The government has updated its guidance on the Public Service Pension Schemes
Regulations 2023 and provided some clarity on tax consequence information related to voluntary contributions under the McCloud remedy.

The updated guidance now covers how some public pension schemes — including local government and judicial schemes — should approach applying the McCloud ruling to voluntary contributions, as well as pension sharing on divorce, and partnership pension accounts.

It also stated that no further action need be taken for ill-health retirement, opt-out and transfers, in most circumstances.

The guidance confirmed that pension scheme members who made voluntary contributions to a '2015' or 'legacy scheme' have their voluntary contribution rights protected.

Those made to a new public service scheme (not including judicial or local government schemes) however, will not have their voluntary contributions automatically rolled back to their legacy scheme.

This is because the Public Service Pensions and Judicial Offices Act 2022 (PSPJOA) does not allow for a 'rollback' of pensionable service from a new scheme to the legacy one to include voluntary contributions arrangements.

Individual schemes, however, may still be able to modify how PSPJOA operates under their rules, therefore allowing for the protection of voluntary contribution rights.

"Where scheme regulations make these modifications, made voluntary contributions (MVCs) rights will be treated in the same way as pension rights from basic pensionable service," the guidance stated.

"This could affect a member’s pension input amount and liability to the annual allowance charge, as well as their lifetime allowance position.

"For most members, scheme regulations made under section 20, ‘PSPJOA’ will provide that scheme rights [related to] MVCs are extinguished," adds the updated guidance.

Following this, the scheme manager will pay compensation equivalent to the voluntary contributions paid to a new public service scheme, or provide pension rights under the legacy scheme of an equivalent value (or rights) that would have been secured if the voluntary contributions had been paid to the legacy scheme.

For voluntary contributions made to a judicial or local government scheme, the situation is different.

Judicial scheme regulations will provide that a 2015 scheme will continue to provide benefits in respect of contributions paid to that scheme to purchase added pension, while voluntary contributions paid by a member to a legacy local government scheme are not affected by a legacy scheme election.

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