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What is the McCloud Judgement?

In 2014 and 2015, the Government decided to reform public sector pension schemes changing them from a final salary scheme to a career average scheme. Essentially this changed how pension benefits were worked out.

While the majority of people paying into public sector schemes were moved onto the new scheme, those closer to retirement age were given additional protection which resulted in them receiving a higher pension compared to those transferred to the new scheme. Clearly, the regulations put in place favoured those closer to retirement age. 

It wasn’t until December 2018, following the Court of Appeal case of McCloud, that the court ruled that these reforms discriminated against younger members of the pension schemes and accordingly amended the regulations which became known as the McCloud remedy. The McCloud remedy is designed to give younger members the same protections awarded to older members several years ago. On 1 October 2023, the amended regulations came into force, removing the age requirement from the qualifying criteria.

Who does the McCloud Judgement apply to?

Following 1 October 2023, you will qualify for the additional protection if you:

  • were paying into a public sector pension scheme before 1 April 2012
  • were paying into a public sector pension scheme between 1 April 2014 and 31 March 2022 and were under age 65 at any point during the time you were paying in
  • have been a member of a public sector pension scheme without a continuous break of more than 5 years.

You will also be protected if you joined a public sector scheme after 1 April 2022 and transferred in qualifying membership from another public sector pension scheme.

What happens if you qualify?

If you qualify you are entitled to have your pension built up between 1 April 2014 and 31 March 2022 using the final salary calculation as long as it is higher than the career average pension figures.

If your pension is already in payment and the new calculation results in a higher pension, you will be paid the difference. If the calculation results in a lower pension figure, your pension will continue to be paid as normal and will not decrease. If your pension is not yet in payment, then your calculation will be completed on retirement.


Divorce and the McCloud Judgement 

When considering assets following divorce, the court has the power to implement what is called a pension sharing order. Essentially, this means that when there is disparity between the parties’ pension provisions, the court can order that a proportion of one party’s pension is transferred to a separate pension in the other party’s name.

Quantifying the level of pension share if often a complex and difficult task and therefore it is usually considered necessary to instruct a pension actuary. Actuaries will access the percentage of pension share that would be required to achieve equality of either capital or income at various retirement ages. This is a complex calculation, which is made more complex following the McCloud judgement. With some public sector schemes potentially now being worth more on retirement, valuations previously obtained may be out of date, and this has led to delays in proceedings, and in some cases, a new actuarial report being needed to recalculate the pension shares, based upon the revised figures.

Given the added complexities now involved with pension sharing orders, it is more important than ever to take legal advice, especially if either you or your spouse possess a significant pension, particularly if the pension is a public sector scheme.

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The above article is for illustrative purposes only and does not constitute legal advice.  It is recommended that specific professional advice is sought before acting on any part of the information given.