Consultation outcome

McCloud remedy part 1: proposed changes to NHS Pension Schemes Regulations 2022

Updated 3 March 2022

Introduction

The government has laid proposed primary legislation, the Public Service Pensions and Judicial Offices Bill (the ‘bill’) before Parliament to implement changes in public service pension schemes to remedy the discrimination identified by the McCloud judgment. When new public service schemes were introduced in 2015, a transitional protection allowed older workers to continue building pension in the legacy schemes whilst younger workers were moved into the new schemes.

Subject to parliamentary approval, the bill puts in place a legal framework which requires departments to make amendments to pension scheme regulations to facilitate implementation of the remedy.

The remedy has 2 parts:

• to ensure equal treatment for all members within each of the main public service pension schemes by moving all members into the new schemes on 1 April 2022 irrespective of age

• to remove the effect of transitional protection by offering eligible members a choice over the set of benefits (legacy scheme or new scheme) they wish to receive for any pensionable service during the period 1 April 2015 to 31 March 2022

This is the period during which the transitional protection existed which, in respect of similar provisions in other public service pension schemes, was found to be discriminatory by the Court of Appeal. Further detail about the judgment and remedy is set out in the consultation document.

The department consulted on a draft Statutory Instrument that makes changes to the NHS Pension Schemes Regulations to implement the first part of the McCloud remedy. The draft National Health Service Pension Schemes (Amendment) Regulations 2022 proposed consequential amendments to scheme rules necessary to ensure the smooth closure of the legacy 1995/2008 NHS Pension Scheme (the ‘1995/2008 Scheme’) to future accrual and movement of all active members into the new 2015 NHS Pension Scheme (the ‘2015 Scheme’) from 1 April 2022 as required by the bill.

Members transferring to the 2015 Scheme will retain a final salary link, so that their 1995 and/or 2008 Scheme benefits are calculated using pensionable pay at retirement rather than the point of transfer. The transfer will happen automatically and requires no action by members.

The draft regulations were consulted on at the same time as the bill went through Parliament. This is to ensure that upon becoming an Act of Parliament, the necessary scheme rule changes can be enacted for 1 April 2022. Implementation of the second part of the remedy also requires changes to scheme regulations. A further set of draft regulations is under development and will be consulted on separately in 2022.

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

Proposed changes to scheme regulations

The consultation document explained that the rules of the NHS Pension Schemes (NHSPS) 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, the Public Service Pensions Act 2013 and, where relevant, the Superannuation Act 1972.

The bill is currently going through Parliament. The department identified that upon Royal Assent, 2 sets of scheme regulations are necessary to give effect to the requirements of the bill. These regulations will make changes to scheme rules to implement the remedy and provide authority for the administrator to apply the changes.

The 2 sets are:

1. Consequential amendments to:

• facilitate the closure of the legacy 1995/2008 Scheme to future accrual from 1 April 2022 and movement of all active members into the new 2015 Scheme from that date. Members who move to the 2015 Scheme retain a final salary link, so that their 1995/2008 Scheme benefits are calculated using pensionable pay at retirement rather than the point of transfer

• update existing rules that make provision for the treatment and payment of legacy scheme benefits during or following a period of membership of the 2015 Scheme

2. New provisions that enable the scheme to:

• implement a ‘deferred choice underpin’ which will offer eligible members a choice over the set of benefits (legacy scheme or new scheme) they wish to receive when pension benefits become payable for any pensionable service during the remedy period 1 April 2015 to 31 March 2022

• correct any overpayment or underpayment of pension benefits or member contributions already paid in relation to a member because of their choice

• facilitate the payment of appropriate compensation to address financial loss arising from the discrimination or operation of the remedy, for example overpaid tax

The consultation presented the first set of draft scheme regulations outlined above.

The second set of draft scheme regulations is under development and will be consulted on separately later in 2022. The bill requires schemes to fully implement the deferred choice underpin by no later than October 2023.

Scheme rules for the NHS Pension Schemes

There are 2 NHS Pension Schemes:

• the new 2015 Scheme (the ‘new scheme’)

• the older legacy 1995/2008 Scheme (the ‘legacy scheme’), which is divided into the 1995 Section and the 2008 Section

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, whilst references to the ‘new scheme regulations’ means the 2015 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 new 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 new scheme. They also include 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.

Summary of proposed changes

The consultation document presented a detailed explanation of the proposed changes to scheme regulations and how these deliver the requirements of the bill. In summary, the draft regulations facilitate implementation of the McCloud remedy part 1 as follows.

Regulations 2 and 3 support the closure of the legacy sections of the scheme by amending the 1995 and 2008 Regulations to make clear that:

• members are prevented from contributing to or accruing further pensionable service in the legacy scheme from 1 April 2022
• the transitional protections introduced for those legacy scheme members on 1 April 2015 apply only in respect of service before 1 April 2022

Regulation 4 amends the eligibility rules in the 2015 Scheme so that active and deferred members who are prevented from further accrual in the 1995 and 2008 Sections from 1 April 2022 are eligible to join the 2015 Scheme from that date.

