The ‘McCloud Remedy’ and your civil service pension

Prospect pensions officer Neil Walsh looks at how the McCloud Remedy could affect your civil service pension.

The government implemented significant reforms to public service pensions in 2015. In the civil service, this involved the introduction of a new pension scheme called ‘alpha’. Most civil servants were moved into this new scheme, but some retained membership of their existing schemes (known as ‘legacy schemes’).

Members’ age was the basis for deciding whether some civil servants moved into alpha or stayed in their legacy scheme. This was later found by the Court of Appeal to be unlawful discrimination, in a case known as ‘McCloud’ (after the lead claimant).

The government responded to the McCloud judgment in two ways:

• All civil servants were moved to alpha from April 2022. From this point, there was no more unlawful discrimination as everyone was a member of the same pension scheme.
• The unlawful discrimination that applied between April 2015 and April 2022 (known as the ‘remedy period’) would be addressed by offering members affected the choice to take benefits for this period from either their legacy scheme or alpha.

Having a choice of schemes to take benefits from over the remedy period is potentially quite valuable. Members who were already in the scheme that offered the most benefits over this period would not be impacted, but members who would have had better benefits if they had been in the other scheme would get a higher pension.

This remedy will apply to members who were in a public service pension scheme on 31 March 2012 and who remained in service until at least 1 April 2015 (ie it applies to members who stayed in their legacy scheme as well as to members who were moved to alpha but it does not apply to new joiners after 31 March 2012 who were not moved to alpha on the basis of their age).

The process for implementing this remedy is very complicated. It requires new legislation, agreement with HMRC about the appropriate tax treatment and updated systems to give members the information they need. Consequently, the remedy will not start to be implemented until October 2023.

From October 2023 and over a period of up to 18 months, members who had already retired will be given a choice of pension benefits (legacy scheme or alpha) for the remedy period. To give members in this position an indication of what their remedy choices will look like, MyCSP is developing a Retirement Benefits Illustrator that will hopefully be available on their website soon.

Also from October 2023, members applying for retirement will be given a choice of pension benefits (legacy scheme or alpha) for the remedy period to be paid when they first draw pension. MyCSP hope to update their retirement modeller to include remedy calculations by Spring 2023.

From 2024, members who are in scope of the McCloud remedy will start to see the benefits that would be payable for the remedy period from either the legacy scheme or alpha in their Annual Benefit Statements.

The remedy will result in many civil servants and other public sector workers getting higher pensions than otherwise. The total cost of the remedy will be substantial. The government has, in effect, passed the cost of the remedy onto scheme members themselves.

This is because it refused to implement the benefit improvements that were due after the operation of the ‘cost cap mechanism’ in these schemes after the last actuarial valuations. The government’s view was that no benefit improvements would be due if the cost of the remedy was allowed for in the cost cap.

This was a controversial approach, and it is the subject of a legal challenge. A judicial review of the government’s decision will be heard in the High Court later in the year. It is not clear how the government might respond if the judicial review is successful.