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In Public Sector Pensions, Public Sector Pensions Remedy

Remediable Service Statements – what to expect for ‘Immediate Choice’ members

All of the public sector pension schemes are now further along the process of allowing for the McCloud judgement (public sector pensions remedy) for affected members (typically those with some pensionable service in the remedy period from 1 April 2015 to 31 March 2022).

Some of the public sector pension schemes have now commenced issuing Remediable Service Statements to affected members.

(For a broad outline of public sector pensions remedy, you may wish to look at our blog at Public Sector Pensions Remedy – How concerned should you be?)

What is an RSS?

A Remediable Service Statement (RSS) is a document provided to public sector scheme members affected by the McCloud remedy, to help them understand how this affects their pension, particularly for the “remedy period” (1 April 2015 to 31 March 2022).  It outlines the impact of the remedy on their pension and provides information about alternative benefits they may be entitled to for the period of service covered by the remedy.

The RSS is crucial for making an informed decision about the best pension option for the remedy period. It’s essential to carefully review the information in the RSS and consider the impact based on the member’s individual circumstances.

Who receives it and when?

Members affected by the McCloud remedy, such as those in the Teachers, NHS, Police and Armed Forces pension schemes, as well as other workers employed in the public sector, will receive an RSS.

Active employed members must receive an RSS at least annually, typically in or around April each year, whilst deferred members (that is individuals who are no longer working and accruing benefits in the pension scheme) must be provided with one on request (as long as this is no more frequent than once a year).

For those members who were already in receipt of their pension on 30 September 2023 and impacted by the McCloud Remedy (‘Immediate Choice members’), they will receive an RSS providing them with their ‘Immediate Choice’ options and the deadline for providing these statements was originally set to be 1 April 2025.  The Government has recently extended this deadline for some public sector schemes (particularly the NHS and Armed Forces) and so, depending on the individual circumstances of the member, some Immediate Choice members may not now receive their RSS until sometime between 1 July 2025 and 1 December 2026.

Latest information from the Armed Forces Pension Scheme indicates that members will receive their RSS by 30 September 2025.

The NHS Pension Scheme has recently advised that:

  • Immediate Choice members formerly unprotected or with taper protection and with only legacy benefits currently in payment will now receive their RSS by 1 July 2025,
  • Immediate Choice members formerly unprotected or with taper protection with both legacy and reformed benefits currently in payment will now receive their RSS by 1 October 2025,
  • Immediate Choice members, formerly protected, with remedy period benefits in payment and all members who retired between 1 October 2023 and 1 July 2025, will now receive their RSS by 1 December 2026.
  • All active and deferred members will receive their first RSS by 1 September 2025

What will the RSS show for an Immediate Choice member?

The RSS is intended to provide information to an Immediate Choice member on:

  • The pension that they are currently receiving for the remedy period – and this could be on a ‘legacy’ basis under the rules of the old scheme or on a ‘reformed’ basis under the rules of the new 2015 scheme depending upon whether the member was a protected or unprotected member.
  • The pension that would be payable immediately for the remedy period if it was instead calculated on the alternative basis (legacy or reformed).
  • The lump sum actually paid on retirement and what would be payable under the alternative option.
  • If a pensioner member elects to receive the alternative benefits available to them (to replace their current pension in payment for the remedy period), this will likely result in some over or underpayment of benefits by the pension scheme. The RSS should show the amount of any over or underpayment due (including interest) if the alternative option is chosen.  Interest is applied to the entire election period until the date the election is made and so will be recalculated once an election has been submitted.  The RSS will only include interest calculated to the date shown.

The way in which this information will be presented by each scheme may differ.  The National Police Chiefs’ Council has prepared a very useful factsheet setting out an example of what a typical RSS for an Immediate Choice member may look like and this is shown below.

On receipt of the election, the scheme will if necessary, recalculate the member’s pension and put it into payment.

How to make an RSS election and when it needs to be made

An election choice will need to be made by a member at the time of their retirement.

For Immediate Choice members, there will be included with their RSS, an election form which they will need to complete with their personal details, indicating their election choice.