Regulation 5 updates the transitional regulations to cater for the movement of members from the legacy scheme to the new scheme on 1 April 2022. These regulations were put in place on 1 April 2015 to serve a number of purposes, for example, to ensure that:

• certain options and elections made by members under the legacy scheme regulations continue to apply under the new scheme regulations
• relevant provisions that apply in the legacy scheme continue to apply by virtue of equivalent provisions in the new scheme regulations
• legacy scheme service counts for certain purposes in the new scheme
• pensionable pay and benefits for officers and practitioners are determined correctly where benefits are due from both the legacy scheme and the new scheme

The majority of the existing transitional regulations apply automatically to members moving to the new scheme from 1 April 2022 without further amendment. Regulation 5, however, proposes the following amendments:

• paragraphs (2) and (3) amend regulations relating to the setting of contribution rates for the scheme year commencing 1 April 2022, which allows contributions in the new scheme to be set with reference to the member’s pensionable earnings in the previous year, during which they will have contributed to the legacy scheme
• paragraph (4) amends the regulation relating to the uprating of pensionable earnings of practitioners who are members of the legacy scheme and the new scheme so that it applies after such a member joins the new scheme on or after 1 April 2022
• paragraph (5) amends the regulation which provides for members of the 1995 Section to elect to take benefits derived from additional voluntary contributions at their chosen birthday without having to retire so that it also allows for elections by reference to the date on which the member joins the new scheme
• paragraphs (6) and (7) allow members of the legacy scheme who have an application for ill-health retirement underway at the point of legacy scheme closure, to have their application assessed against both the terms provided under the legacy scheme design and new scheme design
• paragraph (8) amends the regulation which provides for 1995 and 2008 Section pensioners who die whilst in service in the 2015 Scheme to receive an adjusted lump sum on death in like manner to 2015 Scheme pensioners, and regulation 37 is amended to ensure that it will apply to the new groups of pensioners inserted by paragraphs (10)(a) and (b)(ii) (see below)
• amendments in paragraphs 5(6), (9) and (10) correct minor errors in the transitional regulations
• paragraphs (10)(a) and (b)(ii) add to the groups of legacy scheme pensioners set out in Schedule 1 so that re-employed pensioners are no longer able to accrue benefits in that scheme from 1 April 2022 but are instead eligible to join the new scheme from that date

Consultation process

A consultation document and draft regulations were published on the GOV.UK website on 9 December 2021. The consultation closed on 20 January 2022.

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

The Scheme Advisory Board is a statutory board comprising trade union 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.

The department welcomed views on the proposed changes and draft regulations. Respondents were asked to consider 3 questions in particular:

• do you agree or disagree that the proposed amendments deliver the policy objective and requirements set by the bill?
• 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 amendments?
• do you think there are any other benefits, costs or wider impacts of these proposed amendments that have not been mentioned yet?

Responses were invited through the department’s consultation platform, by email or by post.

Consultation findings

The department thanks respondents for their feedback. A total of 72 responses were received. Of these, 47 were submitted through the consultation platform and 25 were received by email. The majority of responses (67) came from or on behalf of individual pension scheme members.

Responses were received from the following:

• British Medical Association (BMA)
• NHS Pension Scheme Advisory Board (SAB)
• NHS Business Services Authority (NHSBSA)
• 2 GP surgeries

Many of the individuals who responded asked about how the remedy applies to their individual circumstances. Individuals are directed to the scheme administrator for further information and guidance. Resources including factsheets, online videos and scheme guides are available on the NHS Pensions website. These include information specifically about both parts of the McCloud remedy, for both members and NHS employers. In addition, the scheme administrator wrote in January 2022 to all members who are set to move into the 2015 Scheme for future service from 1 April 2022, explaining the remedy and how it will affect their pension benefits.

Some respondents took the opportunity to express views on topics beyond the immediate scope of the proposed changes, for example on public service pension reforms enacted by government in light of the Hutton review, or how the measures envisaged in the second part of the McCloud remedy should operate.

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

Do you agree or disagree that the proposed amendments deliver the policy objective and requirements set by the bill?

The bill makes provision about public service pension schemes to remedy the unlawful discrimination identified by the McCloud judgment that arose from the transitional arrangements implemented when the new public service pension schemes were introduced. The bill requires schemes to make changes to pension legislation to implement the McCloud remedy. As explained earlier, this consultation concerns changes to deliver the first of 2 parts to the remedy, which closes the legacy sections of the 1995/2008 Scheme to future accrual from 1 April 2022 and moves all remaining staff into the 2015 Scheme.

