Consultation outcome

McCloud remedy part 2: proposed changes to NHS Pension Scheme Regulations 2023 - consultation response

Updated 8 September 2023

Introduction

The NHS Pension Scheme is designed to offer significant value in retirement to people who have chosen to dedicate part or all of their careers to serving the public through the NHS. The NHS Pension Scheme offers the security of a guaranteed income in every year of retirement for all its members on some of the most generous terms available from a pension scheme.

On 10 March 2022, the Public Service Pensions and Judicial Offices Act 2022 (the ‘2022 act’) gained Royal Assent. The 2022 act put in place a legal framework to rectify the unlawful discrimination identified by the McCloud judgement, in which the Court of Appeal found that the transitional protections provided when reformed public service pension schemes were introduced in 2015 were discriminatory. These transitional protections allowed older workers to continue building pension benefits in legacy public service pension schemes, whereas younger workers without protection were moved into the reformed schemes.

The 2022 act and the Public Service Pensions (Exercise of Powers, Compensation and Information) Directions 2022 (the ‘2022 directions’) require government departments to make amendments to public service pension scheme regulations to remedy the discrimination. The public service pension schemes remedy (the ‘remedy’) for this discrimination, also known as the ‘McCloud remedy’, has 2 parts.

The first and prospective part:

• closed the legacy public service pension schemes on 31 March 2022

• ensured equal treatment for all public service pension scheme members by moving all active members into the reformed public service pension schemes on 1 April 2022

Following a consultation, this part of the remedy was implemented for the NHS Pension Scheme through the National Health Service Pension Schemes (Amendment) Regulations 2022, which came into force on 1 April 2022. On that date, all active members of the 1995 and/or 2008 NHS Pension Scheme (the ‘legacy scheme’) were moved to the 2015 NHS Pension Scheme (the ‘2015 scheme’).

The second and retrospective part of the remedy will remove the effect of the transitional protections. For NHS Pension Scheme members impacted by the discrimination, the remedy primarily:

• returns members who moved to the 2015 scheme back into the legacy scheme for their pensionable service (the ‘remediable service’) affected by the discrimination during the remedy period, from 1 April 2015 to 31 March 2022, which in this consultation is referred to as ‘rollback’

• offers a choice of whether to receive legacy scheme benefits or equivalent 2015 scheme benefits for their remediable service, both of which are payable from the legacy scheme

The deadline set by the 2022 act for the retrospective part of the remedy to come into effect is 1 October 2023.

The Department of Health and Social Care (DHSC) consulted on a draft statutory instrument (SI) that will facilitate the retrospective part of the remedy for the 1.1 million NHS Pension Scheme members with remediable service. Following this consultation, the National Health Service Pension Schemes (Remediable Service) Regulations 2023 will be laid before parliament in September 2023 and come into force on 1 October 2023. These regulations will allow eligible NHS Pension Scheme members (‘remedy members’) to make that retrospective choice and put them, as closely as possible, in the pension position they would have been in had the discrimination not occurred.

The consultation sought views from all interested parties on the proposed changes to scheme regulations. This document sets out the comments received on the consultation and the DHSC’s response, and should be read in conjunction with the consultation document.

Changing scheme rules to implement the remedy

The NHS Pension Scheme is a statutory scheme. Its rules are set out in regulations, which are a form of secondary legislation. Those rules can be amended or replaced by new regulations drawn up in accordance with the powers under, and requirements of, relevant primary legislation.

The consultation document presented a detailed explanation of the proposed changes to scheme rules to implement the requirements of the 2022 act and facilitate the retrospective part of the McCloud remedy. The regulations to be laid in September will enable the NHS Pension scheme to:

• implement the rollback, which will have the effect of treating ‘unprotected’ and ‘taper-protected’ members as if they had never left the legacy scheme for their remediable service

• introduce the remedy for around 1.1 million NHS Pension Scheme remedy members

• put in place provisions for a choice of 2015 scheme benefits or to have legacy scheme benefits for their remediable service

• provide for an immediate choice election for those remedy members whose benefit entitlement has already arisen before 1 October 2023, including remedy members who have received benefits or died within the remedy period, estimated to be over 250,000 members

• provide for a deferred choice election to allow remedy members to make an informed choice of the benefits they wish to receive at retirement or when benefits are brought into payment for their remediable service (this includes members who were pensioner members before 1 October 2023 but whose pension in payment is not determined to any extent by their remediable service or affected by rollback)

• correct any overpayment or underpayment of pension benefits or member contributions already paid in relation to a remedy member because of either rollback or a member’s choice

• manage the consequences of the rollback

• facilitate the payment of appropriate compensation to address financial losses arising from the discrimination or operation of the remedy

Further context to these changes is provided directly below.

Transitional protection arrangements in the NHS Pension Scheme

The reform of the NHS Pension Scheme in 2015 included discriminatory ‘transitional protection’ for members closer to retirement. Members, with pensionable service in a public service pension scheme before 1 April 2012, were divided into the following groups:

• unprotected members - a member who was not within 13 years and 5 months of their normal pension age on 1 April 2012. Unprotected members moved to the 2015 scheme on 1 April 2015

• taper-protected members - a member who was more than 10 years but within 13 years and 5 months of their normal pension age on 1 April 2012. Taper-protected members moved to the 2015 scheme during the remedy period

• fully protected members - a member who was within 10 years of their normal pension age on 1 April 2012. Fully protected members moved to the 2015 scheme on 1 April 2022

Summary of eligibility for retrospective remedy

NHS Pension Scheme members must meet all 4 of the eligibility conditions set out in section 1 of the 2022 act in order to have remediable service and be in scope of the remedy. The 4 conditions are that:

• they had pensionable service during the remedy period of 1 April 2015 to 31 March 2022

• the pensionable service must be in the legacy scheme or the 2015 scheme that would have been service in the legacy scheme but for the discrimination

• they were in pensionable service under a legacy public service pension scheme on or before 31 March 2012, and they have not since had a disqualifying gap before starting any pensionable service during the remedy period

• where there is more than one period of pensionable service in the remedy period, there must not be a disqualifying gap between periods for subsequent periods to count as remediable service

The disqualifying gap is:

• more than 5 years - where the gap is between another public service pension scheme and the NHS Pension Scheme

• 5 years or more - where the gap is between NHS Pension Schemes, including those in Scotland and Northern Ireland. Members who had a break of exactly 5 years or more in the NHS Pension Scheme were required to join the 2015 scheme during the remedy period irrespective of their age

Rollback

The first stage of the remedy is to return any remediable service that is in the 2015 scheme back to the member’s ‘remedy section’ of the legacy scheme. This is the section of the legacy scheme that the unprotected or taper-protected member was a member of before their move to the 2015 scheme from 1 April 2015.

Where a remedy member joined the NHS Pension Scheme from a public service pension scheme on or after 1 April 2012, the remediable service will be placed into the 2008 section.

Rollback will take place when the draft regulations come into force on 1 October 2023.

Choice election

Remedy members will then be given a choice of the following benefits for their remediable service:

• legacy scheme benefits

• equivalent 2015 scheme benefits

Where the choice is for equivalent 2015 scheme benefits, the remediable service remains in the legacy scheme - it doesn’t move to the 2015 scheme. However, the equivalent 2015 scheme benefits will be payable from the legacy scheme.

Scheme rules for the NHS Pension Schemes

There are 2 NHS Pension Schemes:

• the legacy NHS Pension Scheme, which is divided into the 1995 section and the 2008 section

• the 2015 NHS Pension Scheme

Accordingly, there are 3 sets of regulations under which entitlement to pension and other benefits may be calculated:

• the National Health Service Pension Scheme Regulations 1995 (as amended) (SI 1995/300) (the ‘1995 regulations’)

• the National Health Service Pension Scheme Regulations 2008 (as amended) (SI 2008/653) (the ‘2008 regulations’)

• the National Health Service Pension Scheme Regulations 2015 (as amended) (SI 2015/94) (the ‘2015 regulations’)

A reference in this document to the ‘legacy scheme regulations’ means the 1995 regulations and the 2008 regulations.

The National Health Service Pension Scheme (Transitional and Consequential Provisions) Regulations 2015 (SI 2015/95) (the ‘transitional regulations’) put in place transitional arrangements for members of the 2015 scheme who have pension rights accrued in the legacy scheme.

These regulations make provision for the treatment and payment of legacy scheme benefits during or following a period of membership of the 2015 scheme. They also amended the 1995 regulations and the 2008 regulations to implement the transitional protections that permitted older members near to normal pension age to remain in the legacy scheme beyond its closure which, in respect of similar provisions in the judicial and firefighters’ pension schemes, the Court of Appeal found discriminated against younger members.

Consultation process

A consultation document and draft regulations were published on 14 March 2023. The consultation closed on 6 June 2023. The consultation was open to all members of the public and the DHSC undertook a number of steps to publicise the consultation.

The NHS Business Services Authority informed all NHS Pension Scheme members early in 2023 that this consultation was forthcoming as part of a wider disclosure letter on NHS Pension Scheme changes. The NHS Pensions website was then updated to signpost members when the consultation was launched.

NHS employers were asked by the NHS Business Services Authority to pass on details of the consultation to their employees - for instance via staff intranet pages.

As part of the governance arrangements of the NHS Pension Scheme, NHS trade unions, a number of NHS employers and other interested parties were formally notified of the consultation. In advance of and during the consultation, DHSC also presented the proposals comprehensively to the Scheme Advisory Board for the NHS Pension Scheme and the NHS Business Services Authority (the scheme administrator).

The Scheme Advisory Board is a statutory board comprising trade union representatives, representing the majority of NHS staff, and employer representatives that advises the Secretary of State for Health and Social Care on the merits of making changes to the NHS Pension Scheme.

DHSC welcomed views on the proposed changes and draft regulations. Respondents were asked to consider 5 questions in particular:

Do you agree or disagree that the draft regulations deliver the policy objectives and requirements set by the Public Service Pensions and Judicial Offices Act 2022?

Do you agree or disagree that the draft regulations allow members to be put as far as possible in the pension position they would have been in had the discrimination not occurred?

Do you have any comments on any of the individual draft regulations?

Are there any further considerations and evidence that you think the department should take into account when assessing any equality issues arising as a result of the proposed changes?

Do you think there are any other benefits, costs or wider impacts of these draft regulations that are not mentioned in the policy impact assessment?

The responses to each of these questions are set out in the sections below.

Consultation findings

DHSC is grateful to the respondents for their thorough consideration of the draft regulations and their feedback. A total of 56 responses were received. The majority of responses were submitted by individual NHS Pension Scheme members (48) with the remaining responses (8) submitted on behalf of organisations.

Responses were received by the following representative organisations:

• Association of Independent Specialist Medical Accountants (AISMA)

• British Dental Association (BDA)

• British Medical Association (BMA)

Responses were also received from the Scheme Advisory Board (SAB) for the NHS Pension Scheme (comprising trade union representatives, representing the majority of NHS staff, and employer representatives) and the NHS Business Services Authority (NHSBSA).

Many of the individual respondents commented with questions around how the remedy applies to their specific personal circumstances, for instance around early retirement reduction buy-out (ERRBO) arrangements or ill health retirement applications, as well as the impact of rollback on maximum service limits. While we are unable to respond to those individuals through the consultation response about their personal circumstances, we would encourage those individuals to contact the scheme administrator for further information and guidance. Resources including factsheets, online videos and scheme guides are available on the NHS Pensions website.

A small number of respondents took the opportunity to express views outside of the scope of the consultation - for instance on member contribution rates.

