It will come as no surprise that a public sector pension is often a couple’s most valuable asset, but its treatment and division on divorce is not straightforward.
This is partly due to public sector pensions being subjected to considerable reform and change in recent times.
The change
In 2015 the UK government introduced a seismic change by moving most public sector pension members from final salary schemes into less attractive career-average schemes.
These changes were applied across the board and impacted most public sector pension members retrospectively, not just new entrants to each individual scheme.
The fortunate few who were closer to retirement, were given transitional protection, and permitted to stay in their older, and more advantageous final salary legacy schemes, otherwise known as the “underpin”.
Some members were subjected to tapering, with a hybrid of their pension accrual remaining with the previous final salary legacy scheme and the rest moving across onto the reformed scheme.
However, the vast majority were moved entirely onto the new career average scheme whether they liked it or not.
The net effect of this change was that younger public sector workers, inevitably further away from retirement than their older counterparts, would have to work for longer in exchange for less pension entitlement when they eventually retired.
The overwhelming rhetoric from those employed in the public sector was that this was unfair and not what they signed up to.
Understandably, there was a swell of resentment at the government’s reforms.
The legal challenge
In response to the changes, a legal challenge to the fairness of the reforms was launched by claimants who were members of the judicial pension scheme and the firefighters pension scheme.
Those legal challenges were successful in the first instance and so the government appealed.
In December 2018 the Court of Appeal dismissed the government’s argument and their grounds for appeal in Lord Chancellor and Secretary for State for Justice v McCloud, and Secretary of State for the Home Department v Sargeant (2018) EWCA Civ 2844.
In that case, the Court of Appeal found that the changes implemented to public sector pensions by the government in 2015 were unlawful and discriminatory towards younger members of public sector pension schemes because they did not afford them the same protections given to older members.
As a result of this landmark ruling, the case has been christened the “McCloud judgment” and is now frequently quoted in cases involving public sector pensions and particularly by divorce lawyers who are left grappling with these changes when advising their clients.
What is the McCloud ‘remedy’?
In 2021 the government acknowledged the unlawful age discrimination highlighted by the McCloud ruling and introduced the Public Service Pensions and Judicial Offices Act 2022 to put in place a legal framework to rectify this. The 2022 Act required government departments to make amendments to public service pension scheme regulations to remedy the age discrimination identified in McCloud and, effectively, to compensate the members affected.
This was known as the “McCloud remedy” and it came into effect on October 1 2023.
Essentially the remedy attempts to address the age discrimination by giving affected members the option to select whether to receive the pension benefits that they accrued between April 1 2015 and March 31 2022 from the older legacy scheme (the final salary scheme) or from the new reformed scheme (the career-average scheme).
