What is the McCloud Judgement and What Does this Mean for GPs?

Following the Government’s 2015 public pension scheme reforms, several public sector workers took the Government to court arguing it had unlawfully treated existing public sector workers differently based upon each member’s age. The Court of Appeal ruled against the Government and it now has to compensate individuals (including NHS Pensions members) for the difference in treatment since 2015 in the schemes that provided transitional protection.

The impact on GPS

Members can now retain their 1995/2008 scheme membership up to 31 March 2022. This impacts all members in service on or before 31 March 2012 including those who have re-joined within five years. This therefore includes currently active, deferred members and retired members.

As an interim step, in April 2022, all members will be returned to the 1995/2008 scheme for the remedy period (ie credited with the pension growth they would have got under the scheme). From April 2022 all members will continue to accrue pension in the 2015 scheme.

When do GPs need to make this decision?

The choice happens on retirement. At retirement the member chooses their preferred scheme for the remedy period (ie the benefits accrued under the 1995/2008 scheme or those under the 2015 scheme during the remedy period).

In choosing, as well as comparing what benefits (both annual pension and lump sum) were built up in the different schemes, members should factor in the pensions annual allowance tax charges for those years as they will also change.

For many GPs, the pensions annual allowance growth figures will be lower if they had been in the 1995/2008 throughout the remedy period. If pensions annual allowance tax charges arose in those periods and they are reduced as a result of this choice on retirement, the member may be entitled to tax refunds from HMRC. Conversely, there could be additional tax to pay where a member’s choice leads to increased annual allowance growth figures.

What happens next?

The NHS Business Services Authority (NHSBSA) has to implement changes by 1 October 2023: they will contact individuals already receiving benefits first. Then pensions annual allowance growth statements will be re-issued to all members impacted for the remedy period based on 1995/2008 scheme membership – this will allow each member’s tax position to be reviewed with their adviser.

Most active scheme members don’t need to act now: on retirement, they will receive pensions illustrations based on the two different scheme options so they make an informed choice.

What if I have opted out or ceased my added years contributions due to high annual allowance charges?

GPs in this position could apply for retrospective membership if they can argue that they would have taken a different course of action had they have known that continued membership of the legacy scheme were an option. If they successfully agree this retrospective membership, their employee and employer superannuation contributions would need to be made up to date. If you are in this position, consult a Financial Planning Adviser soon to explore the benefits and costs of this option.

Once members have received their revised pensions annual allowance statements, BDO can assess the revised tax position. For help and advice please get in touch with your usual BDO contact.