In addition to the 56 responses, we also received technical feedback from the Government Actuary’s Department (GAD).

The following sections set out and consider the responses to the consultation questions.

Question 1 responses

Do you agree or disagree that the draft regulations deliver the policy objectives and requirements set by the Public Service Pensions and Judicial Offices Act?

The 2022 act sets requirements for scheme regulations, such that they deliver the overarching policy objectives of the remedy.

Of the responses received, 75% (42) agreed that the draft regulations deliver the policy objectives and requirements set by the 2022 act, 5% (3) disagreed and 20% (11) did not know.

Comments from consultees

SAB, BMA and BDA commented that the draft regulations delivered the desired objectives except where comments on the intentions of individual regulations were provided in their responses.

Two individuals commented that they needed more details about reinstating opted-out service and/or remedial additional contribution arrangements before they could agree.

One individual responded that the remedy should include compensation for upset, distress and time spent with professional advisers, as well as career decisions taken as a consequence of the discrimination.

One individual commented that members should not be financially disadvantaged as a consequence of the retrospective remedy.

DHSC’s response

The 25% of respondents who disagree or do not know whether the draft regulations deliver the policy objectives and requirements of the 2022 act predominantly explained why with reference to the policy intent and operation of individual regulations. These comments are set out and considered in the ‘Feedback on individual draft regulations’ section below.

Financial disadvantage: the principle of the remedy is to put remedy members back in the pension position they would have been in but for the discriminatory transitional protections. For the overwhelming majority of remedy members, the remedy will not have a detrimental impact on benefit accrual over the remedy period, and may have a positive impact dependent on the member’s immediate or deferred choice. However, there may be a very small number of taper-protected members whose entitlement may reduce when it is adjusted to benefits for the remedy period solely in one NHS Pension Scheme, based on their choice, rather than both the legacy scheme and the 2015 scheme (as set out in the explanation to regulation 62 of the consultation document).

Question 2 responses

Do you agree or disagree that the draft regulations allow members to be put as far as possible in the pension position they would have been in had the discrimination not occurred?

The remedy is intended, as far as possible, to put remedy members into the same pension position that they would have been in had the discrimination not occurred.

Of the responses received, 64% (36) of respondents agreed that the draft regulations allow members to be put as far as possible in the pension position they would have been in had the discrimination not occurred. 16% (9) of respondents disagreed and 20% (11) did not know.

Comments from consultees

Notwithstanding comments on the intended policy of individual regulations or specific concerns raised, BDA stated that they recognised the work to date that the government has undertaken to implement an equitable remedy and, similarly, AISMA welcomed the thoroughness with which the draft regulations anticipated financial consequences of the outcome of the McCloud judgement.

BDA was concerned with the interaction between the remedy and the taxation regime, given that details of HMRC’s approach have been released in the very late stages of this consultation window. They raised reinstating opted-out service, and dealing with annual allowance charges, communication to members, the purchase of ERRBO and additional pension, and contingent costs as areas that should be subject to review.

BMA raised a number of areas where it believed more could be done to put members in the position they would have been in. These were around reinstating opted-out service, pension recycling, Choice 2, ill health retirement, communications to members, employers and taper-protected members, and compensation for injury to feelings and financial advice costs.

Similarly, SAB stated that there were a number of areas to which DHSC should give further consideration to make sure remedy members are put back, as far as possible, in the pension position they would have been in. These were around reinstating opted-out service, Choice 2 and communications to members.

Four individuals provided examples of employment-related contingent decisions that they made as a consequence of the discrimination and that they commented the draft regulations did not cover.

Two individuals sought further detail or a revised approach to reinstating opted-out service and remedial ERRBO and additional pension arrangements.

Comments received from BDA, BMA, SAB and individuals are explained in detail and responded to in the ‘Feedback on individual draft regulations’ section below where they relate to the policy or operation of individual regulations.

A number of individuals also pointed out the importance of clear and prompt remediable service statements and pension-saving statements, as well as the benefits of providing indicative calculators. One individual believed that those members closest to normal pension age should receive their remediable service statements first.

DHSC’s response

Where individuals explained why they disagreed or why they did not know if they agreed or not, their responses predominantly included comments on specific areas of regulation and DHSC’s response is provided in the ‘Feedback on individual draft regulations’ section below. Only comments that are not covered in that section are covered here.

DHSC fully recognises the importance of clear communications, particularly with remediable service statements, and is working with NHSBSA and external experts to develop and user test remedy-related member communications and resources. DHSC has also established a McCloud Engagement Board to consider and make recommendations on McCloud communications and resources to support members. This board includes membership from NHS trade unions and NHS Employers. These activities will help ensure communications are clear and allow members to make informed decisions where decisions are required. DHSC will work with SAB and the Engagement Board to help make sure important remedy communications and resources are fit for purpose.

On employment-related contingent decisions, these regulations are limited to the powers and requirements set by the 2022 act and 2022 directions. Some contingent decisions, such as those around opted-out service, additional voluntary contributions, Choice 2 and ill health retirement have been addressed in the regulations using powers in the 2022 act. We also intend to establish a compensation scheme for direct financial losses (see compensation section of the ‘Feedback on individual draft regulations’ section below for further details). Employment-related contingent decisions that are not addressed in the regulations or have not resulted in a direct financial loss or tax loss are out of scope of these regulations.

BMA commented that some taper-protected members may have been better off with their remediable service in both the legacy scheme and the 2015 scheme. It is the government’s view that maintaining such an age-based system of tapered protection would perpetuate or even extend the discrimination identified by the courts.

The government’s Public service pension schemes consultation: changes to the transitional arrangements to the 2015 schemes, published in July 2020, confirmed the following:

The choice now to be made available will be beneficial for the majority of taper-protected members. Requiring that choice to be exercised for the entirety of the remedy period is necessary to ensure that the remedy is implemented fairly for all members.

The 2022 act stipulates that members’ remediable service is first rolled back into the legacy scheme where it was previously 2015 scheme service, and that members will then be given a choice of legacy or equivalent 2015 scheme benefits for the whole period of their remediable service.

The 2022 act does not allow taper-protected members to have remediable service in both the legacy scheme and the 2015 scheme.

Feedback on individual draft regulations

Where respondents provided comments on individual draft regulations, these are detailed below in the order the draft regulations were presented in the consultation document along with our response.

Part 3: elections

Reinstating opted-out service

The consultation detailed our proposed approach for allowing members to reinstate remedy period service where they had opted out of the NHS Pension Scheme as a consequence of the discrimination identified in the McCloud judgement (regulation 9 of the draft regulations). DHSC received several detailed consultation responses on the proposed approach.

Comments from consultees

Both BMA and SAB, as well as one organisational respondent, requested that we consider taking a flexible approach that gives members the option to reinstate only part of their opted-out service. Respondents were concerned with the affordability of reinstating service if this were not an option.

Both BMA and SAB stated that they supported a low evidential threshold for applications to reinstate opted-out service to reduce the administrative burden, limit inconvenience to members and encourage scheme membership. A number of respondents sought more clarification around the evidential thresholds that would need to be met for reinstating service.

Similarly, AISMA encouraged the adoption of an approach where the scheme manager would accept any application to reinstate opted-out service rather than having to make a subjective judgement.

On the payment of employer contributions for reinstated service, SAB informed us that the preferred approach of employer representatives would be either to load the additional employer contribution rate at the following actuarial valuation, so that the costs are spread across all employers, or as an employer-wide levy. SAB members were concerned that directly invoicing employers for unexpected and potentially large costs could otherwise have a negative impact on service delivery.

BMA echoed these concerns, particularly for GP practices, and pointed towards the significant time gap between employers receiving funding to cover pension contributions, which may not have been required at the time, and members making an election to reinstate service. AISMA shared its concerns on the financial impact on GP practices and partners of covering employer contribution costs for reinstated service. NHSBSA asked for clarity in the scenarios where employer contribution costs for reinstated service should be waived.

BMA and SAB felt that it was imperative for DHSC to consider and issue guidance on employers’ and members’ liabilities where they had entered into a pension contribution recycling arrangement and members subsequently make an election to reinstate opted-out service. BDA also requested consideration of the interaction between employer recycling of pension contributions and reinstating service.

Finally, SAB was concerned about the interaction between direction agreements, which may require staff to be admitted into the NHS Pension Scheme to have paid contributions in the past 12 months, and opted-out service. They asked that direction enrolment restrictions be waived for the purpose of the remedy and that guidance on reinstating opted-out service is provided to direction employers.

One organisational respondent felt that it was unfair that only service within the remedy period can be reinstated, as some remedy members may have paused making a decision to opt back into the NHS Pension Scheme until they had more comprehensive details about how the remedy would work.

DHSC’s response

Partial reinstatement: DHSC agrees with the consultation feedback that members should be able to reinstate only part of their opted-out service during the remedy period should they choose to. The final regulations will include a provision for members to do this. Members will be able to specify the period of opted-out service they wish to reinstate on the application form.

Evidential thresholds: DHSC also agrees with the principle that the evidential threshold should be low in order for a member to prove that they opted out of the NHS Pension Scheme as a consequence of the discrimination. DHSC’s approach will now mirror the approach being taken by several other public service pension schemes in that the timing of the opt-out is to be taken as sufficient evidence that it was prompted by the discrimination. Therefore, where the member conveyed their decision to the scheme manager to opt out within the period of 6 months before 1 April 2015, the opening of the 2015 scheme or at any time during the remedy period, the scheme manager should accept an election to reinstate the relevant opted-out service without further evidence being required.

Reinstatement contributions: as a matter of principle, where members accrue benefits in the NHS Pension Scheme, both employee and employer contributions become due. This does not change where a member reinstates opted-out service. We understand the concerns raised by SAB and other respondents of the potential inequities that directly invoicing employers for reinstating service could create and the difficulties in budgeting for such costs. As such, as requested by SAB, the scheme will socialise the employer pension costs of reinstated service across all employers. Employer contribution costs for reinstated service will be aggregated and factored into subsequent NHS Pension Scheme valuations such that they will be reflected into a future employer contribution rate and the costs spread across all employers.

We have also reconsidered our proposed position with regards to how members’ reinstated service contributions should be paid. Where members owe contributions for reinstated service and are active or deferred members, they will be able to pay those contributions via a lump sum or an instalment plan in agreement with NHSBSA. They will not be able to defer payment to a deduction from future benefits. Pensioner members will have an option to deduct owed amounts from their benefits as these are already in payment. This approach will ensure that members who reinstate service are not put in a more favourable financial position than those remedy members who did not opt out of the NHS Pension Scheme for service during the remedy period.

Pension recycling: pension contribution recycling arrangements entered into during the remedy period were made between employers and employees where a member opted out of the NHS Pension Scheme. NHSBSA was not party to those arrangements. DHSC recognises, however, that where a member has received recycled employer pension contributions as pay and subsequently decides to reinstate the service for which they received those recycled contributions, they will benefit from up to double employer contributions being paid for that service.

NHSBSA will require members who apply to reinstate opted-out service to confirm whether they have received recycled employer pension contributions for the service they wish to reinstate. If they have and decide to reinstate that service, we will inform the relevant employers so that they can review and revisit those pension recycling arrangements. Employers should then take action to avoid members receiving double benefit in such scenarios.

Direction employers: where a member does not meet the direction eligibility requirement of having paid contributions to the NHS Pension Scheme in the last 12 months, and that requirement is not met as a consequence of the member having opted out of the scheme due to the discrimination, the member will be able to reinstate their opted-out service. Directions for the relevant employers will be reviewed and reissued to provide eligibility where such a member decides to reinstate service.

