Industry groups have called for government intervention in the wake of the Virgin Media-NTL case.
The Society of Pension Professionals (SPP), the Association of Consulting Actuaries (ACA) and the Association of Pension Lawyers (APL) have jointly written to their members explaining their ongoing work with the Department for Work and Pensions on the issue.
A Court of Appeal decision issued last week could mean that scheme amendments made between 1997 and 2016 would be deemed void if no written sign-off from a scheme actuary can be found. The decision relates to the interpretation of section 37 of the Pension Schemes Act 1993.
The sponsoring employer involved in the case, Virgin Media, faces a £10m bill to compensate members affected by the issue – indicating that other schemes could be landed with significant costs.
The SPP, ACA and APL have been working with the Department for Work and Pensions (DWP) since the initial ruling last year to find a solution.
In a letter to members, the three associations said they had proposed that Liz Kendall, the work and pensions secretary, draft a regulation to allow retrospective validation of amendments affected by the ruling.
This would mean that any amendment that is now deemed void solely due to the absence of an actuarial confirmation would remain valid.
The groups noted that there was a specific power within section 37 that allowed for this kind of regulation with “appropriate safeguards”.
The associations said the DWP was “considering any wider effects for both schemes and scheme members” related to the judgement. However, it has not indicated whether it will act or how it planned to address the issue.
A paperwork ‘lottery’
Penny Cogher, partner at Irwin Mitchell, said last week’s decision had left schemes “in a very unsatisfactory position and it does nothing to promote the general public’s trust and confidence in the UK defined benefit pension system”.
In a blog post, Cogher said it had also created a “lottery”, as trustees would have to look closely at legacy paperwork – often from 20 years ago or more – to find the necessary actuarial confirmation.
Schemes would “most likely” be missing paperwork on at least one amendment from the period in question, she said. Data protection actions may also have affected the retention of older scheme records.
There also remained questions about what counted as actuarial confirmation, and how the voiding of amendments would affect schemes that are closed to new members or future accrual – and even those that have bought out benefits with an insurer.
“This potentially enormous problem of invalidity that now surrounds historic changes to final salary contracted pension schemes from April 1997 onwards runs directly counter to the government’s direction of travel for pensions more generally,” Cogher said.
“There is already a precedent in place for the government to follow to issue retrospective regulations on this particular section of law. Surely now is the time for the government to do so and... to ensure that the amending regulations are widely drafted so they resolve the problem for all schemes.”
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