The McCloud Remedy / McCloud Judgement Remedy
The ‘McCloud Remedy’ represents the Government’s response to the Court of Appeal’s 2018 ruling that provisions within the 2014-2015 public sector pension reforms amounted to age discrimination since they allowed those members closest to retirement age to remain in their legacy final salary pension schemes but forced all other members to move to the new “Career Average Revalued Earnings Scheme’ (known as the CARE scheme). The McCloud Remedy significantly impacts the calculation of pension losses in personal injury and medical negligence claims, as we explain below.
Most public sector workers historically benefitted from a ‘final salary’ pension, which was calculated in accordance with the member’s earnings in the final year or two of service. However, in 2014 and 2015, the UK Government introduced the CARE scheme to replace final salary schemes for most public sector workers. Under the CARE scheme, a member’s pension is based on an average of their revalued pensionable earnings across their career. The amount of the revaluation is typically linked to the Consumer Price Index (CPI) and some public sector schemes benefit from an additional, above inflationary increase as well.
The 2014-2015 pension reforms included provisions aimed at protecting those workers who were closest to retirement, on the basis that they had the least time to prepare for the changes. Some of these workers were given the option to remain in their legacy pension schemes if they so wished.
These provisions led to a number of firefighters and Judges to commence legal action against the Government, claiming the legislation was discriminatory against younger workers. The Court of Appeal agreed, and in what has become known as the ‘McCloud Judgment’, it held that since the protection afforded was age dependent, it amounted to age discrimination.
Following the McCloud Judgment, the Government took steps to address the discrimination, and the ‘McCloud Remedy’ was introduced. The upshot of the McCloud Judgment and Remedy is as follows:
> All members, irrespective of age, were transferred into CARE schemes from 1st April 2022;
> All members, irrespective of age, can choose whether the pension they accrued during the period of inequality is calculated on a final salary or CARE basis.
The period of inequality is the period from when the new pensions were implemented (most often, 1st April 2015) until every member was transferred to a CARE scheme, on 1st April 2022.
The Government is working on a legislative framework to put the McCloud Judgment and Remedy on a statutory footing, which is expected to be introduced in October 2023.
The McCloud Remedy impact on pension loss calculations in Personal Injury/Clinical Negligence cases
Pension loss calculations, which often form part of the special damages claimed in personal injury and medical negligence cases, have been significantly impacted by the McCloud Remedy. In cases where it applies, it is usually necessary to carry out two calculations – one based on the member’s legacy scheme, and one based on the CARE scheme– to establish which would yield the most favourable pension.
Unfortunately, this is not a case of simply comparing the annual pension that would be due under each scheme; regard also needs to be had to matters such as the fact that many final salary pension schemes included a tax-free lump sum, whereas CARE schemes do not. Whilst it is generally accepted that the CARE scheme will be the better option for most, particularly those who take career breaks or have short careers, this is by no means universally true, and each case will hinge on its unique facts. As such, there is no shortcut; to identify the basis upon which special damages for pension loss should be calculated where the McCloud Remedy applies, separate calculations need to be prepared and compared.
Given that the McCloud pension Remedy affects most public sector pension scheme members, including NHS, local government workers, teachers, firefighters and many others, the number of cases impacted is expected to be considerable.