There are a number of other areas on which SAB and BMA requested consideration where DHSC thinks that clarification of the proposed approach would be helpful. SAB asked for consideration of members who opted out of the scheme and who may have died while still working for the NHS. We can clarify and confirm that the draft regulations allow the designated persons of deceased members to apply to reinstate the deceased member’s opted-out service. This remains the approach we will take.

SAB and BMA asked for clarification on reinstating service where the associated employer no longer exists. This scenario will not prevent members from reinstating service - NHSBSA will work with the member to gather employment details if no employer exists that can provide these.

Non-remedy period service: the 2022 act mandates that scheme regulations allow members, subject to conditions, to reinstate opted-out remedy period service in the NHS Pension Scheme. From 1 April 2022, all active members in the NHS Pension Scheme accrued benefits in the 2015 scheme only for future service. The transitional protections found to be discriminatory in the McCloud judgement no longer have effect. As the 2022 act is clear about the period of any opted-out service that can be reinstated as part of the remedy itself, we will not be accepting applications for reinstating opted-out service after the remedy period. Members who wish to re-join the scheme going forward should follow the usual process for doing so.

More details on the application process to reinstate opted-out remedy period service will be published on the NHSBSA website in advance of 1 October 2023.

Part 4: voluntary contributions

Regulations at Part 4 of the draft regulations made provision about additional pension and early retirement reduction buy-out contributions. They set out how the remedy will affect members who have made additional voluntary contributions to purchase those extra NHS Pension Scheme benefits during pensionable service in the remedy period.

Early retirement reduction buy-out contributions (ERRBO)

The draft regulations allowed remedy members to claim an amount of compensation equal to the buy-out contributions paid during the remedy period reduced by an amount representing tax relief and increased by interest. The compensation payment will not include the value of any ERRBO contributions that the employer paid during that period.

The remedy member may defer taking up this option until a choice decision is made at retirement and may instead elect for the ERRBO contributions to apply where equivalent 2015 scheme benefits are chosen for service in the remedy period. For remedy members who defer compensation and subsequently take legacy benefits for service in the remedy period, compensation will again become due.

The scheme manager must notify the member before 31 March 2024 of their right to claim compensation in respect of ERRBO contributions paid in the remedy period or defer that claim until their deferred choice decision point.

Comments from consultees

In their responses, SAB and BMA commented that, for members who choose legacy benefits for service in the remedy period, a compensation payment could be of a significantly lower value than the benefits that could have been purchased by the contributions in the 2015 scheme. They further suggested that such members should be given the option to elect for the contribution to purchase a form of additional benefits of equivalent value to the reform scheme benefits the member purchased.

BDA recognised the flexibility provided for remedy members to claim compensation in respect of ERRBO contributions made in the remedy period or defer their decision until their deferred choice decision point. However, BDA further commented that members who defer compensation should not see any worsening of the terms applicable to either the ERRBO equivalent benefit or the compensation payment in terms of how it is taxed (see ‘Part 7: taxation’ for DHSC’s response in relation to taxation).

AISMA noted that the draft regulations provided for any compensation payment to exclude the value of any ERRBO contributions that the employer paid. AISMA highlighted that GPs and non-GP providers pay both the employee and employer ERRBO contributions themselves, and therefore should be entitled to receive both back in any compensation payment.

NHSBSA in its comments asked if the deadline for notifying the member of their right to claim or defer compensation could allow for notifications to be sent later than the deadline if that was considered reasonable in all the circumstances of the case.

DHSC’s response

Option to purchase additional pension for members who choose legacy benefits for remediable service: DHSC agrees with SAB and BMA that remedy members who had made ERRBO contributions and choose legacy benefits for service in the remedy period should be given the option for those contributions to buy equivalent benefits in the legacy scheme. As such, regulations covering ERRBO contributions have been extended to allow members in this group to elect for their ERRBO contributions to be used to purchase an amount of additional pension in the legacy scheme. The amount purchased will be of an equivalent value to the amount of additional pension that the member would have purchased had the contributions been paid to the legacy scheme in the year they were paid to the 2015 scheme. This will apply in respect of both member and employer contributions (if any).

How ERRBO contributions are applied to an equivalent 2015 scheme benefit: where a member makes a deferred choice for equivalent 2015 scheme benefits and those benefits would be subject to an actuarial reduction or increase, the intention is that, if claimed, the ERRBO contributions will have exactly the same effect on the member’s benefits for remediable service as they would have done had those benefits been paid from the 2015 scheme.

GP and non-GP provider ERRBO contributions where the GP or non-GP provider pays an ERRBO contribution in the capacity of an employing authority in respect of themselves: DHSC’s view is that, in these circumstances, the employing authority in respect of a GP or non-GP provider is the host board and therefore it would not be possible for a GP or non-GP provider to have made such contributions.

Deadline: DHSC accepts that the circumstances and membership profiles of some members may be more complex than others. In light of this, DHSC agrees that it might be reasonable for a notification to be sent later than the deadline for some individual cases. The deadline will be amended as requested by NHSBSA, but DHSC expects that a later deadline will only apply in exceptional circumstances.

Additional pension contributions

Generally, the draft regulations provide for purchases of 2015 scheme additional pension taken out during the remedy period to be adjusted to a legacy scheme value.

Thereafter, such purchases and any legacy scheme additional pension taken out during the remedy period may be converted to an equivalent 2015 scheme value if a member makes a deferred or immediate choice for equivalent 2015 scheme benefits for service in the remedy period.

Limits on purchases of additional pension

Where additional pension originally purchased in the 2015 scheme is converted into a legacy purchase, the draft regulations also provided for both of the following:

• the maximum amount that can be purchased in the legacy scheme to be raised to take account of the conversion

• the original purchase to be taken into account if the member elected to buy further additional pension in the 2015 scheme

Deadline for notifying members

The regulations also set a deadline before which the scheme manager must notify a member of their right to cancel an arrangement to buy legacy scheme additional pension from 1 April 2022 in favour of continuing with their 2015 scheme additional pension purchase from that date. The deadline set for this notification is 1 July 2024.

Comments from consultees

In their responses, SAB and BMA commented on how additional pension converted to legacy additional pension as a result of remediable service returning to the legacy scheme should then be treated if a member subsequently makes a deferred or immediate choice for equivalent 2015 scheme benefits for service in the remedy period. The preferred approach would be for the additional pension to revert back on the same terms as it was converted to legacy additional pension, so that the nominal amount purchased (excluding revaluation) is unchanged as a result of rollback and deferred choice.

NHSBSA commented on the regulations relating to the limits that apply to purchases of additional pension.

NHSBSA pointed out that, where the limits in the legacy scheme had been increased to facilitate the conversion of 2015 scheme purchases, the new limit of £11,500 did not take account of increases that had been applied to the limits that apply to additional pension purchases in the 2015 scheme.

NHSBSA also asked if the deadline of 1 July 2024 for notifying the member of their right to cancel an arrangement to buy legacy scheme additional pension from 1 April 2022 in favour of continuing with a 2015 scheme additional pension purchase could be sent later than the deadline if that was considered reasonable in all the circumstances of the case.

DHSC’s response

Conversion: where a remedy member makes a deferred or immediate choice for 2015 scheme equivalent benefits for their remediable service, the intention is to retain the original amount of additional pension purchased in the 2015 scheme in line with the approach preferred by SAB and BMA. However, there may be circumstances where it is not possible to provide the original amount and the scheme manager will take advice from the scheme actuary before proceeding.

Limits on purchases: DHSC agrees with both the comments made by BSA. Following technical input from GAD, the increased limits for additional pension in the legacy scheme where a 2015 scheme purchase is to be converted to legacy scheme additional pension will be £12,079 (this is the current limit in the legacy scheme of £5,000 plus £7,079, which is the limit at the end of the remedy period in the 2015 scheme). The final regulations will also include a provision that requires the original 2015 scheme purchase of additional pension to count against the limits in the 2015 scheme for taking out a new option to make ERRBO contributions.

Deadline: DHSC accepts that the circumstances and membership profiles of some members may be more complex than others. In light of this, DHSC agrees that it might be reasonable for a notification to be sent later than the 1 July 2024 deadline for some individual cases. The deadline will be amended as requested by NHSBSA, but DHSC expects that a later deadline will only apply in exceptional circumstances.

Remedial arrangements to pay voluntary contributions to secure legacy scheme additional pension

The consultation set out the proposed approach to allow members to enter into new remedial voluntary contribution arrangements in the legacy scheme (regulation 25 of the draft regulations).

Comments from consultees

Five respondents, including BMA, 3 individuals and an organisational respondent, commented that our approach may not be comprehensive because some members may have cancelled added years or additional pension arrangements as a consequence of the discrimination identified in the McCloud judgement. DHSC was asked to consider this scenario and factor it into its approach.

Some respondents requested that members who did cancel their added years or additional pension arrangement should have the option to revoke that cancellation.

NHSBSA asked whether there were time limits on paying contributions when entering into such remedial arrangements and what information would be needed to satisfy the conditions to enter into a remedial arrangement.

DHSC’s response

We agree that, where members cancelled an added years or additional pension arrangement in the legacy scheme as consequence of the discrimination identified in the McCloud judgement, they should be conferred a right to revoke that cancellation. The final regulations will confer this right.

Members who cancelled such an arrangement between 1 October 2014 (6 months prior to the introduction of the 2015 scheme) and 31 March 2022 (the end of the remedy period) will be able to apply to NHSBSA from 1 October 2023 to revoke that cancellation. In such instances, the timing of the cancellation will demonstrate that the arrangement was cancelled as a consequence of the discrimination identified in the McCloud judgement.

Where the cancellation was made before this period, the member’s application to revoke the cancellation should demonstrate to the scheme manager that the cancellation was directly related to the discrimination. Examples of how this could be demonstrated could include:

• clear written justification of the initial decision to cancel the arrangement

• contemporaneous evidence - for example, in correspondence that made it explicitly clear that the member was cancelling the arrangement, or opting out of the NHS Pension Scheme where the arrangement was cancelled by virtue of opting out, as a consequence of how the 2015 scheme pension reforms were being implemented

If the scheme manager is satisfied that the cancellation was directly related to the discrimination, the revocation will be enacted and contributions will become owed for the remainder of the arrangement. The process and interest for contributions that become owed as consequence of the remedy, including where contributions become payable for ‘uncancelled’ or new remedial arrangements, are set out in the consultation document (see explanations to regulations 57 to 61).

The information required to satisfy the conditions of entering into new remedial arrangements will be subject to the scheme manager’s discretion, but could include evidence similar to the examples in the bullets above.

Part 5: divorce or the dissolution of a civil partnership

When the scheme manager implements a pension sharing order, the NHS Pension Scheme member transfers a share of their NHS Pension Scheme benefits to a former spouse or civil partner on the transfer day. As a consequence, the member has a pension debit to be deducted when their NHS pension benefits are claimed. Their former spouse or civil partner becomes a member of the NHS Pension Scheme in their own right as a pension credit member with a pension credit.

Pension debits

A pension sharing order specifies either a percentage or amount that is used to calculate the amount of pension debit to be deducted from NHS scheme benefits (‘a corresponding pension debit’). Where an order specifies a percentage, this is the percentage share of the member’s pension benefits at the transfer day to be transferred over to their former spouse or civil partner.

