings (CARE) schemes. This changed the way in which their pension benefits in the new schemes were calculated from this point onwards.

Scheme members that were close to retirement at the time were protected from moving to the new schemes and could therefore remain in their existing arrangements. Subsequently, the Court of Appeal found these protections to be discriminatory against younger members. This ruling is called the McCloud Judgment, after a member of the Judicial Pension Scheme involved in the case.

The changes that have been introduced to remove the age discrimination are known collectively as the McCloud remedy.

For reference, the six largest public sector pension schemes in the UK are the NHS, Civil Service, Local Government Pension, Teachers’ Pension, Police and Firefighters, and Armed Forces schemes.

How are public sector schemes changing?

The government is now taking action to remedy the above by reverting affected members of public sector schemes back into the legacy schemes for the seven-year period between April 2015 and March 2022. The intention is to recalculate their benefits based on what their position would have been if they hadn’t switched to the new CARE arrangements during this time. All members will then join the reformed CARE schemes from April 2022 regardless of their age.

At retirement, those affected will be able to make a choice between the benefits provided by the two different schemes, to ensure they receive the most beneficial option for them.

Overall, this will either improve their current position or leave it unchanged; members will be no worse off as a result of the remedy.

What do I need to do?

If you have already retired, your pension fund administrators will work out if you are due an addition to your existing pension. Schemes will be in contact as soon as they can after 1^st October 2023.

For those who are yet to retire, your scheme will provide you with sufficient information to allow you to make an informed decision prior to you taking your benefits.

For those still in active service (contributing to your benefits), in some schemes, there may be new opportunities available to you as a result of being classed as a ‘new entrant’ to the reformed scheme. If this applies, your scheme will contact you to make you aware of your options. Please be aware that there may only be a small time-window to make a decision, so it’s important to read any notification you receive regarding this.

If you have any questions about the impact of the McCloud Judgment on your pension, please get in touch with one of the team.