Respondents were split on whether the proposed amendments deliver the policy objective and requirements set by the bill. Of the responses received through the consultation platform, 39% (19) of respondents disagreed, 35% (17) agreed and 27% (13) were unsure, although not all respondents commented specifically. The BMA stated that the proposed changes appeared to be consistent with the bill intentions. The SAB explained that whilst they did not review each individual proposed amendment to the regulations in detail, the presentation delivered to the SAB by the department provided assurance that the key points from this first consultation are logical and uncontentious. Many of those who were unsure or who did not comment on the amendments wanted to have a better understanding as to what the changes meant for their own individual circumstances.

Closure of the legacy scheme to future accrual

Some respondents commented on the closure of the legacy 1995/2008 Scheme to future accrual, stating that the changes were unfair and that they wished to remain in the legacy scheme especially when so close to retirement. Many felt that the changes disrupted their retirement planning, and some were concerned about the detrimental effect on benefits and that staff will be induced to retire or leave the service altogether. The BMA reiterated their opposition to the pension scheme changes introduced in 2015 and their position that all members should have been able to remain active members of the legacy scheme and receive the benefits that flowed from that.

MHO and special class status

Respondents with special class mental health officer (MHO) status also expressed concern about the financial impact of not being able to continue building up pension benefits under those special rules in the legacy scheme.

Pension tax

Some respondents highlighted that moving to the 2015 Scheme would result in the loss of certain HM Revenue and Customs (HMRC) lifetime allowance protections.

Feedback on proposed amendments to scheme regulations

Feedback was received on 2 specific changes to scheme regulations proposed by the consultation.

Ill-health retirement arrangements

The SAB, the BMA and the NHSBSA commented on the provisions relating to the transitional arrangements for ill-heath retirement applications.

The proposed amendments to transitional regulation 27 allow members of the legacy scheme who have an application for ill-health retirement underway before that scheme closes from 1 April 2022, to have their application assessed against both the terms provided under the legacy scheme design and new scheme design.

The SAB sought clarification on how service accrued in the new scheme will be considered if the ill health retirement application process extends beyond April 2022 (for example, if the ill health application outcome is disputed).

The BMA raised a concern in relation to the potential for unfair treatment towards those who have made an ill health retirement application before 31 March 2022 but who do not receive the initial outcome until after 1 April 2022. The BMA said ‘it is crucial that no member should be disadvantaged by the differences between the legacy schemes and the new scheme as to ill health retirement’.

The BMA noted that the proposed regulations do put in place arrangements for outstanding applications by legacy scheme members to be paid in accordance with the legacy scheme but commented that they do not address whether applicants who are declined post 1 April 2022 will then be permitted reassessment under their legacy scheme (which the BMA believe they should).

In addition, the BMA contend that those members who have been accepted for ill-health retirement under the new scheme should also be able to choose under which scheme they should receive their benefit.

Some respondents requested further clarification on how the arrangements would operate in practice and some were technical in nature.

Payment of pension benefits derived from additional voluntary contributions (AVCs)

The BMA commented on transitional provisions relating to the payment of benefits derived from AVCs in the 1995 Section. The BMA queried the fairness of the notification proposals in situations where the date a member joins the new scheme is later than their chosen date or birthday. The BMA argued that in such a situation, the timeframes in which the scheme should notify the member should be consistent.

Transitional regulation 25 (decoupling of benefits derived from additional contributions) provides for 1995 Section members to elect to take benefits derived from AVCs paid whilst a member of that section at their chosen date or birthday without having to retire from the 2015 Scheme. The amendments made to this regulation ensure that this option is also available to 1995 Section members joining the 2015 Scheme on 1 April 2022.

However, such members may have passed or be fast approaching their chosen age or birthday on that date. Therefore, the amendments provide an additional process and time limits for members who join the 2015 Scheme less than 6 months before their chosen age or birthday or after that date. The additional process requires the scheme administrator to provide all the option information to the member no later than 3 months after the member joins the 2015 Scheme. The member must then take up the option within 3 months of the option information being provided. If the member takes up the option, the payable date for the benefits derived from 1995 Section AVCs will be (as now) the member’s chosen date or birthday or the date the member joins the 2015 Scheme if later.

The BMA suggested that the time period for taking up the option should be extended to a total of 6 months to align with existing timeframes for members to make decisions about their AVC benefits generally.

Topics that fall within scope of part 2 of the McCloud remedy

Several respondents considered the features of the second part of the remedy, specifically the implications and timings of offering the choice of legacy or new scheme benefits for eligible service in the remedy period, from 1 April 2015 to 31 March 2022.