These pensioner members will have twelve months from the date of issue of the RSS to submit their election choice and in the meantime, they will continue to receive their current pension.

Changes will only be made to their pension in payment if they elect for alternative scheme benefits to those already in payment.

What happens if an election is not made?

Where an affected member does not make an election choice within the twelve month period and their remedy period pension is currently being paid to them in whole or in part on a reformed basis, the default option is for it to be paid out on a legacy basis and an election will be deemed to have been made.  Legacy benefits may not be the member’s current benefits and so they may see a change to their pension benefits.  It is important then that an election is submitted in good time where the member has a preference to continue to receive a remedy period pension currently being paid to them on a reformed basis.

If a default election occurs, it is final and cannot be reversed.

What is the relevance of the RSS to a divorce settlement?

Where an individual has a pension that is subject to review as a result of the McCloud judgement, an RSS will provide an indication of the extent by which their pension benefits may alter as a result of public sector pensions remedy depending on the election made.

For Immediate Choice members in particular, the election choice made can have an immediate impact on the pension benefits in payment and should be taken into account in reaching agreement on the settlement terms.

If the parties are considering pension sharing as a means of settlement, they should note that where a CEV statement for an Immediate Choice member has been issued before the RSS has been issued and an election made, the CEV could alter once an election has been made (particularly if the alternative option is chosen), which would then impact on the pension credit awarded to the ex-spouse.

The way in which public sector pension schemes pension schemes deal with immediate choice members does not appear to be uniform. Some schemes (such as the Armed Forces) appear to be saying that they will not implement a pension sharing order in this circumstance until the remedy choice has been made.

Other schemes (such as the NHS Pension Scheme) appear to be saying that they will not hold up pension shares for this reason, but if the member makes a different remedy choice post-divorce than that assumed at the time the CEV is prepared for pension sharing purposes, they will retrospectively adjust the benefits for the pension credit member and the original scheme member once the remedy choice has been made.  Settling in this case is however risky, as it could mean that the percentage share in the Annex is calculated based on terms very different to what the member may choose shortly after the divorce has been finalised, which could mean in some circumstances that the pension credit member could have their pension credit reduced post-divorce.

It is hoped that more information will be published shortly to provide greater clarification on the above issues. Public sector schemes and their associated employers are beginning to include more information on their websites regarding remedy procedures; however there are still a lot of areas where it is hard to get information.  Family practitioners would be strongly recommended to consult PODEs to provide assistance on McCloud- impacted divorce cases.    

Denise Andryszewska

Senior Pensions Analyst

Actuaries for Lawyers

About the writer

Disclaimer – The views expressed here are the views of the writer only and do not necessarily represent the view of Actuaries for Lawyers. Whilst every effort has been made to ensure the accuracy of the information in this post, it is important to always check the benefit rules with the schemes before making any financial decisions based upon these. Actuaries for Lawyers cannot be held responsible for any losses incurred as a result of relying upon information contained in the blog section of our website as these do not constitute advice or act as a substitute for providing individual advice in relation to the specifics of a particular case.

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In Pensions on Divorce, Public Sector Pensions, Public Sector Pensions Remedy

Public sector pensions remedy (McCloud) changes to benefits from 1 October 2023 – implications for Pensions on Divorce settlement

The purpose of this blog is to point out one aspect of the changes taking place for most Public Sector Schemes from 1 October 2023 and as a result of that, what action may be needed.

In general the calculations and results within reports may be invalidated over time due to various factors such as large changes to CEVs. These large changes to the CEVs could be due to things like large salary increases, extra accrual of benefit, the taking of benefits on retirement as well as other reasons. But in addition to these reasons why a CEV may change, a further potential cause has now been added as a result of the regulations coming into force on 1 October 2023 in respect of the Public Sector Pensions Remedy (consequent to the McCloud ruling).

