Chapter 2, judicial pension schemes — scheme administrators' guidance
If you’re a pension scheme administrator of a judicial public service pension scheme check how the public service pensions remedy (also known as McCloud) could affect you.
What a Chapter 2 scheme is
A Chapter 2 scheme is either a judicial:
- scheme that started on 1 April 2015
- legacy scheme that started before 1 April 2015 (this is not a registered pension scheme)
Who the remedy applies to
The remedy only applies to members who have remediable service or were eligible to join a Chapter 2 scheme before 31 March 2012, and who did not have a gap in employment or office which was pensionable under a Chapter 2 pension scheme that was longer than 5 years.
Judges were able to opt out of the 2015 scheme and join a partnership pension account. This counts as remediable service in the same way as for judges who opted out of the judicial pension scheme completely.
Actions for scheme administrators or managers
You will need to:
- adjust members’ pension input amount as a result of the options exercise
- identify which members have already been sent a pensions savings statement during the remedy period and determine whether a revised or new pensions savings statement needs to be issued
-
identify the parts of the remedy that will apply to the members who had an immediate detriment remedy
- identify which members have had a benefit crystallisation event and determine whether a new or revised benefit crystallisation event statement needs to be issued
- set up on the secure data exchange service to receive information from HMRC
There may be other tax related issues you need to consider depending on the benefits that are offered under your pension scheme.
Elections — options exercise
Where a member has remediable service in a Chapter 2 scheme, if they are an unprotected or taper-protected member, you will need to give them the option to elect between being a member of the legacy scheme or the 2015 scheme during the remedy period.
Once a member has made an election it cannot be changed and takes effect at the end of the election period (usually 3 months), unless the steps set out in the Public Service Pensions and Judicial Offices Act 2022 are not taken, where the member has opted for the partnership pension account. In these cases, it takes effect from when the steps are taken.
The election is to be made by the member or, where the member has died, the member’s adult survivor or personal representative.
Legacy scheme election
Making a legacy scheme election means that you will treat the member’s pensionable service as if it had always been in the legacy scheme for the purposes of determining pension benefits, pension contributions and for any other purposes.
The 2015 scheme will keep the rights:
- relating to member voluntary contributions paid to the scheme
- given as a result of a transfer into the scheme
When the member makes a 2015 scheme election, you will need to issue a revised pensions savings statement and benefit crystallisation event statements, even if the amount of the lifetime allowance used is reduced to 0%.
As the Chapter 2 legacy scheme is not a registered pension scheme, you, as scheme manager, are not required to:
- calculate the pension input amounts
- determine benefit crystallisation events
- provide pension saving statements for the remedy period
You need to treat any benefits paid from or contributions to a member’s 2015 scheme as having been paid on a year-by-year basis from the legacy scheme.
You must transfer to the legacy scheme where a member makes a legacy scheme election and had accrued partnership pension account benefits during the remedy period. This will be a recognised transfer.
2015 scheme election
Where a member makes a 2015 scheme election, their basic pensionable service for the remedy period is treated as always having been pensioned under the 2015 scheme, and not the legacy scheme.
Unprotected members
If unprotected members make this election, there will be no change to the level of their tax position.
Taper-protected members
If taper-protected members make this election, their pension input amounts will change. Where there is a change, you’ll need to consider whether you need to issue a revised or new pension savings statement.
You will need to calculate the updated amount of basic contributions payable under the 2015 scheme and send the details to the member.
You should treat any benefits paid as having been paid on a year-by-year basis from the 2015 scheme. You should treat any contributions to the member’s legacy scheme as having been made on a year-by-year basis to the 2015 scheme.
The amount of any benefit crystallisation event that occurred under the 2015 scheme will change to reflect the extra pensionable service the member now has, following the 2015 scheme election.
You’ll need to send an amended benefit crystallisation event statement to the member giving details of the percentage of lifetime allowance used up by the revised benefit crystallisation event. If a lifetime allowance charge becomes due for a period before 6 April 2023, or the amount of the lifetime allowance charge has increased, you’ll need to give the member a notice telling them how much lifetime allowance charge is now due. You must use the lifetime allowance that was applicable at the time of the original benefit crystallisation event.
Where there is a new or additional annual allowance charge or lifetime allowance charge, this must be reported to HMRC.
If an election is not made
If an unprotected member does not make an election, they will retain their current rights and so their tax position is unchanged.
If a taper-protected member does not make an election, you will treat that as though they have made a 2015 scheme election. You should treat the changes in the member’s tax position the same as for members who make a 2015 scheme election.
Compensation
Once a member has made an election for the legacy scheme, if they have previously had either a lifetime allowance or an annual allowance charge between and including the tax years 2015 to 2016 and 2018 to 2019, this will have changed in value. They will be able to apply for compensation where the charge has reduced.
It is up to the scheme manager to decide whether to pay compensation, the amount of that compensation and to make the payments.
Tax Administration Framework
There may be a change in the value of previous charges if, between and including the 2019 to 2020 and 2022 to 2023 tax years, a member had a:
- lifetime allowance charge
- annual allowance charge
- unauthorised payments charges
Members may have to pay a new or additional tax charge, or may be able to claim a refund of tax already paid. This may mean you have to send revised or new pensions savings statements.
Members will be able to use the Calculate your public service pension adjustment service to work out any changes in their tax charges for these years.
Transfers
Any transfers that were accepted into the 2015 scheme during the remedy period will not move with the standard pension service when a member’s election for the legacy scheme is applied. All transferred amounts will remain within the 2015 scheme.
Pension-sharing on divorce
Where a pension-sharing order includes pension rights in respect of remediable service, the amount of the pension debit should reflect the member’s choice of benefits.
Where a pension-sharing order includes pension rights in respect of remediable service, the pension credit member should receive pension rights based on the higher of cash equivalent transfer value for either:
- legacy accrual
- 2015 scheme benefit accrual
Where a pension-sharing order is made before the judges’ options exercise, the amount of pension credit may change. In most cases, this will result in either an increase or decrease in pension entitlement. The change in the pension credit is not retrospective, so you should ignore any adjustment to the pension credit for the purposes of calculating the pension input amount in the pension input period in which the adjustment takes place.
Where the pension credit decreases after the pension credit was already put into payment, the original benefit entitlement should not be changed.