One respondent suggested that the full remedy should be implemented immediately to members retiring before October 2023. The government has accepted that members who moved to the new pension schemes on or after 1 April 2015 and have subsequently retired already have an entitlement to be treated as a member of their legacy scheme for the remedy period if they wish. This provision is extended to pensioner members of the legacy pension schemes who may wish to be treated as a member of their new scheme for the remedy period.

Specific comments included the topics below.

Immediate choice of legacy or new scheme benefits

Eligible members who have already retired or who will do so before the remedy to the discrimination is implemented will be offered a choice of legacy scheme or new scheme benefits for pensionable membership between 1 April 2015 and 31 March 2022.

The SAB noted that members needing to make a choice will be dealt with as a first priority once parts 1 and 2 of the remedy consultations are completed, and regulations are in place. However, the SAB wished to press the department to ensure that such cases are addressed as soon as practically possible, including associated tax issues, so that members are receiving their correct benefit entitlement.

Early retirement reduction buyout (ERRBO) cases

The SAB and one other respondent commented on the facility to pay ERRBO contributions. The SAB noted that the part 1 consultation covers issues for members who purchase added years, additional pension or paid AVCs and asked for clarification on whether a solution for ERRBO contributions will form part of the second consultation. The SAB added that, where relevant, ERRBO contributions should be accounted for or refunded to the member with appropriate interest and highlighted the importance of clear communication to affected members.

Transfer of NHS Pension Scheme benefits

Several respondents raised concerns that the draft regulations do not provide for the transfer of NHS Pension Scheme benefits accrued in the remedy period (and therefore subject to a deferred choice underpin choice) into other pension schemes including a qualifying recognised overseas pension scheme (QROPS).

Government response

The department notes that on a show of hands, opinion was split on whether the proposed amendments deliver the policy objectives and requirements set by the bill. Broadly, a third agreed, a third disagreed and a third did not know. However, this should be viewed in context of the individual responses, many of which appeared to consider the proposals in relation to their own pension position rather than whether the amendments delivered the policy and requirements set by the bill.

Whilst the transitional protection element of the 2015 reforms was found to give rise to unlawful discrimination, the rationale for those reforms and introducing new schemes still stands. The government remains of the view that these schemes offer generous pension provision and address the objectives of affordability and sustainability.

The new schemes themselves are not discriminatory, and the government wants to ensure that all members are treated equally in respect of the scheme design available to them after the discrimination has been addressed. These proposals achieve this, but if some members were able to remain in legacy schemes while others were not, that key objective would not be met.

Closure of the legacy scheme to future accrual

The changes to NHS Pension Scheme regulations mean that from 1 April 2022 scheme members will build up pension benefits in the 2015 Scheme which will be calculated using a career average revalued earnings (CARE) model. Members will not lose any of the pension benefits already built up in the legacy schemes. These will make up part of the benefits on retirement, and the remainder will be made up of benefits earned from 1 April 2022 onwards.

Members will still be able to claim legacy 1995/2008 Scheme benefits at the same time as they can be claimed currently. Where appropriate, membership will still be linked to final salary at retirement, as long as there is no break in membership of more than 5 years. Practitioner benefits are also protected at retirement under arrangements equivalent to a final salary link.

MHO and special class status

The 2015 Scheme does not have an MHO or special class provision. Those rules were withdrawn for new entrants from 6 March 1995. Members currently holding special class or MHO status will have that status protected in respect of any 1995 Section benefits as long as the qualifying rules are met. Members will then be able to claim their accrued 1995 Section benefits from age 55 without any reduction.

Pension tax

Once a member moves into the 2015 Scheme on 1 April 2022 if they have enhanced protection or fixed protection HMRC rules prevent them from retaining these types of protection once they start contributing to the 2015 Scheme, as this is another registered pension scheme. The letter issued by the scheme administrator in January 2022 stated that members with these protections should consider HMRC’s rules carefully before 31 March 2022 and their move to the 2015 Scheme.

Feedback on proposed amendments to scheme regulations

Ill-health retirement arrangements

Turning to the specific amendments to scheme regulations proposed by the consultation, the department notes that the proposed ill-health retirement arrangements were generally supported by those respondents who commented on it. The intention is to ensure that the member and their dependants are not placed in a less beneficial position than they would have been had the outcome of their application been determined under the legacy scheme regulations and the member’s retirement on health-grounds taken place on 31 March 2022.

In response to the question about applications declined after 1 April 2022, in circumstances where members qualify to have their applications for ill health retirement considered under amended transitional regulation 27, the current provisions of that regulation continue to apply to the member’s application until it is either agreed or all appeal routes have been exhausted.

With regard to the BMA’s concern that the ill-health retirement arrangement should be a provision for all members who made an ill health retirement application before 31 March 2022, the government has agreed that this provision is to be included in part 2 of the remedy for members who moved to the new schemes before 1 April 2022, made an application before 31 March 2022 and have new scheme service on 1 April 2022.

