Within the pensions team, and in particular, our public sector pensions sub-group, we have been closely following the developments in the McCloud case for a number of years. For existing extensive commentary on the McCloud remedy, please see here.

The latest twist in the McCloud case has taken what could be a very interesting turn and it is clear that emotions are still running very high in relation to the costs control remedy.

Background to McCloud 

To briefly recap, the issue arose in the context of changes to all the main public service pension schemes in 2014 when they were moved across from “final salary” to “career average” bases of accrual. 

Transitional “grandfathering” protections were extended to those members closest to retirement as part of the change. However, younger members of the scheme successfully challenged the protections in the McCloud case, arguing that limiting the transitional protections to those older members was discrimination on the basis of age. The members in the McCloud case were part of the Firefighters and judicial pension schemes, but the government accepted that the Court’s judgment had implications across all public service pension schemes with similar transitional protections.

To address the discrimination, the statutory underpin protection originally afforded only to those members with transitional protection will be extended to all affected members. This means that they will automatically receive the better of benefits calculated on the “new” career average basis or the “old” final salary basis during the remedy period.

Who is meeting the cost of the McCloud remedy?

The Government introduced a cost control mechanism as a way for the Treasury to offset the cost of the Government’s liability for rectifying the McCloud discrimination. This is by effectively passing on the remedial costs to the members, either by i) lowering benefits; or ii) increasing contributions for workers to realise the same benefit upon retirement by classifying the cost of the McCloud remedy as “member costs” and not “employer costs.” 

What did the Court cases find in relation to the McCloud remedy? 

The Fire Brigades Union (the FBU) and the British Medical Association sought a judicial review in February 2023 in respect of the Government’s handling of the McCloud remedy costs and its decision to include the costs of the McCloud remedy in the cost cap mechanism. On 10 March 2023, Mr Justice Choudhury in the High Court dismissed the application on all grounds, as the legal challenge had not clearly set out the precise legal grounds under which the claim was to be brought. 

The subsequent appeal of the High Court’s judgement was rejected by the Court of Appeal, who concluded that there was no prohibition in the wording of the Public Service Pensions Act 2013 that prevents the costs of the McCloud remedy from being passed on to members and being included in the cost control mechanism calculations. This decision was then re-affirmed in R. v HM Treasury[1] which held that it had followed sound reasoning.

Importantly, the Court of Appeal judgement held that the statutory interpretation of “costs” meant there was no limit on the costs which could be taken into account when calculating the McCloud remedy. The CARE scheme is a legacy scheme that partly replaced the previous final salary scheme so there were several factual and legal connections between the two schemes, meaning the cost of implementing the McCloud remedy were no different from costs that implemented other benefits owed to current members of the legacy scheme. Crucially, the costs for implementing the McCloud remedy were in respect of correcting a civil wrong but this cost was necessary to provide benefits, of which the members were entitled, albeit the entitlement to these benefits took some time to be recognised. 

Latest development - FBU now applying for Judicial Review 

The FBU (supported by other Unions) continues to vehemently disagree with these Court judgements and is now seeking permission to appeal to the Supreme Court over the Government’s use of the cost control mechanism. 

The FBU has argued that the costs control mechanism passes on some of the costs of the McCloud remedy to members and that its use discriminates against younger members of the schemes who have no opportunity to take advantage of the McCloud remedy. More generally, it believes that the cost of rectifying this age discrimination mistake should not be one that is borne by their members.

This is understandably a very sensitive topic for many in the public sector and it seems that the FBU will not be giving up the fight on the McCloud remedy any time soon. We anticipate there are still a good few more twists and turns to come before the dust finally settles on this issue.

If you would like to discuss any aspect of this blog, please contact our Pensions Partner, Michael Hayles, or your usual Burges Salmon pensions contact.




[1] R (on the application of British Medical Association) v HM Treasury [2024] EWCA Civ 355