Part 5 of the draft regulations made provisions about corresponding pension debits. The draft regulations set out how the remedy will affect a pension debit, where the debit is in respect of the corresponding pension debit member’s remediable service shareable rights. A corresponding pension debit member could have either a single pension debit in either the legacy scheme or the 2015 scheme, or a pension debit in both the legacy scheme and the 2015 scheme, in respect of their remediable service shareable rights, dependent on the transitional protection status of the debit member and when the pension sharing order became effective.

Comments from consultees

A single respondent, NHSBSA, made 4 technical comments on the pension debit provisions in the draft regulations.

On regulation 30, NHSBSA asked that, following the requirement to issue the higher legacy scheme valuation of pension benefits to the court, whether the need to recalculate the valuation of pension benefits at the implementation date of the pension sharing order had been considered or whether it was the policy intention to implement the order based on the original valuation provided to the courts.

DHSC’s response

DHSC has considered all NHSBSA’s technical comments and is confident that the regulations, when laid, will cover the remedy provisions for pension debit members.

Draft regulation 30: where a valuation of pension benefits is requested on or after 1 October 2023, the requester will be provided with a legacy scheme valuation in respect of remediable service shareable rights based on the higher of:

• remediable service benefits in the legacy scheme

• remediable service benefits in the 2015 scheme

When the pension sharing order is implemented, there will be no further comparison made and the valuation provided originally is recalculated at the implementation date.

DHSC has made several amendments to the draft regulations in the final regulations and these are explained below.

The definition of the ‘appropriate amount’ in draft regulation 26 is expanded to include a pension sharing order by a Scottish court where there is a specified amount instead of a specified percentage. The specified amount, under Section 29(3) of the Welfare Reform and Pensions Act 1999, is converted into a specified percentage.

Draft regulation 27 now clarifies that, at rollback, a 2015 scheme debit in respect of remediable service shareable rights:

• becomes a legacy debit, for unprotected and taper protected members

• is adjusted to a debit of equivalent value to a debit that the corresponding pension debit would have had their remediable service been in the legacy scheme on the transfer day

Draft regulation 28 has been split into 2 separate regulations. The first covers a corresponding debit member, or a designated person, who makes an immediate choice election for equivalent 2015 scheme benefits for their remediable service. The second covers the scenario where the member chooses legacy scheme benefits.

The 2 regulations apply where the scheme manager provided a valuation of pension benefits before 1 October 2023 and a remedy member became a corresponding pension debit member before or after making their deferred choice. The regulations ensure that the pension debit, in respect of remediable service shareable rights remain in the legacy scheme, irrespective of the member’s choice of benefits for their remediable service.

Draft regulation 29 is amended to also cover a remedy member who becomes a corresponding pension debit member before or after making their deferred choice.

There have been some significant amendments to draft regulation 30. Following rollback, every remedy member has remediable service in the legacy scheme and this service remains in the legacy scheme even where an election is made for 2015 scheme benefits. All pension debits in respect of remediable service shareable rights must remain in the legacy scheme. Therefore, where a remedy member, following rollback, has non-remediable service (before the remediable service) and remediable service in the legacy scheme and non-remediable service (after the remediable service) in the 2015 scheme the scheme manager will calculate 2 valuations of pension benefits, one each for:

• the legacy scheme

• the 2015 scheme

The part of the legacy valuation in respect of remediable service is to have 2 comparison valuations calculations, as though the remedy member’s remediable service on the valuation day was in:

• the legacy scheme - a ‘legacy scheme standard’ calculation

• the 2015 scheme - a ‘legacy scheme plus’ calculation

The higher of the 2 comparison calculations, in respect of the remedy member’s remediable service, is then amalgamated with the valuation for the non-remediable service shareable rights.

In addition to the amendments, there are 2 new pension debit regulations included in the final regulations. These are similar to the 2 regulations in respect of draft regulation 28, but apply where the scheme manager provides a valuation of pension benefits after 30 September 2023 under draft regulation 30. The circumstances for when a legacy debit is to be adjusted is dependent on the corresponding pension debit member’s immediate choice and which comparison calculation - legacy scheme standard or legacy scheme plus - was the higher amount.

Pension credits

A pension sharing order specifies either a percentage or an amount that is used to calculate the amount of pension credit to be transferred to a member’s former spouse or civil partner. Where an order specifies a percentage, this is the pension credit member’s share of the valuation of pension scheme benefits at the transfer day. This valuation share is then converted to pension credit using factors provided by the scheme’s actuary.

The draft regulations did not include any provisions in respect of pension credits. However, information was provided in the consultation document on DHSC’s proposed policy in the section headed ‘Regulations for pension credit members where the corresponding pension debit member is a remedy member’.

Comments from consultees

No comments were received about DHSC’s proposed policy for pension credits.

DHSC’s response

Final regulations include 4 regulations in respect of pension credits. They set out how the remedy will affect a relevant pension credit member’s pension credit where the credit is in respect of a corresponding pension debit member’s remediable service shareable rights.

A relevant pension credit member could have either a single pension credit in either the legacy scheme or the 2015 scheme, or a pension credit in each of the legacy and 2015 schemes, in respect of the corresponding pension debit member’s remediable service shareable rights, dependant on the transitional protection status of the corresponding pension debit member and the transfer day of the pension sharing order, when it became effective.

The first of these pension credit regulations covers the remedy provision for a pension credit member who has a pension credit solely in either the legacy scheme or the 2015 scheme, in respect of all the corresponding pension debit member’s remediable service shareable rights. The scheme manager must calculate a valuation of the pension benefits at the transfer day in the alternate NHS Pension Scheme - for example, if the relevant pension credit member has a 2015 scheme pension credit, in respect of all the corresponding pension debit member’s remediable service shareable rights, the scheme manager must calculate an alternate valuation as though the debit member’s remediable service had been in the legacy scheme, and vice versa.

Where the alternate valuation is higher than the court-seen original valuation, the relevant pension credit member will receive a ‘top-up’ to their pension credit.

The second regulation is very similar but applies to a relevant pension credit member who has 2 pension credits, in respect of the corresponding pension debit member’s remediable service shareable rights in both the legacy scheme and the 2015 scheme. This would be a consequence of the corresponding pension debit member having tapered protection. Here, the scheme administrator must calculate 2 revised valuations of pension benefits, in respect of the remediable service shareable rights, one with all the remediable service in the legacy scheme and one with all the remediable service in the 2015 scheme. The specified percentage is applied to each valuation and a corresponding legacy scheme pension credit and 2015 scheme pension credit calculated.

Then, as a change to the proposed policy on pension credits in the consultation, the scheme manager must write to the relevant pension credit member to offer them an option of either the legacy scheme pension credit or the 2015 scheme pension credit, so that the pension credit member has only one pension credit for all the remediable service shareable rights. The scheme manager must contact the relevant pension credit members by 1 October 2024, although the regulation permits a notification to be sent later in exceptional cases. DHSC expects that a later notification deadline will only apply in exceptional circumstances.

The relevant pension credit member has 3 months to notify the scheme manager of their decision. Where a relevant pension credit member is deceased, their personal representative will be asked to choose. Where the scheme manager doesn’t receive a response within the 3-month deadline, they can make the decision on behalf of the relevant pension credit member. The scheme manager is able to deem which NHS Pension Scheme would be most beneficial to the relevant pension credit member.

This change aligns the regulations with those of several other public service pension schemes.

The final regulation ensures that there is provision to allow benefits in payment to pension credit members to be corrected where relevant. This mirrors the provisions for benefit correction for remedy members.

Where the scheme manager is required to notify the pension debit or credit member of an adjustment to the debit or credit, we have ensured that there are consistent deadlines by which such notification is sent to the member, which will be within a month of the adjustment being made.

DHSC is intending to work closely with NHSBSA on this complex area of the final regulations to ensure that the provisions in Part 5 are successfully implemented, and that their application delivers the appropriate remedy for pension debit members and pension credit members.

Part 6: transfers

Part 6 of the draft regulations contains provisions about benefits transferred into and out of the NHS Pension Scheme that are impacted by the remedy. It covers:

• transfers in and out from schemes that do and do not participate in the Public Sector Transfer Club (‘the club’)

• transfers between UK health service schemes

• internal transfers between the legacy scheme and the 2015 scheme

Comments from consultees

SAB commented that, where service or pay credits stemming from a transfer into the 2015 scheme are converted to a legacy value and then back to an equivalent 2015 scheme value on the making of a deferred or immediate choice election, it would seem reasonable for the original value of the transfer to the 2015 scheme to be maintained.

SAB also asked for clarification as to whether ‘Fair Deal’ staff members who return to the NHS Scheme are eligible for the remedy.

NHSBSA asked whether references to the scheme actuary should be removed from draft regulations that relate to club transfers because the methodology and factors used for calculating such transfers are not set by the scheme actuary - rather, they are set centrally under rules that apply to all participating schemes.

DHSC’s response

Conversion of transfer credits: the intention is that the original value of the transfer will be maintained in line with the approach preferred by SAB and BMA. However, as applies for additional pension conversion, there may be circumstances where it is not possible to provide the original value and the scheme manager will take advice from the scheme actuary before proceeding.

‘Fair Deal’ members who return to the NHS: where members who transferred out under the original ‘Fair Deal’ policy transfer back into the NHS under ‘New Fair Deal’, the transfer will have resulted in transfer credits in the legacy scheme because the broadly comparable schemes will be a final salary scheme. The remedy does not apply to service formerly in a broadly comparable scheme because the discriminatory transitional protections did not apply in those schemes and because the definition of remediable service in Section 1 of the 2022 act is not met.

However, some ‘Fair Deal’ members who re-joined the NHS Pension Scheme during the remedy period may qualify to have that service treated as remediable service. To qualify for remediable service, the ‘Fair Deal’ member must have had service in a legacy scheme before 1 April 2012 and not since had a disqualifying break of 5 years or more. For the purpose of establishing the length of any break, service in a ‘Fair Deal’ scheme as a result of a ‘Fair Deal’ transfer is ignored (see Section 1 of the 2022 act on the meaning of remediable service). Where this means that pensionable service in the remedy period is remediable service, it will be rolled back into the legacy scheme if it is currently in the 2015 scheme. The member will then have either an immediate or deferred choice in respect of the benefits that are payable in respect of that service.

References to the scheme actuary in draft regulations covering club transfers: DHSC agrees that references to the scheme actuary in the final regulations covering transfers on centrally set club transfer terms are not appropriate and these have therefore been removed.

Part 7: taxation

The Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023 (the ‘2023 tax regulations’) came into force on 6 April 2023. The 2023 tax regulations modify existing pensions tax legislation to make a number of technical changes to the tax treatment of individuals impacted by the remedy only. They aim to put individuals, as far as possible, in the tax position they would have been in had the discrimination not happened. They do not amend pensions tax legislation and so do not apply more widely.

The government published a technical consultation on draft tax regulations on 22 May 2023, which set out further changes to the tax framework as a result of the public service pensions remedy. The consultation closed on 19 June 2023.

The Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) (No. 2) Regulations 2023 (the ‘2023 tax (no. 2) regulations’) come into force on 14 September 2023 and give pension scheme administrators details of additional tax changes they will need to consider as a result of the remedy. They also give pension scheme members details of approaches to any annual allowance, lifetime allowance or unauthorised payments tax charges they may have between the tax years 2019 to 2020 and 2022 to 2023.

Part 7 included 4 draft regulations relating to taxation at regulations 51 to 54.

Regulation 51 defines terms used in regulations 52 to 54.

Regulation 52 covers circumstances where the scheme manager becomes liable for a lifetime allowance charge in a private sector scheme under pension taxation legislation.