Payment of pension benefits derived from AVCs

The department welcomes the suggestion from BMA that the time limit for 1995 Section members to make an election to claim AVC benefits should be extended from the 3 months proposed and brought into line with the current timeframe for member decisions in relation to claiming their AVC benefits generally. Current timeframes, which cater for members who join the new scheme some considerable time before reaching their chosen age or birthday, require the scheme administrator to notify the member of this option 6 months before that age or birthday. The member must then make an election no later than one month before that age or birthday, giving the member 5 months to make an election. The additional process to cater for members who have passed or are fast approaching that age or birthday when joining the new scheme, requires the scheme administrator to notify the member of the option within 3 months of their joining date. The member must make an election within 3 months of that notification.

3 months was considered a suitably long period of time for members to take action in these circumstances. However, a longer period causes no administrative difficulty. We will therefore amend the draft regulations accordingly to align the time available for the member to make their decision with the time provided in the existing process. This means that the member must take up the option within 5 months of the option information being provided. If the member takes up the option, the payable date for the benefits derived from 1995 Section AVCs will be (as now) the member’s chosen date or birthday or the date the member joins the 2015 Scheme if later.

Topics that fall within scope of part 2 of the McCloud remedy

Immediate choice of legacy or new scheme benefits

The government’s view at this time is that a choice for pensioner members, including those yet to retire, could not be processed before legislation is in place without considerable risk, uncertainty and administrative burdens for members, schemes and employers.

The government recognises that this may present difficulties for the pensioner members affected and is committed to ensuring the discrimination identified by the courts is rectified as soon as is practicable, including through measures in the bill. The process of laying the necessary legislation for resolving these cases is well underway, as indicated by the passage of the bill.

ERRBO cases

Through further engagement with schemes, the government is considering ways to ensure that members may retain rights in the schemes in which they made voluntary member contributions, specifically in respect to ERRBO. The technical detail of how this will be implemented in each scheme will be decided through scheme level discussions, and the department confirms that the ERRBO solution will form part of the next stage of the remedy and the part 2 consultation on changes to scheme regulations.

Transfer of NHS Pension Scheme benefits

In relation to the transfer of scheme benefits, 2015 Scheme members are entitled to transfer their NHS pension rights into an overseas scheme as long as the scheme meets HMRC’s rules to be a QROPS, and therefore members moving to the 2015 Scheme from 1 April 2022 will also be allowed to transfer out to a QROPS. In addition, provision already exists for the NHS retirement pension to be paid to members residing overseas.

Next steps on part 2 of the remedy

The department is developing the draft regulations necessary to deliver the second part of the remedy, including the deferred choice underpin. We expect to publish these for public consultation later this year.

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 amendments?

HM Treasury published an equality impact assessment which considered the impact of the proposed bill powers and requirements. The consultation document set out the department’s assessment of the impact of the proposed changes to scheme rules necessary to deliver those bill requirements relating to part 1 of the remedy. The assessment considered the impact in context of the public sector equality duty.

The department invited respondents to help refine this assessment by contributing further perspectives or identifying where there might be equality impacts to consider and 35 responses were received to this question. The following section presents an updated assessment which includes and evaluates the feedback received.

Updated equality impact assessment of the proposed amendments to NHS Pension Scheme Regulations (remedy part 1)

Members in scope

NHS Pension Scheme members in scope of part 1 of the remedy are those members who started pensionable public service before 1 April 2012, had legacy scheme membership during the remedy period and remain an active member of the 1995/2008 Scheme on 31 March 2022. The unlawful age discrimination identified by the McCloud judgment in respect of other public service pension schemes was between:

• those members who received full transitional protection because they were 10 years or less from their normal pension age
• those members who did not receive full transitional protection because they were more than 10 years from their normal pension age

Part 1 of the remedy covers NHS Pension Scheme members who received full transitional protection and applies equally to all these members.

Members out of scope

NHS Pension Scheme members out of scope are those members who first joined any public service pension scheme after 31 March 2012. These members were ineligible for transitional protection regardless of their age, and therefore were not subject to the age discrimination identified by the Court of Appeal.

Age

The transitional protection implemented as part of reforms to public service pension schemes was found by the Court of Appeal to be directly age discriminatory as eligibility for such protection was based on age criteria.

The table below shows the number of active protected members in the 1995 Section and the 2008 Section on 31 March 2012 and 13 October 2021.

Number of active protected members in the 1995 and 2008 Sections (source: NHSBSA)

Active protected members	1995 Section	2008 Section	% of total NHSPS members
31 March 2012	384,000	34,000	32%
13 October 2021	69,000	5,000	4.3%

The proposed changes to NHS Pension Schemes Regulations will be applied to all members regardless of age. The exceptions that allowed certain members who were closer to their normal pension age to remain in the legacy scheme after 31 March 2015 under transitional protection arrangements will apply only in respect of service up to 31 March 2022. On 1 April 2022, all active members will be moved to the 2015 Scheme and from that point will build future pension rights on the same basis irrespective of age.

