Lawyers and actuaries have called for the government to intervene after a court ruled that scheme rule amendments could be void if they are missing an actuarial sign-off.
The Court of Appeal today upheld a High Court ruling, made last year, that amendments to scheme rules that affected benefit payments required written approval from a scheme actuary.
The case – involving Virgin Media and the National Transcommunications Limited (NTL) Pension Plan – could have implications for DB schemes that were contracted out of the state earnings-related pension.
Any amendments to benefits made between 1997 and 2016 without this written approval could be void – potentially costing schemes millions.
The ruling is expected to cost Virgin Media £10m in back payments to members of the NTL plan, of which Virgin is the sponsoring employer.
The case centred on a change to benefits made in 1999 to the way in which deferred members’ pensions were revalued in relation to inflation.
Section 37 of the Pension Schemes Act 1993 requires actuarial sign-off for changes to scheme rules, confirming that the scheme still complies with a “reference scheme test” to retain its contracted-out status.
No such actuarial document could be found relating to the 1999 change to the National Transcommunications Limited Pension Plan.
Virgin had argued that it did not have to seek written approval as the changes only affected past service rights, but last year’s ruling stated that the intention of the relevant legislation was to apply to all benefits past and future, not just accrued pensions at a certain date.
This was despite all parties agreeing that the amendment met the requirements of the reference scheme test.
A ‘pensions lottery’ for members
Lawyers and actuaries have expressed frustration at the ruling and called for the government to intervene.
Anna Rogers, senior partner at Arc Pensions Law, said: “It makes no sense for rule changes to be invalidated if the benefits were in fact good enough to meet the contracting-out test. This is once again a pensions lottery for scheme members.
“There will be losers as well as winners if generous terms that were ‘hard coded’ are struck out, or unintended benefits for some mean reduced benefits for others. The effect is unpredictable and irrational.
“We call on the Department for Work and Pensions [DWP] to intervene swiftly and announce that it will remove the unintended consequences of section 37. The DWP has the power to validate amendments retrospectively and has done it before.”
David Hamilton, chief actuary at Broadstone, said: “Those hoping this would all blow over on appeal might now need to start rummaging through archive files in search of historic evidence of actuarial confirmations...
“It is frustrating that significant amounts of time and money that could be spent more productively will now need to be ploughed into evidencing or justifying historic decisions that all parties (company, trustees and members) were entirely comfortable were made properly.”
Iain McLellan, director at Isio, warned of “legal uncertainty and substantial administrative costs” for DB schemes from reviewing and rectifying amendments.
Any government intervention on the issue would take time to finalise, McLellan added, meaning sponsors and schemes needed to prepare for any potential adjustments.
Further reading
DB schemes could face extra costs after High Court judgement (21 June 2023)
