Pensions: Amendment void without actuary confirmation

In Virgin Media Ltd v NTL Pension Trustees II Ltd [2023] EWHC 1441 (Ch), the claimant asked the High Court (England & Wales) to determine the correct interpretation of historic legislation relating to contracting-out from the State Earnings Related Pension Scheme in relation to the National Transcommunications Ltd Pension Plan (the “Plan”).

The questions raised concerned the interpretation of s 37 of the Pension Schemes Act 1993 and reg 42 of the Occupational Pension Schemes (Contracting-out) Regulations 1996. Those provisions were part of the legislative framework which applied from 6 April 1997 (until 5 April 2016), and which provided that contracted-out schemes such as the Plan had to satisfy an overall quality test known as the reference scheme test in relation to contracted-out rights (known as s 9(2B) rights).

Legislation

In that connection, s 37 and reg 42, as they stood at the material time, provided:

“37.–(1) Except in prescribed circumstances, the rules of a contracted-out scheme cannot be altered unless the alteration is of a prescribed description”; and “42.–(1) For the purposes of section 37(1) of the 1993 Act… the alterations which are prescribed are any alterations which are not prohibited by paragraph (2), (2A) or (2B).

“(2) The rules of a… scheme [such as the Plan] cannot be altered in relation to any section 9(2B) rights under the scheme unless – (a) the trustees of the scheme have informed the actuary in writing of the proposed alteration, (b) the actuary has considered the proposed alteration and has confirmed to the trustees in writing that he is satisfied that the scheme would continue to satisfy the statutory standard in accordance with section 12A of the 1993 Act if the alteration were made…, and (c) the alteration does not otherwise prevent the scheme from satisfying the conditions of section 9(2B) of that Act.”   

Background

The Plan’s Second Definitive Trust Deed and Rules dated 8 March 1999 sought to amend with effect from 6 April 1997 the Plan’s revaluation provisions (which provided for some inflation proofing of certain preserved benefits). It was common ground that the parties had not located any confirmation from the Plan actuary that the alterations to revaluation made in the deed and rules would continue to satisfy the reference scheme test (as required by reg 42), and because of a fetter in the Plan’s amendment power the purported reduction in the rate of revaluation could only affect accrual of benefits after 8 March 1999.

The essential question in the case was whether the effect of s 37 was to render the amendments void, and if so to what extent. The claimant argued that s 37 did not render the amendments void, but alternatively that reg 42 requirements only applied to past service benefits, and not to benefits arising from service after the date of the amendment; and that any sanction of voidness should only apply to adverse alterations.

It was noted that if the amendments to revaluation were held to be void and ineffective, that would improve the benefits accrued by certain members (believed to number 430-450), at an estimated cost to the Plan of around £10 million.

The court noted that the legislation had been the subject of considerable uncertainty in the pensions industry for some time, but the questions raised had not yet been determined in proceedings concerning other schemes. It was also noted that the relevant legislation had been amended and clarified with effect from 6 April 2013.

Court’s conclusions

The court held, on the questions put to it concerning the legislation that applied at the relevant time, that:

• s 37 of the 1993 Act rendered void an amendment to the rules of a contracted-out scheme which related to s 9(2B) rights, in so far as the amendment was introduced without the actuarial confirmation required by reg 42(2)(b);
• the words “section 9(2B) rights” as used in reg 42(2) included both past service rights and future service rights;
• voidness under s 37 applied to all alterations to s 9(2B) rights and not merely to alterations that would or might adversely affect such rights.

It is understood that permission to appeal the decision has now been granted and that a hearing is expected by August 2024. Those operating in the pensions industry await the outcome with interest, to inform the approach on any other relevant cases.