The pension and tax return implications of the McCloud judgement

The pension and tax return implications of the McCloud judgement

The McCloud judgement stands as a landmark legal decision that has implications for most public service pensions, including members of the NHS, Teachers, Civil Servants, Police Officers, Firefighters, Armed Forces and Local Government Pension Schemes (LGPS).

What is the McCloud judgement?

The case originated from reforms the Government made to public service pensions in 2014 and 2015, which included transitional protections for older members. Essentially, the changes by Government were based on a pension scheme members’ age as at the 1 April 2012, and they were a form of safeguarding the historical benefits of those close to retirement.

However, in a significant development, the Court of Appeal ruled that these provisions unlawfully discriminated against the younger members of the schemes.

The McCloud judgement, as the ruling was labelled, has subsequently led to younger members receiving the same protection. This ‘underpin protection’ will come into force from 1 October 2023, but only applies to pensions built up in the ‘remedy period’, which was between 1 April 2015 and 31 March 2022.

An overview

The Government are still finalising the detail and have recently published further guidance regarding the 2022/23 growth calculations and how these are to be reported to HM Revenue & Customs (HMRC).

Previously scheme members who had exceeded the Annual Allowance were required to disclose the growth on their Self-Assessment tax returns, which in turn need to be submitted by the 31 January following the end of the tax year. 

To accurately report this, members have relied upon information provided by the schemes which are sent annually (from the start of October following the end of the tax year) confirming the growth in excess of the Annual Allowances or enabled this to be calculated.

However, due to the complications created by the McCloud judgement, the Government have confirmed these will not be sent from October 2023 (for the 2022/23 Tax Year) but will begin to be issued a year later (from 6 October 2024).

As confirmation of the excess will not be received in time for the 2022/23 Self-Assessment deadline (31 January 2024), any pension savings tax charge should not be reported on Self-Assessment Tax Returns.

Instead, any charges for the year will need to be disclosed using a new, standalone system - the details of which are to be confirmed in due course. This new electronic form will need to be completed by the 31 January 2025, so a year later than previously required.

We are here to help

Public sector pensions continue to be a fast moving, ever-evolving area and it’s imperative to seek professional advice to ensure you are up to date with the latest developments and aware of your current reporting responsibilities to ensure nothing is missed. 

If you have any questions regarding the McCloud Judgement, your pension and reporting requirements, please get in touch with one of our specialists or your usual Azets advisor.

The information above is correct at the time of publishing but may be subject to change in the future. This article is for general information only and is not intended to be advice to any specific person and it is recommended to seek professional advice before taking or refraining from taking action on the basis of its contents.