Regulation 53 relates to NHS England’s 2019 to 2020 Pensions Annual Allowance Charge Compensation Scheme (PAACCS).

Regulation 54 applies in circumstances where, as a result of direction 7 of the 2022 directions, the scheme manager must accept an election for scheme pays where HMRC’s mandatory deadline for scheme pays has passed.

Owing to the overarching nature of pension tax legislation across all registered pension schemes, DHSC routinely only includes those tax provisions in the regulations where a member’s NHS Pension Scheme benefits are to be reduced as a consequence of the scheme administrator paying a tax charge on behalf of the member.

Comments from consultees on pensions tax relating to the provisions at Part 7 of the draft regulations

There were 3 comments on draft regulation 53 concerning the remedy impacts on the PAACCS.

SAB, BDA and an organisational respondent commented that the consultation document focused solely on a revised annual allowance charge being lower than the original annual allowance charge for members who are rolled back into the legacy scheme and did not cover, or propose a solution to, the possibility of an annual allowance charge increasing.

The organisation raised the scenario where, as a consequence of the rollback or reinstatement of opted-out service for tax year 2019 to 2020, a member is liable to an annual allowance charge for the first time, or an increased charge, for tax year 2019 to 2020.

The organisation made an additional comment about where a member has overpaid an annual allowance charge for tax year 2019 to 2020, querying why the consultation did not set out how this overpayment could be repaid and any potential options for the member.

AISMA made a technical taxation comment that one aspect of the compensation, the annual allowance reduction in respect of any lump sum paid from the PAACCS, had been overlooked.

There was a single comment made on draft regulation 54: NHSBSA queried why a time limit for members to request scheme pays, where HMRC’s mandatory deadline for scheme pays has passed, was not included in the draft regulation.

DHSC’s response

PAACCS: NHS England’s PAACCS policy is not established under NHS Pension Scheme regulations and therefore draft regulation 53 is included specifically where an annual allowance charge is lower as a result of a relevant rectification provision, such as rollback.

In the frequently asked questions for everyone on their website, NHS England has published the following response to the question ‘What will happen if a Pension Annual Allowance Charge is found to be due for 2019 to 2020 following the remedies that are put into place as a result of the McCloud consultation?’:

For many members of the PAACCS, the application of the remedy will change their pension input amount for the 2019 to 2020 tax year and, therefore, their tax charge and related scheme pays election will all need to be revised. It is expected that the PAACCS benefit will be based on the revised tax charge following implementation of the McCloud remedy. More information on this will be provided in due course.

DHSC has contacted NHS England to ask that they update their website to clarify the process for requesting an extension to the application deadline to ensure that this is available to those remedy members who are eligible for the PAACCS.

AISMA pointed out a potential scenario with regards to 2019 to 2020 tax year annual allowance charge adjustments that may result in further tax losses for the member. DHSC intends to establish a structured financial loss compensation scheme (see ‘Part 8: compensation’ below) and, while we will engage with AISMA for further information on this scenario, members should be aware that all applications to the compensation scheme for direct financial losses will be considered on a case-by-case basis.

Scheme pays: HMRC extended the mandatory scheme pays deadline for an annual allowance charge in respect of a relevant tax year (2019 to 2020, 2020 to 2021, 2021 to 2022 and 2022 to 2023) where there is a relevant rectification provision as a result of the remedy. A requirement in direction 7 of the 2022 directions is for scheme managers to make provision in their scheme regulations to accept a scheme pays election where there has been a relevant rectification provision and the deadline for mandatory scheme pays has passed. As direction 7 does not specify a requirement for a deadline for making a voluntary scheme pays election request, draft regulation 54 therefore does not impose a deadline.

Comments from consultees on pensions tax not relating to the provisions at Part 7 of the draft regulations

BDA commented that, as a result of rollback, there could be changes to the pension input amounts and annual allowance charges for the remedy period tax years. They said that:

It is imperative that updated input amounts are provided as soon as possible, and that members are permitted the opportunity to select how any additional charges should be paid.

BMA and SAB both observed that there may be an interaction between the adjustments to additional pension (as confirmed in ‘Part 4: voluntary contributions’ of this response above) and the annual allowance, and asked for further clarity in this respect.

BMA and SAB both commented on partial retirement and the annual allowance. SAB in particular commented that it had identified “a potential flaw in conducting annual allowance in partial retirement cases”, which they commented on in their response to the consultation on the 2023 tax regulations that closed in January 2023.

An organisational respondent asked whether the reinstatement of previously opted-out remedy period service triggers a revised pension input amount calculation and suggested that there would:

need to be provision within the annual allowance calculations (similar to how transfers are dealt with) that the closing value of benefits is not artificially increased by the reinstatement of benefits.

The same organisation also had 2 other comments on taxation. They highlighted a scenario in which some remedy members may have used the voluntary scheme pays facility in another registered pension scheme (not a public service pension scheme) to indirectly pay an annual allowance charge occurring in one of the remedy period tax years, rather than paying the charge directly or requesting the NHS Pension Scheme to pay the charge by scheme pays (mandatory or voluntary). They were concerned that, as a consequence of rollback, some or all of these annual allowance charges were no longer correct and that compensation is due.

In the second, the organisation queried the pension information to be included in the remedy period pension savings statements for unprotected and taper-protected members - specifically the number of ‘carry forward’ tax years, in respect of tax years before the remedy period where the pension input amounts for these tax years may be included.

A member made the following comment about pension growth during the remedy tax years:

Pension growth annual allowance and the McCloud remedy impacts should have been considered. I do not have appropriate information about the impacts to manage my tax self-assessment in a fair manner.

The same member also commented that unprotected and taper-protected members have had to pay annual allowance charges based on pension growth during the remedy tax years in the 2015 scheme, which has a higher accrual rate than the legacy scheme, and feels that there is a lost opportunity arising from the unfair tax burden.

DHSC’s response

Changes to pension input amounts: the 2023 tax regulations require scheme managers to send a remediable service pension savings statement to remedy members whose remediable service was in the 2015 scheme and they previously received a pension savings statement or where the revised legacy scheme pension input amount exceeds the standard annual allowance for one or more tax years during the remedy period. Regulation 6 of the 2023 tax regulations specifies that a remediable service pension savings statement must be provided by the ‘rectification deadline’ - being 6 October 2024, or later where the remedy member was a pensioner member or a deceased member.

Regulation 8 of the 2023 tax regulations specifies the deadline for making a scheme pays election for an annual allowance charge in a relevant tax year or 2022 to 2023. The mandatory scheme pays deadline is 6 July 2025, or 6 July 2027 for a pensioner or deceased member. Draft regulation 54 permits members to make an election for voluntary scheme pays after the mandatory scheme pays deadlines are passed.

Interaction between annual allowance and additional pension: additional pension contributions paid by a remedy member during the remedy period into the 2015 scheme are not automatically rolled back to the legacy scheme under section 2(1) of the 2022 act. In the consultation document, draft regulation 17 cancels the member’s rights to a 2015 scheme additional pension bought during the remedy period and those rights are replaced by new rights to an additional pension under a corresponding option in the legacy scheme. These new rights are not a retrospective replacement and are therefore accountable in the legacy scheme for annual allowance purposes in the tax year of replacement.

The 2023 tax (no. 2) regulations cover this replacement in regulation 3 and the situation where a remedy member then makes an election for 2015 scheme benefits for their remediable service is covered in draft regulation 4. Section 2.8 of the Guidance on the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) (No. 2) Regulations 2023 provides guidance on what scheme administrators will need to do where there is a replacement additional pension benefit in the legacy scheme. Section 2.9 then provides guidance on what scheme administrators will need to do when an election for 2015 scheme benefits is made.

Interaction between annual allowance and partial retirement: the comment from SAB was outside the scope of the consultation and the draft regulations. DHSC has forwarded SAB comments on this issue to HMRC.

Interaction between annual allowance reinstated opted-out service: HMRC has confirmed to DHSC that the reinstatement of any opted-out service will be retrospective to the remedy period tax year and therefore must be taken into consideration when calculating the opening and closing value benefits when determining the revised pension input amount.

Voluntary scheme pays: the comment by the organisation is outside of the scope of this consultation and the issue has been referred to HMRC.

Remedy period pension savings statement: DHSC is working with HMRC to understand the requirements of its new digital service. This will enable members who have new, increased or decreased annual allowance charges, as well as other tax charges (lifetime allowance charges and unauthorised payments charges) to:

• correct these for tax years 2019 to 2022, 2020 to 2021, 2021 to 2022 and 2022 to 2023

• apply for compensation for any tax charge overpayments for tax years 2015 to 2016, 2016 to 2017, 2017 to 2018 and 2018 to 2019

Self-assessment tax returns: HMRC has consulted on the regulatory changes they’re making to the pension tax framework because of the McCloud remedy, including rollback. HMRC has confirmed that members affected by rollback and changes to their pension input amounts and annual allowance charges won’t be required to:

• resubmit a self-assessment tax return for any remedy period tax year

• include an annual allowance charge on their tax return for tax year 2022 to 2023

Members will be able to report and pay an annual allowance charge for tax years 2019 to 2020, 2020 to 2021, 2021 to 2022 and 2022 to 2023 using HMRC’s new digital service.

Overpaid annual allowance charge during a remedy period tax year: members will be entitled to a return of any overpaid annual allowance charge, either directly from HMRC or paid as compensation by the scheme manager, where they paid the charge directly to HMRC. Where the scheme manager pays an amount of compensation equal to the amount of the overpaid annual allowance charge, the compensation will include interest based on the prevailing interest that would have been paid by HMRC.

Part 8: compensation

Regulations 55 and 56 of the draft regulations set out DHSC’s approach to compensation.

Comments from consultees

Responses related to compensation were received from BMA, BDA, one other organisation and a number of individual respondents.

BMA commented that members may have injury to feelings claims due to the age discrimination. BMA also set out that some members may need to seek financial advice around the complex decisions associated with the remedy and that DHSC should offer funding to compensate members for such financial advice fees.

BDA, similarly, commented that many dentists receive direct, individual advice related to their pensions, most commonly from financial advisors and accountants, and that the remedy and its tax impact and consequential decisions could require supplementary advice. BDA believes it is important that clear guidance is given to members and advisers as to how such costs could be identified and claimed for.

A number of individual respondents put forward scenarios instigated by the discriminatory transitional protections or remedy for which they believed they should be compensated. These included:

• the use of financial advisers or accountants

• reduced work commitments or early retirement

• lost opportunities and alternative career choices

One organisation pointed out that, for members who will see a tax consequence of the remedy, the relevant pension savings statement deadline is October 2024. This will mean that it could be some time before a member receives the documentation from the scheme to calculate any tax compensation that might be owed. They commented that it would be fair to allow compensation claims for tax rebates to be applied for using evidence from private calculations to facilitate the claim and make any adjustments when they receive their pension savings statement following October 2024.

DHSC’s response

The 2022 act and the 2022 directions allow the scheme manager to pay compensation in certain scenarios where losses are suffered as a result of the discrimination or in implementing the remedy.

Aside from tax losses, the 2022 directions stipulate that, to be compensable, the loss must be a direct financial loss to the member suffered as a result of the discrimination that occurred or the remedy provided.

The 2022 directions also set out the matters that scheme managers must comply with in exercising their power to pay compensation. The 2022 directions require that, when a scheme manager considers whether a claim for compensation should be paid, they must apply tests on regularity (whether the claim is compliant with the relevant legislation and wider legal principles), value for money (whether the payment of compensation delivers value as a whole) and propriety (the scheme manager must maintain high standards of public conduct, ensure robust governance, and ensure compliance with financial controls and reporting obligations). The 2022 directions require that the scheme manager must ensure that any payments of compensation are appropriate and in accordance with established legal principles.

