Chapter 3, local government pension scheme — scheme administrators' guidance
If you're a pension scheme administrator of a local government public service pension scheme, check how the public service pensions remedy (also known as McCloud) could affect you.
What a Chapter 3 scheme is
A Chapter 3 pension scheme is a public service pension scheme which is either a:
-
local government legacy scheme (these benefits built up on a final salary basis prior to 1 April 2015 (1 April 2014 for England and Wales))
-
local government new scheme (these benefits started to build up on a career average basis from 1 April 2015 (1 April 2014 for England and Wales))
Who the remedy applies to
The remedy only applies to members who have remediable service, were in pensionable service, or were eligible to join the pension scheme, before 31 March 2012.
Remediable service is where members (all of the following):
- had pensionable service on or before 31 March 2012
- had pensionable service under a local government new scheme or excess teacher service at any time between 1 April 2014 and 31 March 2022 for England and Wales, or between 1 April 2015, and 31 March 2022, under any other new local government scheme (this is known as the remedy period)
- did not have a gap in pensionable service which lasted more than 5 years, which started or ended between 1 April 2012 and 31 March 2015
Excess teacher service refers to the part-time employment, where a teacher has a full-time employment and a part-time employment at the same time, and the part-time employment is pensionable in the Local Government Pension Scheme.
Actions for scheme administrators
You will need to:
- adjust members’ pension input amounts as a result of the final salary underpin
- identify who has 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
- issue benefit crystallisation event statements where additional benefits are being paid to a member
- register for 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.
Final salary underpin
On 1 April 2014 (for local government in England and Wales) and 1 April 2015 (for all other local government new schemes), all members of the local government schemes moved to the career average revalued earnings benefit accrual as part of their pensionable service during the remedy period.
However, protected members were also given a underpin to protect their pension accrual during the remedy period. This meant that they were given the higher of the career average revalued earnings or final salary accrual during this period.
As part of the remedy for local government, you will now need to extend the underpin of pension accrual to all members with remediable service. This may impact the tax position of the member and require you to issue benefit crystallisation statements and pension savings statements.
Pension savings statements
Where a member had an increase in benefits through the final salary uplift in relation to a remedy period year, which means they exceed the annual allowance for that tax year under your scheme, you will need to provide a pension savings statement to the member by 6 October 2024.
If a member’s pension input amount has changed but not as a result of the final salary uplift, you may need to provide members with revised pensions savings statements.
Compensation
If a member has previously had either, or both a lifetime allowance or an annual allowance charge between and including the tax years 2015 to 2016 and 2018 to 2019, this may have changed in value. They will not be able to receive a refund of those overpaid charges. Where the charge has reduced, they will be able to apply for compensation. 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. It will be up to scheme managers 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 provide revised pensions savings statements, as detailed in the ‘Pension savings statements’ section on this page.
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
Members who have transferred to a local government scheme from a Chapter 1 or Chapter 2 scheme with remediable service may also be entitled to final salary uplift, if the scheme they transferred in from provided final salary benefits.