Generalised summary of what to look out for

Action may be required where all of the following conditions apply:

  • A Pensions on Divorce report has been completed, but a Pension Sharing Order (PSO) has not been implemented.
  • A Public Sector pension is involved; so a pension from employment with one or more of the NHS, civil service, teachers, police, armed forces and fire and rescue service. The judiciary has been excluded from this list, because this issue does not arise. Local Government workers have not been included because their scheme has different conditions.
  • The scheme member was an active member of the scheme immediately prior to 1 April 2012 and has some service in the same employment between 1 April 2015 and 31 March 2022
  • The intention is to implement a PSO on that public sector pension.
  • When the report was produced, there must have been two sections to that public sector pension (being the 2015 Scheme section and a pre-2015 Scheme section). The sections are actually referred to as separate schemes. The PSO may only be being applied to one section of that scheme, but the overall pension from both sections together must have accrual of benefit in between 1 April 2015 and 31 March 2022 (inclusive).
  • The report was based on Cash Equivalent Values (CEVs) which were produced before 1 October 2023.
  • A further CEV has been requested after 1 October 2023 but before the PSO has been implemented.

Action required

The parties will need to consider re-visiting the report to assess whether the results are still reliable/valid.

Reasoning

 Any agreed pension share may not work as intended, and could lead to a materially different outcome, because the CEV of the underlying pension in each section may have significantly changed. This change is due to a movement of the benefit accrual for the 2015/2022 period from the 2015 Scheme section to the Pre-2015 Scheme section from 1 October 2023.

I illustrate here a very simplified hypothetical example to indicate what may be happening.

A Pensions on Divorce report has been provided with calculations effective as at 31 July 2023 with a PSO indicated of 50% of the Pre- 2015 pension based on the following CEV values

  • Pre-2015 Scheme section – CEV = £50,000
  • 2015 Scheme section – CEV = £100,000 (£70,000 of this is in respect of the 2015/2022 accrual period)

So the intended share is 50% of £50,000 equalling £25,000 pension credit CEV

The pension scheme member is wondering whether the CEVs may be out of date and so obtains revised CEVs with an effective date of 1 November 2023, which are provided as follows

  • Pre-2015 Scheme section – CEV = £130,000 (£80,000 of this is in respect of the 2015/2022 accrual period)
  • 2015 Scheme section – CEV = £30,000

If a 50% PSO is implemented on the Pre-2015 pension as at say 15 November 2023 then the pension credit CEV would now be based on the new CEVs, and so would become  £65,000 (50% of £130,000), and effectively £40,000 higher than intended.

The cause of the unintended consequence in this example is that, based on the draft legislation published to date regarding Public Sector Pensions Remedy (McCloud), the methodology for calculating Pension Credit and Pension Debit amounts on the application of a Pension Sharing Order (PSO) differs depending upon whether the latest CEV (provided for divorce purposes prior to that Pension Sharing Order being sent to the Pension Scheme) is dated before or after 1 October 2023.

For divorce purposes only, if the latest CEV requested is dated before 1 October 2023, then the PSO would be based on assuming the 2015/2022 accrual had NOT moved to the Pre-2015 Scheme section, and so the pension credit CEV in the above example at 15 November 2023 would still be £25,000.

But if a CEV is requested after 1 October 2023 (or was requested before but is dated after 1 October 2023) then the PSO would be based on the actual re-allocated position of the 2015/2022 accrual into the Pre-2015 Scheme section, and the pension credit CEV would be £65,000 in the example above.

Hence, as a result of the pension scheme member requesting and being provided with a CEV dated after 1 October 2023, the PSO is implemented on a higher CEV of his Pre-2015 Scheme benefits and results in providing his ex-spouse with a greater amount of pension credit than was intended (£65,000 compared to £25,000).

A preventative action to avoid this particular issue could be to ensure that no CEV is requested for these pensions after 30 September 2023 where agreement and financial settlement terms have been negotiated on CEVs issued prior to this date. An undertaking by the pension scheme member to this effect may be considered necessary.