The effects of such transitional protection will be addressed by the second part of the remedy. All eligible members will be offered a choice over the set of benefits (legacy scheme or new scheme) they wish to receive for any pensionable service during the period 1 April 2015 to 31 March 2022. This is the period during which the transitional protection existed which, in respect of similar provisions in other public service pension schemes, was found to be discriminatory by the Court of Appeal.

Several consultation respondents, particularly those close to the normal retirement age (60) in the 1995 Section, suggested that the changes to remove the discrimination from younger scheme members now resulted in older members being discriminated against. One said that those close to retirement had been unable to plan for the withdrawal of transitional protection and it was unfair to now require them to join the 2015 Scheme from 1 April 2022 for future accrual. Another respondent suggested that the NHS should agree retire and return arrangements to compensate staff who wanted to wind down their hours but could no longer build up pension in the 1995 Section from 1 April 2022.

The withdrawal of transitional protection will be disruptive to some retirement plans but is considered a proportionate measure to remedy the discrimination found by the courts in December 2018. The government consulted publicly on the appropriate remedy which was announced in February 2021 confirming that legacy schemes would close on 31 March 2022. Many 1995 Section members have been in the scheme for some years and have been accruing retirement benefits on a final salary basis. Those benefits are unaffected and can be claimed at the same time as they can be claimed now. A final salary link will continue to apply to those benefits, so that the value is calculated using an individual’s pensionable pay at the point of retirement rather than at the date of moving to the 2015 Scheme (that is 31 March 2022).

We are aware that staff value the ability to work flexibly, and that employers’ ability to make more flexible employment offers is key to retaining older staff in the workforce for longer. Pension flexibilities such as retire and return can facilitate this and we have been working with NHS England and NHS Improvement, and NHS Employers to promote their use to employers.

Sex

The Equalities 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 as non-binary. Gender reassignment is also a protected characteristic under the Equality Act 2010.

The proposed changes will apply to all members regardless of sex and gender identity.

NHS Pension Scheme data shows that 78% of the membership are female. This is broadly similar to data provided by NHS Digital, which shows that 77% of the workforce (including those who are not members of the NHS Pension Scheme) are female.

The table below shows the number of active male and female protected members in the 1995 Section and the 2008 Section on 13 October 2021.

Number of active protected female and male members in the 1995 and 2008 Sections (source: NHSBSA)

Sex	1995 Section: number of protected members (%)	2008 Section: number of protected members (%)
Female	56,500 (82%)	3,800 (73%)
Male	12,500 (18%)	1,400 (27%)

Some consultation respondents commented that the changes discriminate against members with family responsibilities, who are likely to be female and may also be working part-time. One respondent felt disadvantaged by the loss of special pension rights as an MHO for future service from 1 April 2022 and considered that she would be financially penalised in a way that most men with MHO status are not. Special class pension rights are only available to 1995 Section members who joined before 6 March 1995 and work in a qualifying occupation. MHO special class rights provide for early retirement with an unreduced pension from age 55 and for years of service beyond 20 years to count double, allowing a maximum pension to be reached after 30 years rather than 40 years. The respondent said she had planned to use the MHO doubling provisions later in her career to boost her pension which had been smaller due to earlier family commitments.

Closing the 1995/2008 Scheme to future pension accrual applies to all scheme members regardless of sex. From 1 April 2022 all 1995/2008 Scheme members, who remain in pensionable service, will only be eligible to do so as a member of the 2015 Scheme. Moving from a final salary legacy scheme to a CARE new scheme for future accrual flattens out the added benefit of late career pay progression for higher earners who are more likely to be male. In doing so the aim is to ensure equal treatment of all active members for future service. It will mean that the ability to accrue service at double rate under legacy MHO provisions will be curtailed as no equivalent exists in the 2015 Scheme.

However, the transitional regulations (regulation 17) provide a supplemental final salary link in respect of 1995 Section officer members who have MHO service in the 1995 Section and whose pensionable service in the 2015 Scheme would have qualified them for MHO status had it accrued in the 1995 Section. This means that the final pensionable pay used to calculate 1995 Section benefits in respect of former MHOs may be derived from service in the 2015 Scheme that would have been MHO service in the 1995 Section had the member remained in that section. All accrued service in the 1995/2008 Scheme will be protected and payable in full according to relevant scheme rules, including where special class rights apply to that service. Where individuals consider their pension savings to be insufficient, the government considers that the 2015 Scheme provides a generous accrual rate for building up further benefits and an option to purchase additional pension.

