The newcomer’s guide to: the McCloud ruling

Published: October 31, 2025

Written By:

Tom Parker
Lead Writer
LAPF Investments

In 2018, Judge Victoria McCloud ruled on a legal challenge to the introduction of new public sector pensions schemes. In this, the first of a new series focusing on the key need-to-knows for newcomers to the LGPS world, we explore the McCloud saga – from Lord Hutton’s well-intentioned reforms to a Court of Appeal ruling – that continues to shape pension administration today

In the world of public sector pensions, few stories have captured the attention of administrators, members, and government officials quite like the McCloud saga.

What began as a seemingly straightforward pension reform designed to control costs and ensure sustainability, has evolved into one of the most significant legal challenges in recent public service history.

The story of McCloud is not just about pensions – it’s about fairness, discrimination, and the unintended consequences of well-intentioned policy. For those working within the Local Government Pension Scheme (LGPS), the McCloud ruling represents perhaps the most significant administrative challenge of the past decade.

The remedy has required scheme administrators to retrospectively recalculate benefits, update systems, and communicate complex changes to members – all while ensuring fairness and compliance with equality legislation.

It demonstrates how a single legal ruling can send shockwaves through an entire system, affecting millions of public sector workers and requiring fundamental changes to how pension schemes operate.

But to understand its full impact, we need to go back to where it all began – a period of austerity, pension reform, and the appointment of a Labour peer to review the future of public sector pensions.

It’s a saga that has spread across two governments, involves the UK’s three largest political parties, and led to a major legal challenge – the repercussions of which are still being felt to this very day.

The Lord Hutton review

The ripples that led up to the McCloud ruling can be traced all the way back to the early days of the coalition government in 2010, when Conservative chancellor George Osborne and Liberal Democrat chief secretary to the Treasury Danny Alexander appointed Labour peer Lord Hutton to conduct a review into public sector pensions.

Known as a New Labour moderniser, Hutton was a significant figure in the Blair and Brown cabinets in the 1990s and 2000s, most notably in this context serving as Secretary of State for Work and Pensions, before moving into the Business Department between 2005 and 2008.

Speaking at the time, Osborne said: “His appointment shows our determination to take an open and evidence-based approach to this complex and long-term issue.”

Lord Hutton was tasked with conducting a structural review of public pension provision, making recommendations on how they could be made more sustainable and affordable in the long term, while being fair to public service workers and to taxpayers.

As part of this, he was asked to consider the growing cost pressures of longer life expectancies, the balance of contributions between employees and employers, and the need to maintain a fair deal for the low paid.

Speaking at the time, he said: “The status quo is not tenable. We have to look at pensions which are affordable, sustainable and fair – fair to the public sector workforce, but also fair to the taxpayer.”

He also made it clear he intended to conduct the review with “independence and balance”, adding that he hadn’t been “used as a stooge” by the government.

The final report, published in March 2011, set out 27 recommendations – with the key one to this story being a call for the government to replace its existing final salary pension schemes with a new one, namely the career average revalued earnings (CARE) scheme.

Through such a scheme, members build up their pension each year based on the earnings in that year. These are then revalued each year until they retire – often in line with inflation.

Hutton preferred this approach to the final salary model because, he believed, the final salary scheme disproportionately rewarded people with rapid pay increases and was less fair to lower paid or slow progressing staff. It also made costs harder to predict, and made the controls for employers and the Treasury tougher.

How it was implemented by government

Off the back of this, the government accepted Lord Hutton’s recommendations as the basis for consultation and then legislated a common framework for new schemes in the Public Service Pensions Act 2013.

This was enacted in two waves: LGPS from 1 April 2014, and the main unfunded schemes (civil service, NHS, teachers, etc.) from 1 April 2015.

The government did introduce transitional protections to ease the shift, however only for those close to the normal pensions age – which differed for those on civil service pensions scheme and those in the LGPS.

In the civil service’s alpha scheme, the maximum tapering period was four years and six months – with the final moves being completed by 1 February 2022. All other eligible civil servants moved into alpha from 1 April 2015, unless protected by tapering.

LGPS, meanwhile, used a single cut-off through a protection mechanism called the underpin.

This saw all active members move straight over to the CARE scheme on 1 April 2014. However, the underpin policy introduced some protections for older members.

