by Richard Johnston
Chartered Financial Planner
Are you aware that over the next few years, legislative changes are in the pipeline that will change the rules applying to public sector pension schemes?
The evolution of this legislation is one of the topics we at AAB are researching on an ongoing basis.
What is the McCloud judgement?
The McCloud judgement refers to the Court of Appeal’s ruling in December 2018 regarding the pension schemes for judges and for firefighters. It said that the Government’s 2015 public sector pension reforms unlawfully treated scheme members differently based upon the members’ age on 1st April 2012. They said that this had given rise to unlawful direct age discrimination.
The Government changed their mind, and now accepts that the legislation referred to by the McCloud judgement should be modified, not only for the pension schemes of judges and firefighters, but for every public sector pension scheme across the board.
The principal reason is that the previous proposals were ruled to discriminate against many on the basis of their age. Many public sector workers had been anxious and worried that they might be forced to retire later, if the legislation had gone through as laid out in its first draft.
This could present a difficult decision for some members, adding to the existing complications deriving from the recent changes to the Annual Allowance and Lifetime Allowance.
The NHS pension
One of the largest public sectors pensions to be affected is of course the NHS pension. For our NHS clients, we here at AAB are already informed – as we are, of course, for all public sector workers.
We are waiting in the wings, keeping up to speed on the constant updates, and staying abreast of what to expect, as the final revisions are hammered out over the next few years.
We do the exacting research, so that our public sector clients don’t have to.
The corresponding changes would be particularly important for those approaching retirement in the next 10 to 15 years, and in the particular case of the NHS scheme, for example, employees have been told that final clarity will be provided to them by October 2023.
The good news is that this gives our clients and ourselves ample time to plan for what the final effects of the changes will be.
In this we can take a holistic approach, not just informing you about the implications of the McCloud judgement for your pension, but understanding the larger picture regarding the further issues affecting other areas of your financial planning as well.
How does this work in practice?
One of our clients, a senior NHS surgeon, came to us with her husband with the key question: how soon will I be in a financial position to retire?
The couple worked with AAB’s Martyn Paterson, who drew up a detailed model of all their outgoings, and they decided to reduce their possible retirement age from 55 to 50, to see what would happen when we recalculated their position.
Secondly, the couple wanted to optimise their other investments, so that they could make a well-informed plan for the future.
Martyn was able to inform them that they were in a stronger financial position than they thought, and would actually be able to retire even sooner than they expected – at just 45.
We were also able to have our specialist tax adviser Carol Brown advise on the tax considerations right across the spectrum of their pension savings and investments, to ensure they would be making any decisions on the basis on calculated, professional information.
The couple had previously been advised by a company specialising in medical professionals, but had been disappointed by that company’s inefficiency, and by how they were not able to tailor their advice to their particular situation.
After they came to AAB, they praised us for our professional, approachable and reassuring advice. Over the period of the pandemic, they had been anxious as world investment markets went through a time of unexpected turbulence. After consulting us, the surgeon said she now felt much calmer about their financial future, because they now have AAB monitoring those situations affecting their savings, investments, and above all their pensions.
Her words were “I can relax now, knowing everything is under control.”
Two happy clients.
If you are in the home straight to retirement, and concerned about how McCloud will shape public sector pensions legislation over the next few years, come and see us.
We are up to date on all aspects of these evolving rules, we have the expertise in place, and we can make sure you are prepared for what the future holds.
We look forward to speaking to you.