‘Frustrating and depressing’: Pensions lawyers call on government to resolve section 37 uncertainty

DB pension schemes have been left in legal limbo since 2023 in relation to section 37 confirmations, with the High Court expected to take several months to produce its latest judgement in the case of Verity Trustees Ltd vs Wood. 

The Virgin-NTL case established that s37 confirmations were required for deed amendments to DB schemes that were contracted out of the state second pension between 1997 and 2016. 

Anthea Whitton, a professional trustee at Capital Cranfield, says: “The judges didn’t have any other option, as the legislation is very clear.” 

This left several questions unanswered. Anna Rogers, senior partner at Arc Pensions Law, explains: “The Virgin appeal was heard on quite narrow issues. What the Court of Appeal says is binding on the lower courts, but only on those issues.  

“On other issues, the High Court has more freedom to reach a different conclusion, in a different context.” 

The most recent case centres on The Pensions Trust, also known as TPT Retirement Solutions, a large scheme of 2,500 unassociated employers, including many charities. Thousands of amendments are potentially exposed, so the trustees – Verity Trustees – wanted to gain clarity. 

The questions raised by s37 ruling

The case raises four questions. First, what constitutes written confirmation from the actuary? It’s “frustrating”, says Whitton, as the absence of a s37 certificate does not imply members were done a disservice. 

Second, the court considered which specific amendments require confirmation. For example, if some are valid and others are not, is the whole deed struck out?  

Katie Banks, partner and head of pensions at Hogan Lovells, says: “I expect the judge to say, generally, only invalid bits are struck out and the valid bits survive.” 

Arc’s Rogers adds that trustees should look at the issue holistically: “A scheme might have invalidly removed a 3% fixed minimum pension increase. But if the same problem affects the deed which conferred it, you lose both at the same time, so they cancel each other out.” 

The biggest potential issue concerns future accrual. “It could be disastrous,” says Banks. “A lot of lawyers took the view you didn’t need one, as its purpose is to confirm the scheme would continue to satisfy requirements for future accrual.” 

Whitton says it could be “a huge headache” and noted members would likely have been accruing DC benefits. 

The third question was whether the actuary’s triennial certificate would count if obtained after the deed of amendment.  

“It didn’t get heard in the Court of Appeal, but there’s a footnote in the judgment that indicates the judges might be sympathetic,” says Whitton, adding it would be “tremendously helpful” if it could be used.  

Rogers said: “We could have a ‘Virgin Media window’, with the window closed by a later certificate. That might cap off the unintended consequences.” 

The fourth question was whether the court can infer written confirmation based on the Scottish law concept of presumption of regularity, if a deed was signed and dated correctly. 

Should trustees act?

The government has the power in primary legislation to validate amendments – but appears not to be in a hurry. Pensions minister Torsten Bell stated in February: “We are actively considering our next steps and will provide an update in due course.” 

Rogers says: “It doesn’t seem very likely the government will make a decision about regulations before they see the outcome of the court case. But if there’s public money involved [with possible LGPS involvement], maybe that will help concentrate minds at the DWP.” 

Banks fears a repetition of the protracted RPI-CPI uncertainty, when a single case in 2011 led to many similar cases and Barnardo’s going all the way to the Supreme Court.  

“The industry has been asking the government to consider exercising that power. The industry is debating whether, if the Verity outcome is bad, the chance it uses that power goes up,” she says.  

Many trustees are under pressure to start potentially unnecessary in-depth investigations, according to Capital Cranfield’s Whitton. 

“Some of my colleagues are pushing back,” she explains. “Is it proportionate to do them now? I don’t think it’s sensible to spend a huge amount of money commissioning reports when the law is not settled. I’m a big believer in taking a ‘wait and see’ approach. 

“Given all the other pensions issues, this probably isn’t one you want the industry spending lots of time and money on. It’s not of any benefit to the members.” 

Banks adds: “I find this all very frustrating and depressing because we’re fighting about form over substance. Now we’re all spending many hours on paperwork from over 20 years ago to prove it was done validly, to avoid giving extra benefits to people that shouldn’t have a legal right to them.”