DHSC intends to establish a structured public service pension scheme remedy financial loss compensation scheme with scheme rules that will be published on the NHSBSA website shortly after these regulations come into force. Details on the application process for compensation will also be made available on the website. All applications will be considered on a case-by-case basis.

The government anticipates that only a small proportion of the members affected by the pension remedy will need to make applications for overcharged tax amounts. Where the member employs the services of a financial professional to support such an application for tax reassessment, this may be considered a direct financial loss, depending on the merits of the member’s compensation application. Members who will need to apply for overcharged tax amounts will be required to do so through HMR’s new digital service.

HMRC intends to issue interactive guidance on their digital service in advance of 1 October 2023. Members (or their personal representatives) who anticipate that they could be due compensation for overcharged tax amounts will not be able to use the digital service until they have received a ‘remediable service’ pension savings statement with revised pension input amounts from the scheme administrator, NHSBSA. The deadline for these statements being issued is 6 October 2024 for active and deferred members. For pensioner and deceased members, the deadline is 6 months after an immediate choice election, where an election is made, or 6 months after the immediate choice election period otherwise.

Members will not be able to enter privately obtained pension input amount calculations into HMRC’s new digital service in lieu of a remediable service pension savings statement. The 2023 tax regulations specify that it is the responsibility of the scheme administrator to provide remediable service pensions saving statements to members where relevant, and members will be expected to enter the accurate and up-to-date data in this pensions savings statement when using HMRC’s new digital service.

Part 9: interest and the payment, reduction or waiver of liabilities, and Part 10: immediate detriment remedy

No comments were received in relation to these parts of the draft regulations.

Part 11: revocation of election to convert pensionable service in the legacy scheme (Choice 2)

The NHS Pension Scheme Choice exercise (2010)

NHS Pension Scheme members who were active in the 1995 section on or after 1 October 2009 were able to make a choice to retrospectively join the 2008 section from 1 April 2008 and transfer all their 1995 section service before that date to the 2008 section.

To inform their choice, members were provided with personal benefit comparison statements and asked to consider the key differences in scheme design between the 2 sections (which included a normal pension age of 60 in the 1995 section and 65 in the 2008 section) in the context of their personal circumstances and likely retirement plans.

For members under the age of 60 on 1 October 2009, the service transferred to the 2008 section was equal to the member’s 1995 section service. For members over the age of 60 on that date, 1995 section service reduced on transfer in light of their closer proximity to the 2008 section normal pension age.

Choice 2 (2015)

On the introduction of the 2015 scheme, unprotected and taper-protected 1995 section members who did not choose to transfer to the 2008 section under the 2010 Choice exercise were offered a further opportunity to do so.

This further opportunity recognised that normal pension age for future service would change from 60 in the 1995 section to state pension age of 65 in the 2015 scheme for this group of members - a change that may influence likely retirement plans taken into account during the 2010 Choice exercise - whereas fully protected 1995 section members who did not choose to transfer to the 2008 section under the 2010 Choice exercise remained in the 1995 section and would see no change in their normal pension age of 60.

McCloud remedy

In anticipation that some unprotected and taper-protected members who made a Choice 2 election in 2014 to 2015 to transfer their 1995 section service to the 2008 section may not have done so had they had a different transitional protection status, a right to revoke a Choice 2 election was included in draft regulations (draft regulation 64).

In addition, a revocation will mean that any remediable service will be rolled back to the 1995 section upon the coming into force of Section 2(1) of the 2022 act on 1 October 2023.

Comments from consultees

Responses were received from 3 individuals who welcomed the opportunity to revoke a Choice 2 election.

Responses received from BMA and SAB asked for further provision to be made that would allow members who were eligible but did not originally opt to transfer their 1995 section service to the 2008 section under Choice 2 the opportunity to revisit that decision.

SAB and BMA also asked if revocation of a Choice 2 election could be delayed until a member becomes eligible to make a deferred choice.

DHSC’s response

Re-offering Choice 2 to eligible members who did not take up that option in 2015: DHSC is of the view that the Choice 2 exercise would not have been offered to unprotected and taper-protected 1995 section members in 2014 to 2015 were it not for the discriminatory protections identified by the McCloud judgement. Following rollback, these members will not have joined the 2015 scheme until 1 April 2022, and therefore the reason for the initial Choice 2 exercise will have been rendered redundant.

Putting these members back in the same position they would have been in had that discrimination not occurred would mean revocation of all Choice 2 elections. However, DHSC recognises that unprotected and taper-protected members who made a Choice 2 election in 2015 will have been planning for their retirement on the basis of being a member of the 2008 section and so does not consider it appropriate to automatically revoke all Choice 2 elections. Therefore, DHSC intends to honour Choice 2 elections but allow members an option to voluntarily revoke Choice 2 elections to put them back in the position they would have been in had the discrimination not occurred and return their legacy scheme service to the 1995 section.

DHSC is of the view, therefore, that re-opening the Choice 2 exercise for unprotected and taper-protected members who did not elect to join the 2008 section in 2015, as requested by SAB and BMA, is outside of the scope of remedy and its objective of putting members back in the position they would have been in were it not for the discrimination.

Delaying the revocation of a Choice 2 election until deferred choice: DHSC has considered this request but remains of the view that it will be more helpful for members in terms of retirement planning for the position regarding legacy scheme entitlement to be clear and settled at the earliest opportunity. Delaying a Choice 2 revocation decision until the member’s remedy deferred choice decision point would mean a revocation could only take effect after a member has established a firm intention to retire and has therefore agreed a retirement date with their employer.

In addition, delaying a revocation may have unwanted and punitive tax consequences for the Choice 2 member. If revocation of a Choice 2 election is not implemented before 6 October 2024 (HMRC’s rectification date for active and deferred members), it may mean that the member is reassessed for annual allowance charges in the 2008 section (rather than the 1995 section) and this could result in additional tax charges that cannot be reclaimed from HMRC.

Part 12: retirement pensions

Part 12 of the draft regulations made provisions relating to various types of retirement pensions. In particular, these provisions are to supplement or to vary the automatic effect remedy would otherwise have in relation to benefits already in payment.

Premature retirement due to redundancy

Draft regulation 66 set out proposals for dealing with the costs associated with premature retirement due to redundancy, where they change as a consequence of the remedy.

Comments from consultees

We received one response on our approach to redundancy, which came from NHSBSA. It requested clarity on how to avoid members receiving a double benefit of an increase in benefits and severance pay that becomes overpaid following a member’s immediate or deferred choice.

DHSC’s response

Having considered NHSBSA’s response, we have refined our approach to dealing with cost changes associated with premature retirement due to redundancy to put members as far as possible in the pension position they would have been in but for the discrimination. The refined approach includes 4 changes and its interaction with existing regulations is described below.

The draft regulation for consultation only considered the impact of increased pension costs of redundancy as a consequence of a member making an immediate or deferred choice election for 2015 scheme equivalent benefits for any remediable service. We now recognise that these costs could also increase as a consequence of a member choosing legacy scheme benefits for any remediable service. The final regulations have been updated to cover both scenarios.

Where employers are responsible for the full pension cost of redundancy and these costs retrospectively increase as a consequence of the remedy, this increase in the employer cost will be waived. Where the member received severance pay in addition to the employer covering the full pension cost of redundancy, and this cost increases, the employer should first try to recoup this from the member’s excess severance pay and pass this to the scheme. If the employer can’t recoup this amount, under existing regulations the member’s benefits can be reduced accordingly. This makes sure that the member is put in the same financial position they would have been in, but for the discrimination, with regards to their severance pay and employer redundancy costs.

Where, as a consequence of the remedy, there is a reduction to the pension cost of redundancy already paid by the employer, and the member was employed on the Agenda for Change contract in England, there should be a corresponding increase in the severance pay to the member. As the scheme cannot return employer contributions to a member, the reduction described above must first be returned to the employer. NHSBSA will inform members that these costs have decreased, and it will then be up to the employer and the member to make any appropriate adjustments to the redundancy package.

Finally, we have clarified in the final regulations that, where members originally had an additional contribution option, they will be able to use their own funds to cover some or all of an actuarial reduction that would otherwise apply where their benefits increase in value as consequence of the remedy.

Partial retirement

Regulation 67 of the draft regulations set out the interaction between partial retirement (also known as drawdown) and a member’s remedy choice.

On 7 March 2023, subsequent to the launch of this consultation, a consultation response on other proposed amendments to NHS Pension Scheme regulations was issued. This response set out that DHSC intended to implement partial retirement for members who wish to claim their 1995 section benefits. We have updated our final regulations to account for this new flexibility.

Comments from consultees

BMA commented that they did not think it was fair that members have to make their choice of benefits for remediable service at their first partial retirement date, which could be more than a decade before their full retirement, given that personal and career circumstances could change in the intervening period.

DHSC’s response

Where a member partially retires on or after 1 October 2023, they will be required to make their choice of benefits for remediable service at - or, if a member retires on or shortly after 1 October 2023, soon after - their first partial retirement event. They are considered members eligible to make a deferred choice election.

The primary legislation, the 2022 act, stipulates that. where a member is an active or deferred member of the 2015 scheme and not a pensioner member of the legacy or reform scheme on 30 September 2023, their choice of benefits for remediable service must take effect immediately before they become a pensioner member of the scheme. A member is a pensioner member of the scheme if they are entitled to the present payment of benefits, whether being drawn down partially or in full.

A change to the principle that members make their choice of remediable service benefits at their first retirement event after 1 October 2023 is outside the scope of these regulations. In any case, we would anticipate that most partial retirees will benefit from the financial certainty that making the choice at this stage provides, and from the ability to drawdown the full value of their pension benefits, if they choose to do so, without risking an overpayment situation as consequence of their choice. However, we recognise that a member’s decision to partially retire means that they will be making their choice without knowing what the value of their remediable service benefits will be at full retirement. As such, we intend to provide comprehensive modelling tools to support members to make an informed choice at partial retirement.

Should a member not receive a remediable service statement at the point they take partial retirement after 1 October 2023, they will be able to revisit their chosen drawdown percentage at a later date when their remediable service statement becomes available. A decision to revisit their choice will not count as one of the member’s 2 drawdown events. This eventuality was not considered within the draft regulations for consultation and the regulations have now been updated to allow for this.

Ill health retirement

DHSC made provision for ill health retirements and remedy at draft regulations 68 and 69, and amendments to transitional regulation 27.

Regulation 68 provided for assessment against the ill health criteria in a remedy member’s alternative scheme or section.

Regulation 69 provided for the retrospective consideration of an ill health application in certain circumstances.

Amendments to regulation 27 ensured that existing transitional arrangements that provided an ill health benefit underpin to members who had a legacy ill health application in train (but not agreed) on joining the 2015 scheme on 1 April 2022 will apply equally to remedy members who had a 2015 scheme ill health application in train (but not agreed) at that time.

Comments from consultees

Responses on ill health retirement were received from BMA and NHSBSA.

BMA asked for clarification on the position of immediate choice election members who are in receipt of a tier 1 ill health pension but actuarially reduced benefits in the alternative scheme are more beneficial.

BMA also commented that it did not seem open to a deferred member whose original application for early payment of benefits on health grounds was not accepted under their original scheme but accepted under the rules of the alternative scheme to have the option to stay with the status quo. BMA’s response noted that this was because a deferred choice election is deemed to have been made in favour of benefits under the alternative scheme.