Ethnicity (race)

Available data on the NHS Pension Scheme membership only covers members’ age and sex. However, data from NHS Digital is available on the protected characteristics of staff in NHS trusts and clinical commissioning groups, which is regarded as a reasonable proxy for the characteristics of active members of the NHS Pension Scheme, given the high percentage of NHS staff who are members. However, whilst this data includes NHS Hospital and Community Health Service staff, it does not cover those working in primary care.

The table below compares the ethnic composition of the NHS workforce and the general population, using data from NHS Digital and the Annual Population Survey, which is compiled from interviews for the Labour Force Survey (the largest regular household survey in the UK) along with additional regional samples. Whilst the majority of NHS staff whose ethnicity is recorded are white, there is generally a higher proportion of ethnic minorities represented in the NHS than in the general UK workforce population.

Breakdown of the NHS and broader UK workforce by ethnicity (source: NHS Digital workforce statistics and annual population survey)

Ethnicity	NHS Digital data	Annual population survey
White	74%	78%
Asian or Asian British	11%	8%
Black or Black British	6%	3%
Chinese	1%	2%
Mixed	2%	2%
Any other ethnic group	3%	1%
Not stated or unknown	4%	6%

However, we have considered the potential impact on members from different ethnic backgrounds and the proposed part 1 amendments will apply to all members equally, regardless of their ethnicity.

3 consultation respondents were concerned that the proposals do not address the transfer of accrued NHS Pension Scheme pension benefits to overseas pension schemes including those designated as a QROPS. They felt that this could disproportionately affect members of the NHS Pension Scheme who owing to their heritage may have a desire or need to migrate/retire overseas. The department wishes to reassure these respondents on this point. 2015 Scheme members are entitled to transfer their NHS pension rights to an overseas scheme as long as the scheme qualifies as a QROPS under HMRC rules, and therefore members moving to the 2015 Scheme from 1 April 2022 will also be allowed to transfer out to a QROPS. In addition, provision exists for the NHS retirement pension to be paid to members residing overseas.

Marriage and civil partnership

There is no available data on this group in relation to the NHS workforce or NHS Pension Scheme membership. However, we have considered the potential impact of the proposals on members who have this protected characteristic as part of our analysis on sex.

Disability, religion and belief, gender reassignment and sexual orientation

Available data on people with these protected characteristics, both in the NHS Pension Scheme and the NHS workforce, is limited. However, we have considered the potential equality impacts of the proposed changes for members who share these protected characteristics and those who do not.

In their consultation response, the BMA suggested that people with a disability (who may be more likely to work less than full time) are set to be placed at a significant disadvantage as a result of the changes proposed. The aim of closing the 1995/2008 Scheme to future accrual is to ensure equal treatment of all active members for future service. All accrued service in the 1995/2008 Scheme will be protected and payable in full according to relevant scheme rules. Where individuals consider their pension savings to be insufficient, the government considers that the 2015 Scheme provides a generous accrual rate for building up further benefits and an option to purchase additional pension.

Taking into consideration the limited evidence available the department does not envisage any unjustified differential impacts that the consequential amendments will cause for members by reference to these protected characteristics.

Other points raised

One respondent reflected on an aim of the remedy to ensure that there is equal treatment for all members within each of the main public service pension schemes, and suggested it was not equal treatment for NHS consultants to receive a final salary pension whereas GPs have a career average pension. The department notes this point, which reflects the historic pension arrangements in the NHS. GPs are typically self-employed with fluctuating pensionable earnings. Accruing pension based on career average earnings is therefore a more appropriate model than final salary. All members of the 2015 Scheme build their pension on a CARE basis. The bill provides that there will be no further final salary based accrual in public service pension schemes from 1 April 2022.

Conclusion

The department has considered the impact of the proposals to amend the NHS Pension Schemes regulations in context of the public sector equality duty and is grateful for the comments received through consultation which have helped to further inform the assessment.

Do you think there are any other benefits, costs or wider impacts of these proposed amendments that have not been mentioned yet?

The policy impact assessment for the bill explains that the remedy measures mean all public service workers eligible for a pension would accrue benefits from 1 April 2022 under their respective new schemes. Therefore, from this point, there will be a single pension scheme for all active members in each workforce group, thereby ensuring equal treatment.

None of the public service pension reform measures in the bill, or the consequential amendments to scheme regulations proposed in this consultation, have a regulatory impact on businesses. This is because the core measures of the bill limit the scope strictly to public service pensions, although the measures may have an impact on:

• administrators as certain pension schemes are administered by private companies
• private sector employers that participate in public service pension schemes

Any increase in costs to the private sector would be because of fulfilling government procured contracts and not because of any imposed regulatory change.

HM Treasury noted that pension liabilities are expected to increase for the main, unfunded pension schemes (excluding judiciary) by an additional £17 billion over the next 4 to 5 decades. This £17 billion figure reflects the cost of remedy (parts 1 and 2) for the schemes covered by HM Treasury’s consultation in July 2020, which are the NHS, teachers, civil service, armed forces, firefighters and police pension schemes (excluding judiciary).

