McCloud Remedy and Public Sector Pension Annual Allowance Guide 2026

In 2015, the government moved most public sector workers from their legacy final salary (or average salary) schemes into new Career Average Revalued Earnings (CARE) schemes. Older workers — broadly those within 10 years of retirement — were given transitional protection and allowed to remain in their legacy scheme. The Court of Appeal ruled in 2018 (in the case of McCloud & Sargeant v Lord Chancellor) that this protection was age discriminatory because it favoured older members.

The government responded with the Public Service Pensions and Judicial Offices Act 2022. The legislation introduced a “remedy period” covering 1 April 2015 to 31 March 2022. For that period, affected members are treated as if they had remained in their legacy scheme throughout. At retirement (or an earlier “deferred choice” point), they will be offered the choice between:

• Legacy scheme benefits for the remedy period, or
• Reformed CARE scheme benefits for the same period.

Whichever option produces the higher value is taken. This is sometimes called the “rollback” because service in the remedy period is rolled back into the legacy scheme for the purposes of calculating benefits and annual allowance.

Which Schemes Are In Scope?

The annual allowance is the maximum amount of pension savings that can grow each year with tax relief. If your pension input amount (PIA) exceeds the annual allowance, you pay income tax on the excess at your marginal rate — 20%, 40%, or 45%.

2026/27 Annual Allowance Summary

How Pension Input Amount Is Calculated in DB Schemes

For defined benefit (DB) schemes — which cover most public sector workers — the PIA is not the actual contribution you make. Instead it is calculated as follows:

1. Take the pension you have accrued at the end of the pension input period (PIP).
2. Multiply it by 16 (the statutory factor for DB schemes). Add any defined lump sum increase.
3. Subtract the pension value at the start of the PIP (uprated by CPI).
4. The result is your PIA. Compare this to your annual allowance.

For a senior NHS consultant earning £120,000 per year accruing 1/54th of pay per year under the 2015 scheme, the annual accrual is approximately £2,222. The PIA would be roughly £2,222 × 16 = £35,556 — well below the £60,000 standard AA. However, in years of large pay increases or promotions, the PIA can spike significantly above the allowance.

This is the most complex aspect of the McCloud remedy. The rollback treats members as if they had remained in their legacy scheme throughout the remedy period. That changes the PIA calculations for each affected tax year between 2015/16 and 2021/22.

Retrospective Annual Allowance Calculations

HMRC and the relevant pension schemes must recalculate the PIA for each of the seven remedy-period tax years using the legacy scheme rules rather than the CARE scheme rules. For many members, the legacy final-salary scheme produces a higher accrual value in years of good pay growth. This means:

• Higher PIA in some years — members who were high earners with strong pay progression may find they now exceed the annual allowance for one or more remedy-period years, generating a retrospective annual allowance charge.
• Lower PIA in other years — conversely, some members may find their revised PIA is lower, eliminating a charge they previously paid or reducing it, resulting in a refund from HMRC.

Where a retrospective charge arises, HMRC has confirmed that interest and penalties will not apply if the charge was caused solely by the McCloud rollback and the member takes reasonable steps to settle it. Where a member overpaid AA charges under the original CARE calculations, they are entitled to a refund.

The Deferred Choice Underpin

Rather than making an irrevocable choice now, most active public sector workers have a deferred choice underpin (DCU). Under the DCU, the remedy-period benefits are not chosen until the member retires, transfers out, or dies. At that point the scheme will calculate both sets of benefits and provide the better one automatically.

This deferral means the annual allowance position for the remedy period may not be fully resolved until retirement. Members who are close to retirement should seek their scheme's Remediable Service Statement as early as possible, as this document sets out what each choice would mean for both pension benefits and annual allowance.

Worked Example: NHS Consultant

Dr. Sharma joined the NHS in 2001 and was moved to the 2015 scheme in April 2015. She was a higher earner during the remedy period. Under the original 2015 scheme calculations, her PIA for 2017/18 was £52,000 — within the then-£40,000 allowance after carry forward. Under the legacy 1995 scheme rollback, her recalculated PIA for the same year rises to £67,000, generating a retrospective excess of £27,000 over the 2017/18 AA of £40,000.

At her marginal rate of 40%, the notional charge would be £10,800. However, Dr. Sharma had £15,000 of unused AA carried forward from 2014/15, which reduces the excess to £12,000 and the charge to £4,800. She can ask the NHS scheme to pay this via Mandatory Scheme Pays and accept the corresponding reduction in her pension.

Carry forward allows you to use unused annual allowance from the three previous tax years. For remedy-period years, HMRC applies special transitional provisions:

• Revised carry-forward availability: The rollback may change how much AA was actually used in each remedy-period year, which can increase or decrease carry-forward available in subsequent years.
• Revised AA charges: If the rollback creates a new charge in a remedy year, you can apply carry forward from the three years before that remedy year, using the revised (rollback) figures.
• Refunds: Where revised calculations show you overpaid charges in prior years, HMRC will refund the overpaid tax. You generally have four years from the end of the tax year to amend a return.