In respect of the amendments made to transitional regulation 27, BMA asked how this provision would work in respect of a member who applied for ill health retirement at the beginning of the remedy period as the underpin would seem to apply from 2022 only, rather than the date on which the application would have been granted had it been considered under legacy rules at the time.

NHSBSA asked if regulation 68, which provides for a member’s ill health retirement application to be assessed against the ill health criteria in a remedy member’s alternative scheme, should be adjusted so that it also applies in respect of deceased members.

DHSC’s response

Actuarially reduced benefits more beneficial than a tier 1 ill health pension in payment at immediate choice: DHSC is of the view that the circumstances described by BMA may be relevant where a protected legacy scheme tier 1 ill health pensioner who was over the minimum pension age of 55 years at retirement does not meet the criteria for a tier 1 ill health pension in the 2015 scheme.

In these circumstances, if the member wanted to access 2015 scheme accrual for service in the remedy period at immediate choice, the member would have to claim actuarially reduced voluntary early retirement benefits for all their service. This is because, had the member’s remediable service been in the 2015 scheme, that would have been the member’s only entitlement on failing to meet the ill health criteria under that scheme.

Therefore, the member’s immediate choice would be between the following:

• retaining legacy scheme tier 1 ill health pension benefits

• replacing legacy scheme ill health benefits with legacy scheme actuarially reduced voluntary early retirement pension benefits. Those benefits would include equivalent 2015 scheme benefits for remedy period service actuarially reduced for early payment before state pension age

DHSC considers it unlikely that an immediate choice for actuarially reduced benefits would be more beneficial in these circumstances, but can confirm that, if the circumstances applying in any individual case mean that actuarially reduced benefits are more beneficial, the choice outlined above will be available to such members if the tier 1 criteria in the 2015 scheme is not met.

Deferred member’s rights to opt for the status quo rather than an early payment of ill health benefits in the alternative scheme: DHSC can confirm that a deferred member who did not satisfy the ill health retirement criteria in their original scheme but does satisfy the criteria in the alternative scheme is under no obligation to claim those benefits. A deferred member will be notified of the outcome of the assessment as soon as reasonably practicable after 1 October 2023, but a deferred choice election will only be deemed to have been made if the member claims the ill health pension. If the member does not claim the pension, a deferred choice will be available when benefits are subsequently claimed.

The ill health underpin (amendments to transitional regulation 27) and members who applied for ill health retirement towards the start of the remedy period: the underpin arrangements at transitional regulation 27 have been extended so that they apply to members who made an application for ill health retirement benefits under the 2015 regulations before the end of the remedy period but whose 2015 scheme ill health benefits did not become payable before the end of that period.

The arrangements have been extended in this way in order to put unprotected and taper-protected members in this group in the same position as protected members who made an ill health retirement application under legacy scheme regulations before joining the 2015 scheme on 1 April 2022 that did not result in a legacy pension becoming payable before that date. Therefore, transitional regulation 27 is more likely to apply to members whose application for ill health benefits was made before 1 April 2022 but whose NHS employment did not terminate until after that date.

It is expected therefore that members who applied for ill health retirement towards the beginning of the remedy period are more likely to have left NHS employment before the end of the remedy period and, as such, will qualify for assessment for an ill health pension under their alternative scheme (under regulation 68) rather than qualifying for assessment for an underpin under translational regulation 27.

Regulation 68 and deceased members: DHSC agrees with NHSBSA comments that regulation 68 should apply in respect of remedy members who have died since their ill health application was considered. Relevant amendments have been made to regulation 68. In these circumstances, a deceased member will be reassessed under their alternative scheme ill health criteria and their designated person will be notified of the outcome in order to inform the immediate or deferred choice the designated person is entitled to make.

Consultation comments that span or relate to a number of draft regulations

Default positions where no response if received from the member

SAB and BMA noted that a number of draft regulations have default positions in the event that a choice is not received from a member or their representative within a given timeframe.

SAB further noted that, similarly, some individual regulations refer to “scheme managers discretion” including the ability to extend a specified time period “if considered reasonable”.

SAB stressed the importance of such default positions and discretion being transparent and, along with BMA, expressed a view that this should operate ideally alongside published guidance to show how discretionary cases would be considered.

BMA also stated that, where the member has a valid reason for not responding before a given deadline, they should be able to make a retrospective choice at a later date.

DHSC’s response

DHSC agrees that it is important to have default positions in cases where members or designated persons do not make a decision within the given timeframe. Having such defaults will, for example, reduce the risk that benefit payments are interrupted in the absence of a decision.

DHSC’s aim in setting timescales has been to provide the member with enough time for careful consideration before making any decision and, where it would seem reasonable in all the circumstances of the case, to allow for deadlines to be extended. We expect that the discretionary power to extend a deadline will be applied according to the individual circumstances of any given case. As such, it may not be possible or desirable to set out what all those circumstances might be.

However, DHSC agrees that NHSBSA should publish the process for requesting an extension of a deadline, and ensure that this is available to all relevant members and designated persons.

Measuring timescales for elections

SAB and BMA commented that the time periods mentioned in connection with various elections also refer to letters and applications being “provided”, “received” and “issued” in different places.

They expressed concern that setting a deadline for a member based on when a communication is “provided” or “issued” may not enable them to have the full allotted time period if they do not receive the communication promptly.

DHSC’s response

Deadlines that apply to an action that must be taken by the scheme manager generally refer to applications (or similar) being “provided” or “issued” by a certain date or within a certain timeframe, while deadlines that apply to members or their representatives generally refer to applications or options being received by the scheme manager within a certain timescale or before a certain date. This is a common feature of scheme administration in that it sets the deadline as a date that the scheme manager can clearly establish and confirm.

However, where a member does not receive relevant information from the scheme manager in a timely manner - for example, because of delays beyond the member’s control - DHSC is of the view that it would be reasonable for the relevant deadline to be extended by the scheme manager.

Consultation with the scheme actuary

SAB and BMA commented that there are issues on which the scheme manager may consult the scheme actuary before coming to a final decision. The following examples were given:

• choosing 2015 scheme equivalent benefits where these are determined to be more beneficial

• switching additional pension from one scheme to the other

• re-evaluating transfer value payments

In these circumstances, SAB and BMA stressed the importance of adopting a transparent process for such consultations and published guidance.

DHSC’s response

DHSC agrees that it is important to adopt a clear and transparent process wherever possible and, in line with information already published in connection with the calculation of transfers, additional pensions, and pensions on divorce and dissolution of civil partnerships, will ask NHSBSA to publish equivalent information in connection with the remedy and how such transactions will be affected.

Where the scheme manager exercises a discretion to pay 2015 equivalent benefits in the absence of an election, DHSC expects that this discretion will be exercised only where the scheme manger receives no decision or contact from the member or designated person and where, with the agreement of the scheme actuary, 2015 equivalent benefits are clearly more beneficial to the member. In all cases, we would, however, encourage members to actively participate where any decision is requested rather than rely on the scheme manager using this discretion.

Public sector equality duty impact

The public sector equality duty is set out in Section 149 of the Equality Act 2010 and requires public authorities, in the exercise of their functions, to have due regard to the need to:

• eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the 2010 act

• advance equality of opportunity between people who share a protected characteristic and those who do not

• foster good relations between people who share a protected characteristic and those who do not

This involves having due regard in particular to the need to:

• remove or minimise disadvantages suffered by people due to their protected characteristics

• take steps to meet the needs of people from protected groups where these are different from the needs of other people

The equality duty covers the 9 protected characteristics:

• age

• disability

• gender reassignment

• marriage and civil partnership

• pregnancy and maternity

• race

• religion or belief

• sex (gender)

• sexual orientation

This section records the equality analysis of the scheme-level policy choices included in these regulations to enable ministers to fulfil the requirements placed on them by the public sector equality duty. 

As part of the consultation, we asked consultees whether there were any further considerations and evidence that they think DHSC should take into account when assessing any equality issues arising as a result of the proposed amendments. DHSC received 14 responses to this question and has considered these in updating the initial analysis published as part of the consultation document.

These responses stressed the importance of clear communications, commented on opted-out service, and a number made comments on compensation and contingent decisions (which we have addressed in the ‘Feedback on individual draft regulations’ section above). Several members responded to this question by asking for clarification on personal circumstances, which we cannot respond to in a public consultation (see the ‘Consultation findings’ section above).

The majority of the policy content of the regulations is set by either the 2022 act or the 2022 directions. HM Treasury has published separate equality impact assessments for the measures introduced by the act and the measures introduced by the directions.

This assessment considers the additional impacts of the consequential policy choices included in the regulations that have been made at a scheme level. Where the regulations make minor modifications to provisions in the 2022 act to ensure the provisions works in the NHS Pension Scheme context, these are out of scope of this equality impact assessment as the consequential policy choices behind these provisions and their impacts are included in the HM Treasury assessments.

Members in scope

NHS Pension Scheme members in scope of these regulations are those that meet the eligibility criteria set by the 2022 act. These members will have either been unprotected, protected or tapered-protected NHS Pension Scheme members when the discriminatory transitional protections were introduced on 1 April 2015.

The total numbers of active, deferred and pensioner members currently in scope of these draft regulations are provided in table 1.

Table 1: NHS Pension Scheme members in scope of the McCloud retrospective remedy

Status	Fully protected	Tapered protected	Unprotected	Total
Active	43,345	71,886	554,682	669,913
Deferred	2,724	5,525	44,801	53,050
Pensioner	230,556	30,595	16,839	277,990
Total	276,625	108,006	616,322	1,000,953

Note: all figures within this analysis include 5,704 members who voluntarily gave up their transitional protections and are out of scope of the remedy.

Members out of scope

NHS Pension Scheme members are out of scope of these regulations if they do not meet the eligibility criteria set by the 2022 act. These members were ineligible for transitional protections regardless of their age, and therefore were not subject to the age discrimination identified by the Court of Appeal.

Age

The transitional protections implemented as part of the reforms to public service pension schemes were found by the McCloud judgement to be directly discriminatory on the grounds of age, as the eligibility conditions for these protections were based on age criteria.

The regulations aim, as far as possible, to retrospectively remedy that discrimination and put all members impacted by transitional protections in the pension position they would have been in had the discrimination not occurred.

Therefore, the regulations have been developed with an acute regard to removing the disadvantages that members in scope may have faced as a result of the impact of transitional protections. A number of scheme-level policy choices have been made to actively remove such disadvantages and are detailed below.

The breakdown of age and sex of members in scope of these regulations is provided in chart 1.

Chart 1: age and sex breakdown for members in scope of the remedy

Age	Female	Male
Aged 25 to 34	16,841	3,587
Aged 35 to 44	158,867	43,053
Aged 45 to 54	219,106	65,732
Aged 55 to 64	281,821	70,851
Aged 65 to 74	107,649	29,029
Aged 75 and over	3,193	1,234

The breakdown of age of members in scope of these regulations by percentage is provided in Table 2

Table 2: percentage breakdown of age of members

Age	Percentage
25 to 34	2.0%
35 to 44	20.2%
45 to 54	28.5%
55 to 64	35.2%
65 to 74	13.7%
75 and over	0.4%

Ill health

Where a remedy member submitted an application for ill health retirement and a decision was made on that application during the remedy period, we intend for that application to be reassessed against the member’s alternative scheme. If the member’s application was initially assessed against legacy scheme ill health retirement criteria, it will be reassessed against 2015 scheme ill health retirement criteria. This will make sure that the member will be able to make a choice about their remediable service benefits that takes into account their ill health entitlement in each scheme.