The department invited respondents to identify any other benefits, costs or wider impacts of the proposed changes to scheme regulations that have not already been mentioned and 31 responses were received to this question.

Some respondents raised concerns about the impact on NHS services if the closure of the legacy scheme to further accrual led to people retiring from service sooner than they had planned. Others pointed to the later pension age of the new scheme (linked to an individual’s state pension age), with one highlighting the physical and mental stress of providing patient care. One respondent queried the fairness for those planning to retire in the next few years of having their pension split across 2 schemes and therefore having to wait several years until being able to claim the balance of their pension without reduction for early payment.

Some respondents commented on the costs flowing from the remedy. One respondent was concerned that the government’s decision to classify the cost of remedy as a member cost for the purposes of the scheme cost control mechanism and the proposed economic check for evaluating the affordability of any benefit adjustment, may erode trust in the scheme. Another suggested that the government stood to save money from members having to claim their pension at age 67 under the new scheme rather than age 60 in the 1995 Section of the legacy scheme.

Government response

The department is grateful for the responses to this question. Whilst the transitional protection element of the 2015 reforms was found to give rise to unlawful discrimination, the rationale for introducing the new schemes still stands. The government remains of the view that the new schemes offer generous pension provision and address the objectives of affordability and sustainability.

The new schemes themselves are not discriminatory, and the government wants to ensure that all members are treated equally in respect of the scheme design available to them after the discrimination has been addressed. If some members were able to remain in legacy schemes while others were not, that key objective would not be met.

All pension benefits built up in the legacy scheme up to 31 March 2022 are fully protected and can be drawn in accordance with the rules of the legacy scheme. We note the concerns that notwithstanding the need to end the discrimination, moving transitionally protected staff to the new scheme from 1 April 2022 may prompt some staff to bring forward their retirement plans.

We are aware that NHS staff value the ability to work flexibly, and that employers’ ability to make more flexible employment offers is key to retaining experienced staff in the workforce for longer. We have therefore been working with NHS England and NHS Improvement on a retention initiative focused on employers making flexible employment offers to staff and engaging their higher earners on pension tax issues.

These plans include:

• developing pension communications designed specifically for staff, and personal illustrations demonstrating the value of delaying retirement
• staff seminars to explain the value of the scheme and the benefits of delaying retirement, including seminars designed for those affected by pensions tax

We are also working with NHS Employers, who are supporting this work by providing guidance and practical examples on actions employers can take. NHS Employers has published a range of communication, guidance and training materials to support organisations to have impactful conversations with their staff to help them make informed decisions about how the scheme can help them to retire gradually, supported by flexible working options or retire and return.

In relation to the inclusion of remedy costs in the cost control mechanism at the 2016 valuations, the government notes that the plans to address the discrimination - giving members a choice of scheme benefits for the remedy period - will increase the value of schemes to members and the usual way these costs are managed is through the cost control mechanism that is a feature of the actuarial valuation of the scheme. The cost of remedy will therefore be taken into account as part of the completion of the cost control element of the 2016 valuation.

On reforms to the cost control mechanism announced by the government, these will create greater stability and certainty for members by reducing the likelihood of needing to reduce or increase future benefit levels to balance costs.

The economic check element of these reforms allows the mechanism to take into account more of the factors affecting the actual cost of providing a pension. The introduction of a symmetrical economic check will ensure that any breach of the mechanism would only be implemented if it would still have occurred had any changes in the long-term economic outlook been considered. The economic check will operate for the benefit of both members and taxpayers, and ensure greater consistency between benefit changes and changes to the wider economic outlook. It ensures a higher bar for benefit reductions to occur if the country’s long-term economic outlook improves. But it equally applies to benefit increases if the long-term economic outlook worsens. It will operate in a transparent way and will be linked to an objective and independent measure of expected long-term GDP from the Office for Budget Responsibility.

Conclusion and next steps

The department is grateful for the responses received to this consultation. The amending regulations make changes to scheme rules to facilitate implementation of the first part of the McCloud remedy as required by the bill and are an important step towards ending the discrimination identified by the Court of Appeal in 2018.

The department intends to take forward the proposed changes to scheme regulations. The draft amending regulations will be finalised, subject to increasing the timeframe for members making an election in relation to AVC benefits. Once the bill has received Royal Assent, the amending regulations will be laid before Parliament and come into force on 1 April 2022.

The scheme administrator has written to members affected by the first part of the remedy, and further information about the changes is available on the NHS Pensions website.

Work is underway to assess the changes required to NHS Pension Schemes regulations to implement part 2 of the McCloud remedy. Those changes will be presented in a separate public consultation later this year.