For more details on this public sector pensions remedy (McCloud) and some of the implications of this on pensions on divorce settlements, the position statement on Actuaries for Lawyers website provides further information on this topic (link below)

AFL McCloud Position Statement – August 2023

David Bor

Actuaries for Lawyers

About the writer

Disclaimer – The views expressed here are the views of the writer only and do not necessarily represent the view of Actuaries for Lawyers. Whilst every effort has been made to ensure the accuracy of the information in this post, it is important to always check the benefit rules with the schemes before making any financial decisions based upon these. Actuaries for Lawyers cannot be held responsible for any losses incurred as a result of relying upon information contained in the blog section of our website as these do not constitute advice or act as a substitute for providing individual advice in relation to the specifics of a particular case.

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In Public Sector Pensions, Public Sector Pensions Remedy

Public Sector Pensions Remedy – How concerned should you be?

In April 2015, most public sector pension schemes were reformed largely due to the cost to the government of continuing to operate the existing “legacy” public sector schemes. The new 2015 Schemes, referred to as the “reformed schemes”, were based upon a career average revalued earnings design, effectively average salary allowing for cost-of-living increases, (replacing the previous final salary structure) and had higher normal retirement ages to save on costs. As part of the reforms, those with 10 years to retirement at a cut-off date of 1 April 2012 were permitted to remain in the legacy scheme after the new schemes were introduced in April 2015.

In December 2018, the Court of Appeal found that some of the reforms unfairly discriminated against members of the judicial and firefighters’ pension schemes and required that this unlawful discrimination be remedied by the Government, commonly referred to as the McCloud/Sargeant judgement. The Government subsequently decided to offer remedy to all the public sector schemes and not just limit this to the judicial and firefighters’ pension schemes.

The regulations to implement retrospective remedy in respect of the McCloud/Sargeant judgement for the main public sector pension schemes are due to take effect from 1 October 2023. As we are getting closer to this date, some of the schemes have launched consultations or published draft regulations and this issue is generally getting more attention.

Actuaries for Lawyers has recently carried out an exercise to model the potential impact of remedy on CEVs under a range of schemes and circumstances and consider the implication for divorce settlement. Based on this analysis, we expect that these changes could have a very material impact in some cases, while in many other cases there may be no change to the value of benefits at all.

In general, for members who have not yet retired, I understand that any Cash Equivalent Value (CEV) calculations will be based on the higher of legacy benefits or reformed benefits for the remedy period (2015 to 2022), which will in turn impact the benefits awarded to an ex-spouse if the impacted pension is shared on divorce.

When the impacted member retires from the scheme, they will then have legacy benefits for service prior to April 2015, reformed benefits for service from April 2022 and a choice between the two benefit structures for their service from April 2015 to March 2022.

In this blog I comment on some circumstances where extra consideration might be needed where public sector pensions form part of a financial settlement on divorce.

Scope

Not all members of public sector pension schemes will be entitled to an assessment of remedy. The consultation document issued by the Government on 16 July 2020 entitled “Public Service Pension schemes consultation: changes to the transitional arrangements to the 2015 schemes” set out the eligibility criteria for a public sector pension scheme member to qualify for a remedy assessment. This was stated to be as follows: All individuals who were members or were eligible to be members of a legacy scheme immediately prior to 1 April 2012, and have a period of service after 31 March 2015 during which they were members of a legacy or reformed scheme, will be given such a choice where those periods of service are continuous (including those with a qualifying break in service of less than 5 years). This is irrespective of whether they have submitted a legal claim or not, or whether they are currently an active, deferred or pensioner member.

Uniformed services schemes

Members of the uniformed services legacy schemes, including Police, Firefighters’ and Armed Forces, generally accrue benefits at a faster rate compared to other schemes and benefit from favourable early retirement terms, once they have reached the minimum age and completed the minimum length of service, to retire from active service on an unreduced pension. The benefit structure of these schemes means that once retrospective remedy is implemented, some members of these schemes are expected to see large increases to the value of their benefits. For example, a 50-year-old firefighter who has served at least 25 years in the Firefighters Pension Scheme 1992 could see the CEV of their benefits built up in the remedy period (between 2015 and 2022) more than double. This is primarily because at this age, the legacy benefits can be accessed immediately without reduction while the reformed benefits are not payable until the member’s State Pension Age, which for an individual currently aged 50 would be age 67. This means that legacy benefits could be drawn unreduced 17 years earlier than the reformed benefits. Therefore, benefits calculated in line with the legacy structure are significantly more valuable than the reformed benefits.

