Correction of pension contributions following the public service pensions remedy
How pension contributions are treated for members who have been rolled back from the Chapter 1 new scheme to the legacy scheme, and member’s choice of benefits in Chapter 1 and 2 schemes following the public service pensions remedy (known as McCloud).
Read about the treatment of contributions for members who have either:
- been rolled back from the Chapter 1 new scheme into the Chapter 1 legacy scheme
- made their benefit selection in a Chapter 1 scheme — whether the correct level of contribution has been paid to the relevant scheme in the remedy period
- made their selection between a Chapter 2 legacy scheme or a Chapter 2 2015 scheme
Chapter 3 schemes do not have any changes to their contributions.
Chapter 1 scheme corrections
As part of the remedy, members of a Chapter 1 new scheme who have remediable service, are rolled back into the Chapter 1 legacy scheme. Contributions made in relation to that service are not rolled back, so there is no correction to the tax relief for these contributions.
Employers do not need to amend their PAYE returns and members do not need to adjust their tax position in relation to the pension contributions paid during the remedy period.
Contributions made in the new scheme may not match the contributions required in the legacy scheme. Where there is a difference in the amount of contributions paid to the new scheme compared to contributions due to the legacy scheme, scheme managers will need to ensure that members pay the correct amount of contributions.
Contributions should be corrected where a member is rolled back or makes a benefit choice that changes their benefit arrangements from what they previously had. This includes:
- for a pensioner or deceased member who had started taking their benefits before the remedy came into effect
- for contributions when the pensionable service of an active or deferred member is rolled back to the Chapter 1 legacy scheme
- when an active or deferred member chooses new scheme benefits at retirement
If the amount of contribution is different
Members may be due compensation or may need to make an additional payment, if the amount of their contributions paid is different to the amount they would have contributed had they been a member of the chosen or rolled back scheme.
Where a member has underpaid contributions during the remedy period, you can arrange with them to pay the difference in pension contributions. You can ask for the contributions to be paid, either:
- in instalments
- as a one-off lump sum payment
If the member is an active member when the contribution is paid, tax relief for contributions should be available as usual. The normal methods for giving tax relief apply.
Deferred members and pensioner members will not be eligible for tax relief on any additional contributions they pay.
You can reduce or waive the amount owed by the member to reflect the tax relief they would have received.
Where a member has paid more in contributions than they would have paid had they always been a member of their chosen or rolled back scheme during the remedy period, you must give them compensation for the difference. As the member will have had too much tax relief on those contributions, their compensation will need to be reduced to reflect the extra tax relief they received.
Chapter 2 scheme corrections
You may need to correct contributions when the member makes a choice of benefit under the options exercise. Corrections to contributions will be needed when:
- an unprotected or taper-protected member makes a legacy scheme election
- a taper-protected member makes a 2015 scheme election
You should look at whether the member has underpaid or overpaid contributions and, if they have, when those contributions were paid.
If there is a difference in contributions — in-scope years
In-scope years are tax years where HMRC can repay overpaid tax — the 4 tax years before the current tax year.
Where a member has overpaid contributions for in-scope tax years, you must pay the member an amount in respect of the difference. No payment is required where the overpayment of contributions was made in an out-of-scope tax year.
Where there is an underpayment of contributions, members should make additional contributions to the scheme to address the underpayment of contributions. The member is not entitled to tax relief on the additional contributions and they should not be made by the net pay arrangement.
Updates to this page
Published 5 October 2023Last updated 24 June 2024 + show all updates
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In Chapter 2 scheme corrections, information in the section 'if there are differences in contributions in-scope years' has been updated.
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First published.