Navigating McCloud Remedy - unauthorised payment charges
Source: gov.uk (2025-07-25)

GAD’s insight and technical expertise supported government’s work in carrying out the McCloud remedy process for affected pensioners.

The Government Actuary’s Department (GAD) developed methodologies to help scheme administrators further navigate the McCloud remedy. This work focused on the implementation of HM Revenue & Customs’ (HMRC) offsetting process for unauthorised payment charges (UPCs).

Complex tax situation

The Court of Appeal had ruled the transitional protection provisions in the government’s 2015 public service pension reforms were discriminatory. This ruling is commonly known as the McCloud judgment.

The 2018 judgment created a complex tax situation for pensioner members of the police and firefighters’ pension schemes who are within the scope remedy. The choice made by members may retrospectively affect the amount of tax-free cash they would have been eligible to take at retirement. Therefore, it may also affect any unauthorised payment charges (UPCs) levied on lump sum at retirement.

A new offsetting process was set out in HMRC’s Public service pensions remedy newsletter — September 2024 (https://www.gov.uk/government/publications/public-service-pensions-remedy-newsletter-september-2024) and The Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2025 (https://www.legislation.gov.uk/uksi/2025/419/regulation/1/made) to cover the situation where:
- McCloud remedy retrospectively reduces the UPCs due at retirement, leading to a tax refund, but, at the same time,
- McCloud remedy provides a top up lump sum payable now, which is subject to a UPC tax charge
GAD’s support

GAD worked alongside HMRC, the National Police Chiefs Council (NPCC), the Local Government Association and the administrators of the police and fire pension schemes. We helped to develop methodologies to practically support administrators in carrying out the UPC offsetting work.

Drawing on knowledge of the police and fire pension schemes, GAD prepared a suite of explanatory materials. We also held training sessions for administration teams to help further develop administrator knowledge and confidence in dealing with the challenges posed by UPC offsetting.

Calculations and methodologies

Claire Neale, the Head of Police Pensions at the NPCC, said: “The offsetting of unauthorised payments was an incredibly complex area affecting immediate choice members of the police pension scheme.

“NPCC, as co-ordinator of police pensions across England and Wales, worked with GAD and brought together a small group of technical administrators. GAD was able to develop realistic example calculations and methodologies.

“GAD’s expertise has been a vital part in the McCloud journey for the police sector. This has enabled our 12 police pension administrators, not only to get to grips with and understand the calculations required, but also to ensure a consistent approach and correct calculation of benefits.”

Michael Scanlon, a Deputy Chief Actuary at GAD, said “McCloud remedy is a complex and challenging programme of work. It was a pleasure to work with stakeholders across the sector who are committed to providing members with their remedy pension benefits.”