The immediate impact on CEV calculations is not expected to be as large for younger members who have not yet reached the age or completed the length of service required to draw their benefits immediately without reduction. However, it is worth noting that these members may still see a large benefit increase at the time of their future retirement.

By contrast, the non-uniformed public sector schemes generally do not have the same generous early retirement terms and as a result the difference in value between legacy and reformed benefits is generally smaller. For example, a 50-year-old member of the Civil Service Pension Scheme might not see any increase to their CEV at all as a result of remedy. This is because while the normal retirement age for legacy benefits is generally earlier, making retirement at an earlier age more attractive, the accrual rate (that is the rate at which the pension builds up for every additional year of service) for the reformed scheme is more generous. This means that even though the benefits on retiring early in the reformed scheme may be reduced to an early retirement factor, the higher accrual rate for pension benefits in the reformed scheme may more than compensate for this. Hence in this case, the benefits originally built up in the reformed scheme for the 2015 to 2022 remedy period may have a higher CEV than the alternative benefits that would have been granted to the member had they been a member of the legacy pension scheme for this period of time.

Large salary increases

In general, I would expect the value of public sector remedy to be higher for members with large salary increases compared to those with more modest salary growth.

The reformed schemes introduced in 2015 were based upon a career average design instead of the final salary structure in place under the majority of legacy schemes. This means that instead of the pension being based on a proportion of a member’s final salary at the time of retirement or leaving the scheme, the pension payable under the reformed schemes is based on the average pensionable salary that the member has earned during their membership. For each year the member earns a pension equal to a proportion of their pensionable salary for that year. Instead of being linked to their future salary increases this pension is then revalued before retirement in line with some measure of inflation.

This means that for a member who has experienced large salary increases, their benefits built up in the reformed scheme may not have increased to the same extent. Therefore, public sector pensions remedy may result in a significant increase to their pension accrued in the remedy period, as when benefits are recalculated in line with the legacy structure, they will be based on the increased salary.

Implementation timing

It is difficult to precisely predict when a pension share will be implemented as the pension scheme has up to four months to implement a pension sharing order from the date that the pension share takes effect or the date that the scheme has received all the required information to implement the order if later.  The pension share takes effect on the later of 28 days after the order has been sealed by the Court or the date of the Final Order (Decree Absolute). The date of implementation is the date at which the CEV is calculated, and the pension credit benefits are determined based upon that CEV. This means that as we get closer to 1 October 2023, there is a risk that pension shares that are agreed based on calculations carried out before remedy takes effect could be implemented after this date.

Based on the information published to date, it appears that pension sharing orders implemented before or after 1 October 2023 will be subject to different regulations and procedures. However, it is not entirely clear to us how schemes will implement pension sharing orders that take place after 1 October 2023.

Where there is a possibility that a pension sharing order may not be implemented until after 1 October 2023, it may be prudent to check with the scheme administrators precisely how they are intending to implement the order, prior to serving the final order upon the relevant scheme.

If you would like to learn more about Public Sector Pensions Remedy and the implications for divorce you may wish to attend one of our upcoming seminars, where there will be a session dedicated to this issue. You can find additional information here:

https://actuariesforlawyers.com/future-webinars/

Linda Perkio

Actuaries for Lawyers

About the writer

Disclaimer – The views expressed here are the views of the writer only and do not necessarily represent the view of Actuaries for Lawyers. Whilst every effort has been made to ensure the accuracy of the information in this post, it is important to always check the benefit rules with the schemes before making any financial decisions based upon these. Actuaries for Lawyers cannot be held responsible for any losses incurred as a result of relying upon information contained in the blog section of our website as these do not constitute advice or act as a substitute for providing individual advice in relation to the specifics of a particular case.

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