The Court of Appeal has given its judgment in the Virgin Media case. This litigation concerns the validity of a rule amendment affecting benefits in a DB contracted-out scheme which was made without obtaining the actuary's written confirmation as required by section 37 of the Pension Schemes Act 1993.
The question appealed was whether a confirmation was required for changes to future service benefits or just past service benefits.
The Court of Appeal has upheld the High Court's decision that such a confirmation was required for amendments to future accruals and not just for amendments affecting already accrued benefits. In the absence of this confirmation, the amendment was ineffective.
The potential consequences of the judgment in this case are severe but further developments might help the scheme and other schemes that have similar issues.
In this case, a 1999 deed purported to amend the scheme's deferred pension revaluation provisions regarding future accruals. Under section 37 of the Pension Schemes Act 1993 and underlying regulations, the rules of a salary-related contracted-out scheme could not be altered in relation to any 'section 9(2B) rights' (broadly, all benefit rights in a salary-related contracted-out scheme other than from member voluntary contributions) unless the actuary had confirmed to the trustees in writing that they were satisfied that the scheme would continue to satisfy the contracting-out 'reference scheme test' applicable at that time. These provisions were a feature of the legislation between 6 April 1997, when the reference scheme test was introduced, and 5 April 2016, when contracting-out was abolished. From 6 April 2013, however, the legislation clearly only referred to amendments to future service benefits. Separate protections were introduced for changes to accrued benefits.
Assuming that no such confirmation was provided, Virgin Media asked the High Court to determine whether this meant that the 1999 revaluation amendment was void. And if so, was this only in respect of benefits accrued before the amendment or also to benefits accrued after the change (i.e. was the required actuarial confirmation only required in relation to benefits already accrued or also for future benefits)? It also asked if amendments beneficial to members would also be void or whether this would only be the case for adverse amendments.
In the High Court, Mrs Justice Bacon held in June 2023 that:
- The amendment is invalid and void if there was no written actuarial confirmation.
- Section 37, and so the above finding, applies to both accrued rights and future service benefits (before the 2013 change to the legislation noted above).
- Section 37, and so the above findings, does not only apply to amendments that are or might be adverse to beneficiaries.
This meant that the revaluation changes would, if no actuarial confirmation was provided, be ineffective. Benefit improvement amendments can also be void if no confirmation was provided. The judgment indicated that this outcome would cost the scheme around £10 million, in the absence of evidence of a written confirmation having been given.
An appeal was lodged on the second of Mrs Justice Bacon's above findings but the Court of Appeal (Lord Justice Nugee giving the reasoned judgment and the other appeal judges agreeing) was wholly in agreement with "her impressive judgment". In particular, the Court placed significant weight on what it considered to be the purpose and policy intent of the relevant regulations, prioritising this over what might be considered a more natural interpretation of the definition of 'section 9(2B) rights'.
Clearly, this case has a potentially very significant impact on other schemes too, if required actuarial confirmations were not provided. The contracting-out legislation expressly allows the Government to make retrospective regulations to validate amendments that are void due to the absence of such written confirmation. Depending upon the outcome of any appeal to the Supreme Court, the Government is therefore likely to be asked by industry bodies to take action. For example, it could do this so as to avoid the granting of windfall benefits in cases where actuarial confirmation could have been obtained but appears not to have been. The Government may or may not agree to do that. We will, of course, report on future developments.
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