As the legacy scheme and 2015 scheme have different normal pension ages, this will remedy a previous disadvantage on the grounds of age where a member’s ill health retirement application may have been judged on the member’s ability to work to a certain age. If an application was submitted during the remedy period, that age would have differed depending on the transitional protection status of the member. Where members could have met criteria in both the legacy scheme and 2015 scheme, they could be entitled to benefits of a higher value in the alternative scheme.

The regulations will also allow applications to be treated as if they were submitted during the remedy period if the member would have submitted an application during that period but for the discrimination.

Unprotected and taper-protected pensioner members in receipt of legacy scheme benefits only

Where a remedy member has claimed 2008 section benefits only before 1 October 2023 and for whom the rollback of remediable service from the 2015 scheme to the member’s remedy section of the legacy scheme will mean an immediate change to those benefits, they will be eligible to make an immediate choice.

Where members are pensioner members before 1 October 2023, but only in respect of non-remediable service and where rollback would make no impact on their pensions in payment (such as members who retired on ill health grounds before the remedy period and then returned to work), they will be eligible to make a deferred choice election.

While the 2022 act makes such members eligible to make an immediate choice, we have made modifications for this group such that they can make their choice when that choice will have an impact on their pension in payment. This change means that these members, who are likely to be older than active and deferred members, do not have to make their choice at a point in time that will not actually impact their pension, which was in payment on 30 September 2023.

Partial retirement

We intend to allow remedy members who have partially retired before 1 October 2023, as part of the immediate choice process, to elect to vary the percentage drawn down in order to maintain the amount of annual pension in payment at the level they were receiving before rollback. This option would be available where rollback or a member’s choice of remediable service benefits would otherwise change the amount of pension in payment. This adjustment would not count as an additional partial drawdown event for members who take up this option.

Additional pension, ERRBO and transfers

The regulations make sure that the treatment of benefits flowing from additional voluntary contributions and transfers into the scheme is consistent with what happens with the members’ corresponding remediable service. This should mean benefits bought or transferred in will be treated in the same scheme as the members’ remediable service benefits after rollback and, thereafter, after an immediate or deferred choice has been made.

In the context of the NHS Pension Scheme, we have made exceptions to this principle only where pre-existing transitional arrangements apply. For example, where members of the 1995 section are entitled to claim their additional pension at their 1995 section normal pension age and it is in payment, we have allowed that benefit payment to continue regardless of the member’s remediable service choice. This ensures that, as far as practicable, members are put in the same financial position with regards to their associated benefits as they would have been had the discrimination not occurred.

Redundancy

We will ensure that all in-scope members who took early retirement upon being made redundant during the remedy period are treated equally regardless of their transitional protection status (which was determined on the grounds of age), although there will be some differences based on their employment terms and conditions.

Where a member had employment terms and conditions where the employer was not responsible for the full pension cost of redundancy, they may see a choice where actuarily reduced benefits are payable in the alternate scheme - however, such members will be allowed to buy out some or all of that reduction.

Where a member had employment terms and conditions where their employer was responsible for the full pension cost of redundancy, they will receive an immediate choice of non-actuarily reduced benefits in both the legacy scheme and the 2015 scheme, provided that any severance pay will not have been overpaid as a consequence of their remedy choice.

Choice 2

In 2015, the NHS Pension Scheme ran an exercise known as ‘Choice 2’ that provided 1995 section members of the NHS Pension Scheme who were not fully protected with an option to convert their 1995 section service to 2008 section service. Just over 10,000 members took up this option.

We intend for such members to be provided with the opportunity to revoke that option, such that this conversion never happened. Again, this will allow such members to be put in the same position they would have been had the discrimination not occurred, where such an exercise would not have taken place.

Table 3 shows the age breakdown for members who took up the Choice 2 option. Typically, they would have been younger than fully protected members of the 1995 section.

Table 3: age breakdown for members who made a Choice 2 election

Age	Male	Female
25 to 34	0.0%	0.2%
35 to 44	5.6%	17.2%
45 to 54	13.0%	32.8%
55 to 64	7.4%	23.8%
65 to 74	0.0%	0.0%
75 and over	0.0%	0.0%

Opt-outs

While the 2022 act mandates that scheme regulations allow members to reinstate opted-out service as pensionable service during the remedy period, it also allows schemes to stipulate conditions that must be met for such service to be reinstated.

We have included a condition within the regulations that requires that a member must have opted-out as a consequence of the discriminatory transitional protections to have an application accepted to have opted-out service reinstated.

Where the member opted out between 1 October 2014 (6 months before the remedy period) and 31 March 2022 (the end of the remedy period), we will consider the timing of the opt-out to be evidence for opting out as a consequence of the discriminatory transitional protections. This ensures that members can be put back in the same position they would have been had the discrimination not occurred with regards to opted-out service, without high evidential thresholds.

BMA and SAB commented in their consultation feedback that reinstating opted-out service may only be affordable for higher-paid staff and that this could create equalities issues. We have changed our approach such that members can reinstate less than the full period of opted-out service should they choose to do so. This will present a more affordable option to reinstate some service, should some members feel that the costs of reinstating all relevant opted-out service are prohibitive.

Sex

The Equality Act 2010 lists ‘sex’ as a protected characteristic. Data for the NHS Pension Scheme is also divided by sex. However, it is important to note that ‘sex’ and ‘gender’ are 2 different concepts. A person’s gender identity is not always the same as the sex assigned to them at birth, and some people may not identify as having a gender or may identify as non-binary. ‘Gender reassignment’ is also a protected characteristic under the Equality Act 2010.

The regulations will apply to all members regardless of their age and gender identity. The McCloud judgement found that the transitional protections were indirectly discriminatory on the grounds of sex. The policy choices that have been made at scheme level are intended, as far as possible, to put members back in the financial position they would have been in had the discrimination not occurred.

The NHS is a female-dominant workforce and the majority of NHS Pension Scheme membership is female. The breakdown for members in scope of these draft regulation by sex is provided in Chart 2 below.

Chart 2: sex breakdown for members in scope

Sex	Percentage
Female	78.7%
Male	21.3%

Ethnicity

Available data on the protected characteristics of the NHS Pension Scheme membership only covers members’ age and sex. The regulations will apply to all members regardless of age and gender identity. The McCloud judgement found that the transitional protections were also indirectly discriminatory on the grounds of race. The policy choices that have been made at scheme level are intended, as far as possible, to put members in the financial position they would have been had the discrimination not occurred.

Disability, sexual orientation, religion, marital or civil partnership status and gender reassignment

The regulations apply the retrospective remedy to all eligible members regardless of disability, sexual orientation, pregnancy and maternity, religion, marital or civil partnership status and gender reassignment. DHSC does not consider that the proposals raise any specific equality issues for members in relation to these characteristics.

BMA and SAB highlighted the importance of clear communications throughout the remedy exercise, where members do not speak English as a first language, and where ‘literacy rates can be low’.

DHSC recognises the importance of clear communications, particularly with remediable service statements, and is working with NHSBSA and external experts to develop and user test remedy-related member communications to ensure they are clear and allow members to make informed decisions where decisions are required.

Conclusion

We consider that the regulations, where they reflect consequential policy choices at a scheme level, achieve positive equality impacts since they are designed to remedy unlawful discrimination on the grounds of age (and indirectly on the grounds of sex and race) and put members who were impacted by this discrimination in the pension position they would have been in had the discrimination not occurred.

NHS Act 2006 duties

These regulations have been considered with regard to the National Health Service Act 2006, but are unlikely to be relevant to these duties:

• promote a comprehensive health service (Section 1)

• quality improvement (Section 1A)

• NHS Constitution (Section 1B)

• health inequalities (Section 1C)

• promote autonomy (Section 1D)

• research (Section 1E)

• education and training (Section 1F)

• reporting on and reviewing treatment of providers (Section 1G)

The Family Test

The former Prime Minister David Cameron announced in August 2014 the introduction of a new ‘family test’. While not a legal requirement, the test is designed to ensure policy is developed with a family perspective. Strong and stable families and family relationships, in all their forms, play an important role in society. Whether intended or not, a wide range of government activity has a direct or indirect impact on family. The Family Test evaluates the potential impact of policies on family relationships.

The primary purpose of an occupational pension scheme is to provide an income for a member in retirement. This provides financial security in retirement, which can be key to a family unit. The aim of these regulations is to remedy discrimination in the NHS Pension Scheme, which is a valuable vehicle for retirement saving.

Policy impact assessment

As part of the consultation, we asked consultees whether there were any other benefits, costs or wider impacts of the draft regulations that are not mentioned in the policy impact assessment.

We received 6 responses to this question, one from BDA and 5 from individuals.

BDA commented that it was very keen to ensure NHSBSA is properly resourced to deliver the complex and unprecedented tasks intended through these regulations. It stressed the importance of the exercise being delivered without hindrance.

DHSC has recognised the increase in activities that will be required of NHSBSA to deliver the remedy. The requirements of these regulations have each been impact assessed and funding will be provided by DHSC to NHSBSA to make sure these requirements can be met.

BDA also set out that it would be prudent for each member to receive an early communication outlining the future decisions they may be presented with, along with an accompanying timeline. As set out in the ‘Question 2 responses’ section above,

DHSC recognises the importance of clear communications relating to the remedy, and is working with stakeholders to make sure that communications and resources to support members are clear and fit for purpose. We do not expect to send initial communications to individual members setting out each future communication they will receive. However, we will look to make sure that each communication that requires a decision sets out the context in which that decision is being sought and is accompanied by guidance that enables members to make an informed decision.

Individual respondents commented on the financial impacts on individual members that they felt had not been considered in the draft regulations for consultation. These comments and DHSC’s responses have been set out in ‘Part 7: taxation’ and ‘Part 8: compensation’ of the previous ‘Feedback on individual draft regulations’ section.

None of the public service pension reform measures in the 2022 act or the consequential amendments to scheme regulations proposed in this consultation have a regulatory impact on businesses.

A full impact assessment was provided for the 2022 act. These regulations translate the policy requirements of this act into the NHS Pension Scheme context.

Regarding impact on the public sector, the government has estimated an expected increase to pension liabilities for the main unfunded public service pension schemes (covering the NHS, teachers, Civil Service, armed forces, firefighters and police) of £17 billion over the next 4 to 5 decades. An estimated £4.5 billion of this amount represents an increase to NHS Pension Scheme liabilities.

There will be an administrative cost to the public sector to deliver these requirements for eligible NHS Pension Scheme members. DHSC estimates that the administrative delivery of the requirements of the act and these regulations for NHS Pension Scheme members will cost the public sector a total of £18 million, with these costs arising between 2021 to 2022 and 2024 to 2025. The key components of the administrative costs include:

• scheme administrator software development

• increased scheme administrator staffing

• medical advice with respect to the review of ill health retirement applications

Conclusion and next steps

DHSC would like to thank all respondents for their thorough and considered responses to the consultation.

The draft regulations have been amended, where relevant, in accordance with the DHSC’s response as set out in this document. The regulations are being laid in Parliament and, subject to the will of Parliament, will come into force on 1 October 2023. These regulations will facilitate the implementation of the retrospective part of the McCloud remedy - an important step in rectifying the discrimination identified by the Court of Appeal in 2018.

NHSBSA will be responsible for delivering the retrospective part of the McCloud remedy from 1 October 2023 and further information about the retrospective remedy is available on the NHS Pensions website.