The McCloud decision refers to a landmark legal ruling that has significant implications for the pension schemes of public sector workers in the United Kingdom, including the NHS. The ruling stems from a discrimination case originally brought forward by a group of judges against the Government's reforms to their pension arrangements. While initially focused on judicial pensions, the McCloud judgment has broader implications for other public sector employees, including NHS staff.

Background on the McCloud Decision

The McCloud case originated from the Government 's pension reforms in 2015, which introduced the new Career Average Revalued Earnings (CARE) scheme. Under this scheme, the retirement age was increased and the final salary scheme, which provided higher benefits for longer-serving employees, was closed to new entrants. In addition, transitional protections were introduced for older members. However, the reforms were deemed discriminatory as they resulted in younger workers receiving less favourable pension benefits than older colleagues due to transitional arrangements. 

In December 2018, the Court of Appeal ruled in favour of the judges who argued that the pension changes were discriminatory on the grounds of age. The judgment declared that the transitional provisions within the reforms unlawfully discriminated against younger judges who were enrolled in the Judicial Pension Scheme. Subsequently, this ruling became known as the McCloud decision.  Because of this ruling, there will be changes to all public service pension schemes that provided transitional protection.

To remove this age discrimination, the transitional protections will now also apply to qualifying younger members of the scheme.

One of the main implications is the need for the Government  to address the potential costs associated with correcting the discriminatory pension arrangements. Estimates suggest that this could result in a significant financial burden for the NHS, which is already facing funding challenges and increased demand for services. The Government  will need to allocate resources to rectify the situation and ensure that all NHS employees receive their rightful pension entitlements.

Furthermore, the McCloud decision creates administrative complexities for the NHS. Revising pension arrangements and recalculating benefits for affected employees require meticulous attention to detail and effective communication. The scale of this task is substantial, considering the size of the NHS workforce, which encompasses a wide range of roles and varying pension entitlements. The NHS will need to invest resources to ensure accurate implementation and avoid any potential errors or delays that could further exacerbate the situation.

Steps to take now

The NHS, along with other public sector bodies will provide the relevant information required to recalculate any potential pension tax charges that may have arisen. In the instances where your tax liability does increase, in the vast majority of cases this will reflect an increase in value of your pension benefits received. However, this will impact on your Annual Allowance which may mean recalculations in relation to your tax return.

I suggest you access your full NHS service record as soon as you can to check the accuracy of it. If there are errors, these are usually rectified via evidence such as pay slips or P60’s. Corrections normally take up to three months to action but the burden on the administration of NHS pensions will increase as we move closer to the deadline.

See the NHS page for employees here for more guidance.