For tax year 2026/27 carry-forward purposes, the relevant prior years are 2023/24, 2024/25 and 2025/26. The maximum carry forward from three years at the £60,000 AA is £180,000 (assuming no AA was used in any of those years), giving a theoretical maximum allowance of £240,000 in 2026/27.

Carry Forward Priority Rules

HMRC applies carry forward in strict date order — earliest years first. If the McCloud rollback creates unused AA in an earlier year that you had previously reported as fully used, you must re-order the carry forward chain accordingly. Your scheme administrator or an independent financial adviser can model this for you using the revised figures from your Remediable Service Statement.

If you face an annual allowance charge and do not have the cash to pay HMRC directly, Scheme Pays allows the pension scheme to settle the charge on your behalf. In return, your future pension is reduced by an amount that reflects the cost to the scheme of paying the tax.

Mandatory Scheme Pays

Mandatory Scheme Pays applies when both of the following conditions are met:

• Your AA charge for the tax year exceeds £2,000, and
• Your pension input amount from that scheme exceeds the standard annual allowance (£60,000 for 2026/27).

If mandatory Scheme Pays conditions are met, you have until 31 July following the self-assessment deadline to notify your scheme administrator. For retrospective McCloud charges, different deadlines may apply — contact your scheme for specifics.

Voluntary Scheme Pays

Voluntary Scheme Pays is available even if the mandatory conditions are not met, provided your scheme agrees. Many public sector schemes have confirmed they will offer voluntary Scheme Pays for McCloud-related charges. The reduction in your pension is usually actuarially calculated by the scheme and expressed as a pension debit applied at retirement.

Senior public sector workers — consultants, headteachers, senior civil servants — may face both the McCloud remedy and the tapered annual allowance simultaneously. The taper applies when:

• Threshold income (net income before pension relief) exceeds £200,000, and
• Adjusted income (threshold income plus all pension input amounts) exceeds £260,000.

For every £2 of adjusted income above £260,000, the annual allowance reduces by £1, down to a floor of £10,000. A consultant with adjusted income of £340,000 would have an AA of only £20,000 (£60,000 minus £40,000 taper reduction).

Under the McCloud rollback, the PIA figures used to calculate adjusted income for remedy-period years may change materially. A member who was below the taper threshold in a given remedy year under CARE calculations might become subject to the taper under legacy-scheme calculations — or vice versa. Each year must be assessed independently.

Pension Savings Statements

Your scheme must provide a Pension Savings Statement (PSS) by 6 October following the relevant tax year if your PIA exceeds the standard AA, or if you request one. For McCloud remedy purposes, schemes are also issuing Remediable Service Statements (RSS) showing revised figures for each remedy-period year. If you believe the taper may apply to you, request both documents and share them with a regulated financial adviser.

Whether you are still active in a public sector scheme or have already retired, there are practical steps you should take to manage your McCloud position effectively in 2026.

Step 1: Request Your Remediable Service Statement

Contact your pension scheme administrator and ask for a Remediable Service Statement. This document is specific to McCloud and shows your revised PIA for each remedy-period year under legacy scheme rules, any revised AA charges or refunds, and the pension value you would receive under each scheme for the remedy period.

Step 2: Recalculate Your Self-Assessment Returns

If the RSS shows revised figures for remedy-period years, you may need to amend past self-assessment returns. HMRC has confirmed you can amend returns within four years of the end of the relevant tax year. For 2015/16 this window has now closed for standard amendments, but HMRC may accept late corrections in genuine McCloud cases — seek professional advice if you believe you are affected.

Step 3: Model Your Carry Forward Position

Work through the carry-forward chain using revised PIA figures. The revised chain affects not just the remedy years but all subsequent years, since carry forward is consumed in strict date order. A spreadsheet or specialist pension tax software can help make this calculation transparent.

Step 4: Consider Additional Contributions and Timing

If revised calculations reveal unused AA in remedy-period years, you may be able to make additional pension contributions in 2026/27 using that carry forward. However, be careful: the MPAA (£10,000) applies if you have ever flexibly accessed a defined contribution pension, and it cannot be expanded by carry forward. Voluntary Additional Voluntary Contributions (AVCs) within your scheme are worth reviewing as part of this exercise.

Step 5: Seek Regulated Financial Advice

The McCloud remedy interacts with income tax bands, National Insurance, self-assessment, carry forward, Scheme Pays, and the new lump sum allowances introduced in 2024. The combination is complex enough that regulated independent financial advice is strongly recommended for anyone with a large public sector pension pot or significant annual allowance exposure.