Some trustee boards are carrying out detailed analyses in the wake of the landmark ruling on past scheme amendments in the Virgin-NTL case last year.
Others, meanwhile, are taking a “wait-and-see approach”, according to a blog post from the Institute of Chartered Accountants in England and Wales (ICAEW).
In July 2024, the Court of Appeal upheld a June 2023 High Court ruling that amendments to scheme rules that affected benefit payments needed written approval from a scheme actuary.
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The case – involving Virgin Media and the National Transcommunications Limited (NTL) Pension Plan – could have consequences for DB schemes that were contracted out of the state earnings-related pension.
Amendments made to benefits between 1997 and 2016 without written approval could be void, potentially costing schemes millions. Any schemes that cannot produce a section 37 certificate for historic changes may be forced to reverse them.
A blog post published on February 13 by the ICAEW set out three courses of action that most trustees are currently adopting, with some taking a more proactive approach than others.
Wait and see?
Some trustee boards may have been told by legal advisers to take “a wait-and-see approach”, the ICAEW said, adding that there are several justifications for this strategy.
The institute acknowledged that carrying out a full investigation into how scheme amendments could be affected by the ruling, along with any impact on the DB liability, will likely be time-consuming and costly, “especially where historic information has not been digitised and is only available in paper form”.
Trustees may also believe that the amending documents were executed correctly, while the accounting body also noted that “there is a clear possibility that the situation might change with the introduction of future regulation or following future rulings, which could subsequently render such work unnecessary”.
The ICAEW added that “this is not to say that trustees should do nothing”, and that trustees may want at least to know which amendments have been made to their scheme.
Trustees could obtain a fuller picture
Some trustees who are less inclined to sit on the sidelines are adopting a more proactive information-gathering approach, the ICAEW said.
Securing more information could be prudent “where trustees believe it is likely that the correct process was not followed when rule amendments were made, and/or that any voided amendments following the ruling could result in a material increase to the defined benefit obligation”, the ICAEW explained.
Any new regulations that allow for retrospective actuarial confirmations would still likely require trustees to be able to confirm which amendments already have the necessary confirmation and which do not.
Trustees may also wish to carry out an information-gathering exercise if they think that it will show that amending documents complied with section 37 rules, according to the institute.
More detailed analysis may not be possible right now
“While it may be possible to resolve some invalid amendments simply, others may require the involvement of actuaries and pension lawyers as well as taking up a significant amount of trustee time.”
ICAEW
The ICAEW observed that trustees may see a need for more detailed analysis to be sure that the scheme is paying the correct benefits.
“If section 37 compliance cannot be shown for relevant amendments, this approach may become time-consuming and expensive,” the ICAEW warned.
“While it may be possible to resolve some invalid amendments simply (such as by giving a benefit improvement retrospectively), others could be more complex and may require the involvement of both actuaries and pension lawyers as well as taking up a significant amount of trustee time.”
The ICAEW added that it may not even be possible for affected schemes to arrive at a reliable estimate right now, given the remaining questions that hang over this case and the detailed information that an actuary would require to calculate additional liabilities.
Pensions Expert has seen several company annual reports that refer to the Virgin-NTL ruling, but in all cases the trustees have opted not to act yet. In many cases, the annual reports have stated that any impact on scheme funding is likely to be minimal.
