What is the McCloud ruling?
The McCloud ruling was a legal case which concluded that some changes made to public sector pension schemes were discriminatory against younger members, as only older members were allowed to remain for some time in the old final salary schemes. This case initially involved the Judicial and Firefighters pension schemes but also affected the NHS, Teachers, Police, Armed Forces, and Civil Service.
The impact of this ruling is that those affected by the discrimination have had their service ‘rolled back’ for a seven-year period from 2015-22 (called the ‘remedy period’) into their old ‘legacy’ scheme and on retirement can choose whether to have the remedy period in either the legacy or reformed scheme.
Why is the McCloud ruling important?
This ruling is important as it could potentially change the tax position in the remedy period and could result in tax repayments being due. It will change the annual allowance tax position for any impacted member who paid taxes (either via self-assessment or via scheme pays) during the remedy period. For the vast majority of NHS scheme members who paid annual allowance tax, their annual allowance charge will go down and they should be due tax repayment. But they will only get this if they claim.
Please note there could be some cases where the tax charges increase and there will be additional tax payments due.
The ruling will have an impact on future pension decisions as there will be the option of what scheme to include the remedy period service in.
Who is impacted?
Those impacted by the ruling include members of the 1995 or 2008 scheme as of 31 March 2012, who were moved to the 2015 scheme at some point between 1 April 2015 and 31 March 2022.
How do you know if you are impacted?
If you fall into the above category, you will be impacted by the McCloud ruling. If you were a higher earner you should receive a ‘brown envelope’ containing a Remedial Pension Savings Statement (RPSS) detailing the updated pension input amounts for the relevant years.
To access any tax repayment, the annual allowance position will need to be reassessed for that seven year period, and also the 22/23 tax year which was delayed due to McCloud. Instead of resubmitting tax returns for those eight years, HMRC has designed a Digital Service to check calculations and apply for any tax adjustments.
However, the tool is cumbersome, and complex, and can run to over 200 pages for some members, therefore the Government have set up a compensation scheme that can be applied for to potentially cover the cost of having a professional advisor assist you in completing the calculator.
What do those affected by the McCloud ruling need to do?
Once an RPSS letter is received, it is important to check if anything needs to be declared to HMRC. All members who previously paid pensions annual allowance tax during the remedy period will need to use the full service - this is because in all cases the annual allowance will change and for the vast majority it will go down. This needs to be reported via the HMRC Digital Service via your Government Gateway account, or via an agent submission on your behalf. You may also be able to claim additional costs - for example, if you paid for financial advice in a certain year, and your charges disappear in that year, clearly you may not have sought pension tax advice in this year.
What could happen if you do nothing?
As noted above, the vast majority of NHS members will find previous annual allowance chances will decrease, and in some cases disappear altogether. However, if you do not claim this, you will forgo the chance to claim tax repayment. The current deadline for most submissions for those who have received an RPSS will be 31 January 2025.
What happens next for those close to retirement?
Your next McCloud choice will not be needed until you retire when you can decide whether you want those seven years in the old final salary legacy scheme or the new reformed 2015 scheme. Again, there is a compensation scheme in place which can be applied for to cover the cost of professional advice to help you.
What do I need to do now?
There is concern in the sector that given the short timescales, a large number of members will all be seeking to access services at the same time. If you have received a “brown envelope” or RPSS you are strongly advised to complete our initial contact form to express interest with no commitment.
Our medical accounting team can assess if you need to use the full HMRC service, help obtain the detailed required information needed for the calculations and complete the HMRC Digital Service on your behalf to make sure that you have correctly declared any amended tax charges. The Government have confirmed they will compensate you for the charge of using our service if you need to use the full Digital Service.
By providing clear, simple steps, we can support NHS professionals to make informed decisions about their pension arrangements. This service is designed to support you every step of the way, ensuring you get the financial compensation and advice you deserve.
Please complete the short form below and one of our team will be in touch to see how we can help.
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