To qualify for the original LGPS underpin, you had to be an active member on 31 March 2012, be within 10 years of the normal pensions age – usually 65 – on 1 April 2012, have no disqualifying break in public service of more than five years, and the comparison was made at normal pension age.

This ensured that those that were eligible would not receive less than they would have received under the old final salary scheme.

How did this lead to the McCloud ruling?

The reforms were soon challenged – by judges in the Judicial Pensions Scheme and firefighters who both brought employment tribunal claims alleging the transitional protections were unlawful age discrimination.

The judges won their tribunal in January 2017, while the firefighters won their case in an employment appeal tribunal in January 2018.

These rulings were subsequently appealed by the government, with the Court of Appeal hearing both cases together in December 2018.

Court of Appeal case

The government argued it had a legitimate aim by introducing the transitional protections, saying it was designed to protect older workers who had “less time to adjust” to the new pension arrangements.

It also said the rules were designed to maintain confidence in the pension system by “honouring” expectations of those nearing retirement, and avoid the disproportionate impact it has on older workers who had made financial and career decisions based on the old scheme.

Additionally, it argued that extending protections to all members would have been too costly and administratively complex. Also, whilst it accepted the protections involved direct age discrimination, it argued it was justified under the Equality Act 2010.

Alongside this, it said that younger and older members were not in a comparable position – pointing to precedents where courts had accepted age-based distinctions in pension reform as lawful when justified.

In response, the combined judges’ and firefighters’ argument was that the transitional protections introduced in 2015 favoured older members of the pension schemes – allowing them to remain on their more generous final salary schemes.

Additionally, whilst respondents accepted that age discrimination can be lawful, the government failed to provide sufficient evidence that protecting older workers was a legitimate aim – and even if it was legitimate, the means were not proportionate as the blanket age-based cut-off was “arbitrary and unfair”.

They also argued that all members were performing the same roles, under the same conditions, and should therefore be treated equally in pensions terms.

When reflecting on both arguments, the Court of Appeal held that the transitional protections introduced in the reforms were unlawful age discrimination, stating the government’s aims were vague and not supported by evidence.

It also found that the government failed to show the reforms were a pressing social need and it was not satisfied these were genuinely pursued in the design of the protections.

Additionally, it said the age-based cut-off was arbitrary and that it didn’t consider less discriminatory alternatives such as using length of service as a measure or assessing the financial impact of the decision.

Finally, it found that the tapered protection was not enough to mitigate the discriminatory effect. The ruling had far-reaching implications for everyone in public service pension schemes, with this coming through the McCloud remedy.

The McCloud remedy

The McCloud remedy required LGPS administering authorities to extend the statutory underpin to eligible members who were in service on or before 31 March 2012 and had service in the remedy period (1 April 2014 to 31 March 2022).

To implement this, LGPS administering authorities had to retrospectively apply a revised form of the underpin protection.

This means that for each eligible member, the pension benefits earned during the remedy period had to be calculated under both the career average (CARE) scheme and the final salary scheme (as if it had continued), with their final pension coming from whichever is higher.

The comparison is made at the member’s underpin date (often at retirement or benefit crystalliation), when the administering authority checks CARE versus the hypothetical final-salary entitlement and awards the higher.

Additionally, administering authorities have had to update their systems, processes, and member communications to reflect the changes. The McCloud saga serves as a powerful reminder of how public policy, even when well-intentioned, can have profound unintended consequences.

What began as Lord Hutton’s carefully considered reforms to ensure pension sustainability, became a legal battleground that has fundamentally reshaped how we think about fairness and equality in public sector pensions.

For LGPS administrators, the remedy represents more than just a technical challenge – it’s a watershed moment that has tested systems, processes, and resources like never before, requiring retrospective recalculation of benefits for millions of members and pushing administrative capacity to its limits.

The most significant legacy of the McCloud remedy isn’t just the administrative burden or legal precedent, but the broader lesson about the delicate balance between reform and fairness.

The Court of Appeal made clear that while governments have legitimate reasons to reform pension schemes, they cannot do so in ways that arbitrarily discriminate against certain groups of workers.

For those new to the LGPS world, understanding the McCloud remedy is essential – not just for its immediate practical implications, but for what it reveals about the complex interplay between law, policy, and fairness that sits at the heart of public sector pension provision.