Blog: 26th April 2024 - Capsticks, Corporate Partner

There have been a number of recent developments in relation to the McCloud remedy, which has been implemented to remove the age discrimination against younger LGPS (Local Government Pension Scheme) members:

Judicial review

The Court of Appeal recently dismissed appeals from the Fire Brigades Union and the British Medical Association in relation to their applications for judicial review of the Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions. The Court of Appeal effectively ruled that it was permissible for HM Treasury to include McCloud Remedy costs (now estimated at £19 billion) in the cost control mechanism as ‘member costs’, i.e. for the costs to be funded by public sector schemes themselves. The Court of Appeal said that it was reasonable for HM Treasury to conclude that the cost of the McCloud Remedy was a cost of providing benefits to members to which they were entitled, even if the costs were “unexpected”. The Unions are considering their next steps with their lawyers.

HMRC newsletter

HMRC's latest newsletter (number 158 - April 2024) includes guidance on how the abolition of the lifetime allowance impacts on the way in which the McCloud remedy is calculated for LGPS members.

The McCloud remedy for the LGPS is not retrospective for tax purposes. Consequently if the amount of a pensioner member’s benefits changes as a result of the McCloud remedy, there is no change to the amount of Lifetime Allowance used up when the member’s benefits first crystallised.  If a pensioner member’s benefits increase as a result of the remedy, this will be a new benefit entitlement for tax purposes.

If this entitlement arose before 6 April 2024 the Lifetime Allowance rules in place at the point of that crystallisation will apply.

Where the entitlement occurs on or after 6 April 2024, the benefit needs to be considered against the new rules. There will no longer be a Lifetime Allowance test when benefits are put into payment, but there is a limit on the amount an individual can take tax free. Whether or not a member can have a pension commencement lump sum will depend on if they have available lump sum allowance.

HM Treasury amending directions

HM Treasury has published amending directions making some changes to the interest rates to be applied to corrective McCloud payments from the LGPS to members, and from members to the LGPS under the Public Service Pensions and Judicial Offices Act 2022 (i.e. in respect of the McCloud remedy).

How Capsticks can help

Capsticks has significant experience advising local authorities on pensions issues and the McCloud Remedy costs. For further information on how we might assist your organisation, please contact Neil Bhan.

Neil Bhan, Partner, Capsticks

neil.bhan@capsticks.com