From 1 April this year, all public sector pensions will be subject to the outcome of the McCloud judgement, signalling significant changes to NHS pensions. We spoke to Zeeshan Hussain from FK Medical, a specialist in medical practitioners’ financial affairs, to find out more about the forthcoming changes.
The changes are a result of the ruling of the McCloud judgement and it means quite a change for a lot of GPs. We are receiving many queries on this. However, although we can advise GPs, for instance, on the resulting impact on their tax position, what we can’t do is tell individuals what to do. We need to state that we are not able to give financial advice when it comes to pensions.
Pensions are a highly complex area. Could we start by finding out what the McCloud judgement is, in a nutshell, and why it’s come about?
The McCloud judgement also called the ‘McCloud remedy’, is effectively the remedy to the age discrimination judged to have occurred in public service pension schemes in the past.
What was the age discrimination that occurred?
The age discrimination happened when older members were allowed to stay in legacy schemes, rather than moving to the 2015 scheme when that became available.
We had a legacy pension scheme in 1995, which most GPs were in, with a retirement age of 60. Then in 2008, there was a slightly different scheme and the retirement age was 65, but GPs had a choice whether they moved to the 2008 scheme or stayed in the 1995 scheme. The schemes had different accrual rates, and the key was there was a choice.
But then in April 2015, there was another new scheme?
Yes, the inventively named, 2015 scheme! Now, depending on your age, you could stay in the legacy scheme if your date of birth was before 1962. If your date of birth was between 1962 and 1996 then you were in the transition period and would go into the 2015 scheme over a period of time. There was no choice and that was a big difference. It was simply down to age whether you had a choice over your scheme or not. Younger members had to go into the 2015 scheme and retire later, with no choice.
So, what happens now with the McCloud remedy?
There are two parts to the remedy, which aim to ensure equal treatment of all members going forward. The first is that all active members of the NHS Pension Scheme will be in the 2015 scheme from 1 April 2022. The second part, to remedy the inequality of the past is affected members are offered a choice about their pension benefits for the period they were affected.
What should GPs do at this point?
There is no need to do anything right now, except be aware of the changes coming and help make staff aware too. Although there has already been a lot of literature and announcement around this, it’s worth helping with the awareness.
GPs can’t actively do anything at the moment. Final guidance will be issued on 1 October 2023. Affected members will be written to in due course, or if you decide to retire, then the NHS will contact you. However, if you are planning to retire, or have retired, before 1st October 2023, you will still be able to make your choice, and any payments due to you will then be backdated. Again, members will be contacted if this is the case.
Can GPs just opt out?
Yes, GPs have the option to not go in, or opt-out. If an individual comes out, they will save in payments but lose the tax relief and have less in their pension pot. If GPs have some form of protection against lifetime allowance charges this may be lost if they move into the 2015 scheme.
Investment advice is needed too in that case?
Yes, and we would say, refer to a medical specialist financial advisor. We can’t offer financial advice on pensions and investments. Our job is always to inform, so GPs shouldn’t hesitate to contact us if they need help understanding the changes.
On the plus side, there is a lot of literature out there, and we can recommend the following resources: