Certain NHS pension members are being required to clarify their tax position around their retirement savings. But there are only a few weeks left until the deadline to complete the process. Pensions expert Madeleine Dowling explains who this affects, what information they will receive, the steps to follow and why it’s important not to ignore the issue
Over the last few weeks, some people who are members of NHS Pension Scheme, including practice managers, GPs and other staff, will have been sent information about their retirement pot in what is called a Remediable Pension Savings Statements (RPSS).
There has been much in the press about these recently since they contain important information that forms part of the ongoing ‘McCloud remedy’. Also those affected will need to take action – and fast – to check their tax position with HMRC before the deadline of end of January 2025.
It’s a complex issue, so here I explain the background to the McCloud remedy, what an RPSS is and what steps recipients should be taking.
What is the McCloud remedy, and who does it affect?
The McCloud remedy is an ongoing effort by the Government to address age discrimination in public sector pension schemes, including the NHS Pension Scheme (NHSPS).
In 2015, the Government reformed public sector pension schemes. While most members were moved into a new ‘career average’ 2015 pension scheme, those members who were close to retirement were given ‘transitional protections’.
This meant that those within 10 years of retirement as of 31 March 2012 would not move to the new, ‘reformed’ 2015 scheme, while those between 10 and 13.5 years from retirement would move, but would do so later.
In 2018 – in a case that originally only related to the judicial and firefighters’ schemes – the courts ruled that these protections unlawfully discriminated against younger members.
In 2019, the Government acknowledged that the judgment affected all public sector pension schemes, and that action would have to be taken across all to remedy the impact.
The judgment affected NHSPS members in service before 31 March 2012 and on or after 1 April 2015; those who’d taken their pension benefits and retired since 1 April 2015; and deferred members of the scheme returning within five years.
The remedy
The solution that the government selected, after consultation, is what is called the ‘Deferred Choice Underpin’ (DCU). Affected members of NHSPS who had any service build up in the 2015 scheme between 1 April 2015 and 31 March 2022 – what’s known as the ‘remedy period’ – were moved back, for now, to their ‘legacy’ schemes, whether that’s the 1995 pension scheme or the 2008 section.
Any members still active on 1 April 2022 were then moved into the 2015 scheme.
When pensions become payable, affected members will be asked which section of the scheme they wish to take benefits from for the remedy period. They can keep it in the ‘legacy’ schemes, or treat it as if it was in the 2015 scheme.
This structure will allow affected NHSPS members to make their choice based on their careers and a known retirement date.
What is a Remediable Pension Savings Statements (RPSS)?
Moving the remedy period pensionable service back into the legacy schemes will have changed the pension tax position for some members for the tax years 2015/16 through 2021/22.
Because of this, some people will need to update their tax information with HMRC. Some may be able to claim back annual allowance tax paid, while a small number may need to pay extra tax.
Since October this year, the NHS Business Services Authority (NHSBSA) has been sending out RPSSs to those members who had their service moved back to the legacy schemes and:
- who went over their pensions savings annual allowance limit in any tax year between 2015/16 and 2021/22
- or who are over their standard annual allowance limit for the tax year 2022/23
- and who have not claimed any of their pension benefits yet or who retired on or after 1 October 2023. Those who retired will receive their RPSS once they have been contacted about their McCloud Deferred Choice Underpin option. They will only receive a statement if their choice changes the benefits being paid.
The letters contain information about revised pension growth and pension input amounts in both the 1995/2008 and 2015 schemes for all the tax years affected by the remedy.
What if I haven’t received by RPSS yet?
The NHSBSA has said it’s sending the letters out in phases, so if you haven’t received yours yet it might still be on the way.
Not everyone will get a letter – it’s only if you fall into one of the categories outlined above.
However, if you’re worried that you haven’t received one and feel you should have, you can phone the pension scheme as usual to enquire.
What action will it require me to take and by when?
The information in the RPSS will enable you to use HMRC’s online ‘Calculate your public service pension adjustment’ tool, to work out if your pension tax position has changed.
If you’ve received a letter, it’s important you act fast – you need to check your tax position by 31 January 2025, which is only a few weeks away.
You’ll answer a series of questions in the first section of the tool, which will tell you whether your tax position is affected. If it is, you’ll then need to complete further parts.
We strongly recommend that you login to the tool using your Government Gateway details. This will allow you to save your progress if you have to pause and come back to it later. If you don’t, you may need to start the process all over again.
You may already have this by registering for other Government services, like obtaining a driving licence or registering for self-assessment.
Do I have to use the HMRC online tool to calculate my tax position or can I use an accountant or financial adviser?
Yes, you have to go through the HMRC tool. This is because it’s specifically designed to be a ‘one stop shop’ for updating all relevant parts of your pension tax situation.
You can, however, get the help of an accountant or financial adviser to complete the process, or even have them do it for you.
If I am owed money, when will I get it back? Similarly, if I owe money, how should that be paid?
We don’t know yet when you’ll get money back.
However, it’s important to remember that if you’ve overpaid tax, you’ll only get a direct refund (i.e. money back in your bank account) if you originally paid the tax directly to HMRC.
If you originally paid through Scheme Pays, then your Scheme Pays will be adjusted to reflect what you’re owed instead.
If I owe money, how should that be paid?
The only years you might need to pay tax on is 2019/20 to 2022/23.
HMRC will give you the option of how you want to pay the charge. You can do so directly to them, or you can use Scheme Pays, which is available to everyone in the NHSPS regardless or role. If you choose this option and have completed the form yourself, then you don’t need to do anything else – HMRC will automatically update the pension scheme of your decision. If an accountant or financial adviser has completed the form for you and
you wish to use scheme pays then you will still need to complete the scheme pays form.
Is this the final stage of McCloud or is there more to come?
With the completion of this stage, the NHSPS will have laid most of the groundwork for the remedy.
The actual remediation, however – which is the DCU – will run for decades still as affected members reach retirement and make their choice.
In terms of administration, the next change that members are going to see is that from April 2025 they will start to receive Remedial Service Statements, which they will receive every year from then on. The statement will display two sets of pension figures, one assuming the legacy scheme for the remedy period and the other the reformed scheme.
This is intended to help members to stay informed about their choice as they move through their careers and to help their make an informed decision about their retirement.
For more information on RPSS, please visit the NHSBSA’s website here.
And for more information and support on McCloud and your pension, check out Wesleyan’s hub here.
Madeleine Dowling is technical team lead at Wesleyan, the specialist financial mutual for GPs
