The McCloud remedy is a government solution to address age discrimination found in the 2015 public sector pension reforms. In a nutshell, it gives eligible NHS staff a choice for the pension they earned between 1 April 2015 and 31 March 2022. When you retire, you will get to choose whether your benefits for this seven-year period are calculated based on your older legacy scheme (the 1995 or 2008 section) or the newer 2015 scheme.
What's the story behind the McCloud remedy?
To understand the remedy, we need to go back to 2015. This was when major changes were made to public sector pensions, including the NHS scheme. The government introduced a new scheme, known as the 2015 CARE (Career Average Revalued Earnings) scheme, and began moving most NHS staff into it.
The older schemes, known as the 1995 and 2008 sections, were generally more favourable for many members, particularly because they had earlier Normal Pension Ages (NPA) of 60 and 65, respectively. The new 2015 scheme linked its NPA to the State Pension Age, which is currently 66 or 67 for most people.
As part of these reforms, the government gave 'transitional protection' to members who were closer to retirement age. This protection allowed them to stay in their legacy schemes for longer, or in some cases, indefinitely. However, a legal challenge was brought by a judge named McCloud and a firefighter named Sargeant. In 2018, the Court of Appeal ruled that this transitional protection was discriminatory against younger members, as it treated them less favourably based purely on their age.
The government accepted the ruling and agreed to create a 'remedy' to fix the discrimination for all affected public sector schemes. The McCloud remedy is the result of that process.
Who is affected by the McCloud remedy?
The remedy doesn't apply to everyone in the NHS. You are generally affected if you meet two main conditions:
- You were a member of the NHS Pension Scheme on or before 31 March 2012.
- You had service in the scheme at any point between 1 April 2015 and 31 March 2022 (this is known as the 'remedy period').
This applies even if you had a break in service, as long as that break was not for more than five years. It also applies whether you were moved into the 2015 scheme during the remedy period or were given transitional protection and stayed in your old scheme.
It's important to remember that from 1 April 2022, all active members of the NHS Pension Scheme build up their benefits in the 2015 scheme. The McCloud remedy only concerns the benefits you earned during that specific seven-year remedy period.
How does the remedy work in practice?
The process has two main parts: the 'rollback' and the 'Deferred Choice Underpin' (DCU).
First, the 'rollback'. For every eligible member, any service you had in the 2015 scheme during the remedy period is now treated as if it were in your old legacy scheme (1995 or 2008). This process should be happening automatically, and you will see it reflected in your future Annual Benefit Statements. It essentially rewinds the clock on your pension for those seven years.
The second, and most important, part is the choice. The 'Deferred Choice Underpin' means you don't have to decide anything now. Instead, when you apply to take your pension benefits, you will be given a choice. You will be shown two sets of figures:
- What your pension benefits for the remedy period would be worth if they remain in your legacy scheme.
- What your pension benefits for the remedy period would be worth if you choose to have them calculated under the 2015 scheme rules instead.
This allows you to make an informed decision based on your personal circumstances at retirement, choosing the option that is best for you.
A quick comparison: Legacy vs. 2015 Scheme
To understand the choice you'll eventually make, it helps to see how the schemes differ. The best option isn't always obvious; it involves a trade-off between how quickly your pension builds and when you can take it without it being reduced.
| Feature | 1995 Section | 2008 Section | 2015 Scheme |
|---|---|---|---|
| Pension Build-up (Accrual Rate) | 1/80th of final salary per year | 1/60th of final salary per year | 1/54th of your pensionable pay each year |
| Tax-Free Lump Sum | Automatic lump sum of 3x your pension | No automatic lump sum (option to convert part of pension) | No automatic lump sum (option to convert part of pension) |
| Normal Pension Age (NPA) | 60 | 65 | Your State Pension Age (e.g., 67) |
| Pension Growth | Based on your pay near retirement | Based on your pay near retirement | Each year's pension pot grows by CPI + 1.5% while you're an active member |
As you can see, the 2015 scheme has a more generous accrual rate (1/54th is better than 1/60th or 1/80th), but the Normal Pension Age is much later. This is the central trade-off you will need to consider.
A simple scenario: What this means for a Band 5 Nurse
Let's imagine a Band 5 nurse who joined the NHS in 2010 and was a member of the 1995 section. They worked full-time throughout the remedy period (2015-2022). They are now approaching age 60 and thinking about retirement.
When they apply for their pension, NHS Pensions will send them a statement with their two McCloud remedy choices for their 2015-2022 service:
- Choice 1: Legacy (1995 Section) Benefits. Their pension for these seven years will be calculated based on the 1995 rules. As they are retiring at their NPA of 60, they can take this portion of their pension in full, without any reduction. They will also receive an automatic tax-free lump sum based on this service.
- Choice 2: 2015 Scheme Benefits. Their pension for these seven years will be calculated using the 2015 scheme rules. Because the 1/54th accrual rate is higher, the headline pension figure will look larger. However, the NPA for this scheme is their State Pension Age (say, 67). As they are taking it at age 60, it will be significantly reduced for early payment.
In this scenario, if the nurse wants to retire at 60, they would almost certainly be better off choosing the legacy 1995 section benefits for the remedy period to avoid the early retirement penalty. If they planned to work until 67, the 2015 scheme option might provide a higher income, but the choice is theirs to make when the time comes.
Understanding your pension contributions is key to financial planning. You can see how your contributions affect your monthly earnings by using an NHS take-home pay calculator.
What do I need to do right now?
For the vast majority of active NHS staff, the key message is that you do not need to do anything right now. The choice is deferred until you retire.
However, it is a good idea to be prepared:
- Stay informed: Read the resources provided by NHS Pensions and your union. Understanding the basics now will make the decision easier later.
- Check your statements: Log in to your Total Reward Statement (TRS) or Electronic Staff Record (ESR) to view your pension details. Make sure you know which legacy scheme you were in.
- Keep your details updated: Ensure NHS Pensions has your correct contact details so they can reach you with important information.
- If you've already left or retired: If you left the scheme or retired since 1 April 2015, NHS Pensions has a programme to contact affected members and present them with their choice. This may result in a revised pension and a back-payment if your entitlement increases.
The McCloud remedy can also have implications for tax, specifically the Annual Allowance and Lifetime Allowance. These are complex areas, and if you are a high earner or have significant pension growth, it may be worthwhile seeking independent financial advice.
Key takeaways
- The McCloud remedy exists to fix age discrimination in the 2015 public sector pension changes.
- It affects staff who were in the NHS pension scheme on or before 31 March 2012 and also worked between April 2015 and March 2022.
- For service in this seven-year period, you will get to choose between your old scheme (1995/2008) benefits or the new 2015 scheme benefits.
- This choice is made when you take your pension, not before. This is known as the 'Deferred Choice Underpin'.
- The decision involves a trade-off, typically between an earlier retirement age (legacy schemes) and a faster pension build-up (2015 scheme).
- Most active members do not need to take any action now, but it's wise to stay informed and check your pension statements.