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Understanding the McCloud Remedy and Its Impact on Doctors in the NHS Pension

Doctors NHS Pensions are changing. The McCloud remedy will change Consultant NHS Pensions and GP NHS Pensions by changing how the Pension is calculated in what is known as the Remedy Period – that is from 2015 to 2022. McCloud will be a name that Consultants and GP’s get to hear a lot over the next few years. Our updated blog covers what this means for Doctors pensions as well as the impact for retired Consultants and GP’s and what to expect in terms of the McCloud changes about to happen. 

  1. Background 
    • Members of the NHS pension scheme were transitioned into the new 2015 pension scheme from April 2015, with different transition periods for older members and exemptions for those nearing retirement.
    • The main difference between the previous 1995 pension section, 2008 section and the 2015 section is the normal retirement date: age 60 for the 1995 section , 65 for the 2008 section and linked to state pension age for the 2015 scheme. There are also differences in the calculation of benefits to reflect these different retirement ages. 
  1. The McCloud Case and Remedial Measures
    • The McCloud case was based on age discrimination, leading the government to remedy the situation by reverting all members back into the 1995 or 2008 pension sections for the seven-year period from April 2015 to March 2022. From April 2022 all members have had to join the 2015 pension section regardless of age.
    • This applies to all members who joined the NHS Pension Scheme pre 1 April 2012 who were moved over to the 2015 section after 1 April 2015.
    • Active members will then have a choice on retirement as to the best option for them – it is worth noting that the 2015 scheme may still be better for some as it contains an inflation protection link whereas the other sections of the scheme have final salaried links (excluding those in the Practitioner scheme). As we know salaries for hospital doctors have not kept in line with inflation. 
    • Legislation has been released under consultation by the government outlining the remedy’s actions and timing, but specific guidance for the NHS scheme is yet to be finalised.
  1. Implementation and Impact
    • The rollback of service must be completed by 1 October 2023, with pension built up in the new scheme returned to the 1995/2008 legacy schemes.  
    • For those that have already retired, retirees (or their representatives if they are deceased) will be provided with a remedial service statement, with a  window to decide whether to have their benefits paid under the legacy scheme instead. The NHS pensions agency estimate there are 290,000 members impacted so it may take a while for this exercise to be completed. And end date of 1/4/25 has been set for this exercise.
    • Annual allowance (AA) calculations will be reworked for the seven-year remedy period, and the growth will be treated as arising in the legacy scheme for each of those seven tax years. Any tax paid either directly by the member of through scheme pays elections will need to be adjusted with HMRC to reflect the revised liability. This includes those in a refund situation as well as those who may be liable to more tax. NHS Pensions will need to send this to members from 1 April 2025 – scheme pays adjustments need to be submitted if there is further tax to pay. We expect HMRC to issue a template to assist with claims.
    • Those who chose to transfer from the 1995 to 2008 scheme under the “Choice 2” exercise will also be given the opportunity to revise this decision and return to the 1995 scheme.
  1. Challenges and Decisions Ahead
    • The reworking of pension calculations and scheme pays elections will be a significant challenge for NHS Business Services Authority (NHSBSA). Over 700,000 members are impacted by this change – although the majority will not have AA charges to consider.
    • The tax implications can vary based on individual circumstances, and decisions need to be made considering potential AA tax charges and recoveries.
    • Other issues to address include overpayment or underpayment of pension contributions, family benefits, pension sharing on divorce and ill-health pensions.
    1. What to Do Next
    • Make sure your pension records are up to date and accurate at least to 31 March 2022 – this is essential and particularly relevant to GP’s where this is not always the case
    • Do not ignore any information received by NHS Pensions from 1 October 2023 – you may only have a small time window to deal with things. 
    • Seek advice from a qualified healthcare independent financial adviser to make informed decisions based on your specific circumstances. Bear in mind in 2024 accountants will also be tackling additional demands from the Basis Period Reform changes which will impact on their workloads. So consult early once you get information.
    • Keep in touch with us here at Medics Money – once more information is available, we will share it through our various communities.
  1. Additional Uncertainties
    • Several uncertainties remain, such as the issuance of Pension Savings Statements, how to claim tax back and appeals process for contingent decisions. Further details are yet to be disclosed by relevant authorities.
    • The issue of compensation – particularly for professional fees is also unknown but should have more information available by 1 October 2023.

If you’d like to find out more about The McCloud Remedy, Click here for more information in our useful guide that covers all the basics.

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