On the go: Members of public sector schemes are being advised to take action before April to keep their protection against lifetime allowance charges, as part of the McCloud remedy.
According to HM Revenue & Customs, for members to keep their fixed or enhanced protection from the LTA they must take action by April 1 2022.
The government introduced LTA protection so that savers could take the full value of the benefits they had built up before A-day in 2006, which is when the government moved to simplify the UK pension regimes by introducing LTA and annual allowances as controls.
But the McCloud remedy has created issues in this area, causing HMRC to warn people to take action now.
HMRC said those who originally lost their enhanced or fixed protection solely due to joining a reformed scheme (and not due to a subsequent action, such as benefit accrual) will not have lost their protection.
However, they will lose their protection if they accrue benefits under a reformed scheme from April 1 2022.
The tax authority said to keep fixed or enhanced protection, individuals who have not yet joined a reformed scheme will need to opt out of joining that scheme by April 1 this year. And those already in the reformed scheme will need to stop accruing benefits from the same date.
HMRC stated: “We’ll provide further guidance on what members need to do to reinstate their protection as a result of the 2023 McCloud remedy, at a later date.”
Sir Steve Webb, partner at LCP, said: “Advisers who have clients with public sector pension rights and who have taken out protection against LTA charges need to check the latest guidance from HMRC.
“Although the government has made promises that members should not lose out when the ‘fix’ to deal with the McCloud judgment is implemented, it may be simpler for all concerned to take action now to avoid a potential tax charge from arising.”
In the 2021 Budget, the government promised to fix any tax issues that may arise because of McCloud.
It said individuals would be allowed to “protect their pension rights from LTA charges calculated on the higher of the two pension choices available to them”.
The McCloud court case relates to a dispute started in March 2015 when the defined benefit pension schemes for judges and firefighters were closed and members transferred into replacement schemes.
Transitional provisions were put in place, which allowed older judges and firefighters to remain members of the old schemes, either until retirement or until the end of a period of tapered protection, dependent on their age.
But in a ruling handed down in 2018, the Court of Appeal said the government had discriminated against the two groups on the grounds of age, race and equal pay in relation to changes to their pensions.
The McCloud remedy is to be implemented in two stages, with the goal of stage one being to close legacy schemes to future accrual from March 31 2023, while ensuring all members remaining in service from April 2022 are moved to a reformed scheme, thereby removing the discriminatory treatment arising from the government’s 2015 public sector pension reforms.
Stage two will concern the choice of benefits available to members during the remedy period, which covers the period between April 1 2015 and March 31 2022.
This article originally appeared on FTAdviser.com
