Revisiting your pension choices: the impact of contingent decisions and McCloud

The fact that some members were allowed to remain in ‘legacy’ arrangements was subsequently found to be discriminatory, based on age, and therefore a remedy was applied. This McCloud Remedy has allowed affected members to return some of their pension service to these legacy arrangements – in the case of the NHS Pension Scheme, these are the 1995 and 2008 Sections.

The implementation of the broader McCloud Remedy has also highlighted the need to allow members to revisit historical decisions in respect of their pension benefits. These are known as contingent decisions and are defined by the NHS BSA as:

A decision you made or did not make because of actual or perceived implications of the 2015 Scheme reforms.

Where a decision was made regarding pension membership on the above basis, there is now the potential for members to change that decision retrospectively. An example would be a member previously opting out of the Scheme in 2015, as they were unable to/did not wish to remain in their legacy Section.

Naturally, the timing of any decision is significant – it needs to be made in anticipation of the 2015 reforms, or during the Remedy Period that followed (i.e. 2015-2022).

As alluded to, the expectation is that most decisions being revisited will relate to opting out of the scheme or similar. Linked to this, it has been confirmed that there will also be the option to reinstate Added Years Contracts/Additional Pension arrangements, and to receive a refund of contributions to Early Retirement Reduction Buy Out arrangements/have the contributions converted into additional legacy Section service.

Where members opt to reinstate service/additional pension arrangements, there will be a need to pay the employee contributions that should have been due at the time (with interest), although tax relief will also be due on that contribution (which may well offset that to an extent). These contributions can be paid from retirement benefits (either from the lump sum or by deduction to the regular pension income), or members can pay the necessary contributions directly through lump sums or instalments.

The NHS BSA has created calculators to estimate the cost of reinstating periods of service, and can be used to complete an application for a personalised quote. This quote will confirm the level of contribution/interest due and outline the additional legacy Section benefits members will receive.

However, these calculators have limitations and may struggle to accurately reflect more complex circumstances. For example, there are separate calculators for officers and practitioners, meaning those with multiple roles will have to complete separate calculations and combine the results to determine the costs, benefits and tax implications (and request separate quotes).

Moreover, the calculators do not appear to allow for the reclaiming of the Personal Allowance in the associated years (escaping the effective 60% Personal Allowance ‘tax trap’) or, crucially, the knock-on impact of reinstating service from an Annual Allowance perspective. Members are not required to reinstate periods where they were opted-out in their entirety – they will have the option to only reinstate part of the service, if desired. Similarly, they will be able to reinstate multiple, smaller periods of service if preferred, which will likely be useful for those with Annual Allowance considerations.

As such, whilst there is a need for all affected individuals to seek advice in respect of their specific circumstances and the longer-term cost/benefit, reinstating opted-out service has the potential to be particularly beneficial for the following groups:

• Officer members who have experienced pay rises during or after opting out.
• Individuals who opted-out for the entire period, or for 5 or more consecutive years.
• Individuals who ceased additional pension arrangements (e.g. Added Years Contracts).
• Individuals who opted-out during the 2019/20 year, but would have qualified as an eligible clinician under the associated Annual Allowance compensation scheme.

There is also a need to consider the longer-term impact (and effective net benefit) of any additional pension benefits purchased. The level of net benefit and the ‘need’ to secure that additional net benefit for retirement purposes will vary between individuals. As such, appropriate advice should be sought, ideally including financial modelling to forecast the potential retirement scenarios.

It is understood that there will be compensation on offer to members who seek such professional advice to make informed decisions.

Get in touch with our NHS pensions specialists

To ensure you make informed decisions about your pension options and maximise the benefits of the McCloud Remedy, seek advice from one of our qualified financial advisers. Professional guidance can help you navigate complex calculations, tax implications, and the long-term impact on your retirement plans.

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