On 25 July 2024, the Court of Appeal dismissed Virgin Media's appeal against the High Court's decision in the case of Virgin Media Ltd v NTL Pension Trustees II Ltd and Others. This ruling has significant consequences for defined benefit (DB) pension schemes that were contracted out of the State Second Pension between 6 April 1997 and 5 April 2016.
The Court of Appeal upheld that amendments to post-April 1997 DB contracted-out benefits are invalid and ineffective without an actuarial confirmation. This decision applies to both past service benefits and future service benefits, as well as to amendments that may increase or reduce benefits.
Key points of the ruling
Scope of Section 9(2B) Rights:
The Court held that "section 9(2B) rights" include both past and future service rights.
This means that the requirement for actuarial confirmation applies to amendments affecting benefits accrued before the date of the amendment and those to be accrued after.
Requirement for actuarial confirmation:
Any amendment to scheme rules affecting section 9(2B) rights made without the required actuarial confirmation is void.
This applies regardless of whether the amendment would have an adverse effect on benefits.
Implications for scheme liabilities:
The ruling could potentially increase the value of accrued benefits under affected pension schemes.
In the Virgin Media case, this increase was estimated at £10 million.
Practical implications for pension schemes
Review of past amendments
Trustees and employers of DB schemes that were contracted out on a reference scheme test basis will need to:
Review amendments made to scheme rules between 6 April 1997 and 5 April 2016.
Check whether the required actuarial confirmations were obtained for each amendment.
Assess the potential impact on scheme liabilities if any amendments are found to be void.
Considerations for future actions
Schemes preparing for buy-ins, buyouts, or transfers to DB superfunds will need to ensure the legal effectiveness of past amendments before proceeding.
Trustees may need to revisit benefits paid out and consider making backdated payments to members if any amendments are found to be void.
Sponsoring employers may face increased contributions to make up for any increase in scheme liabilities.
Potential developments
Regulatory intervention:
There is a possibility of amending regulations from the Department for Work and Pensions (DWP) to validate scheme rule amendments that would otherwise be invalidated by this ruling.
Industry response:
A joint working group of pension industry bodies has proposed that the Secretary of State for Work and Pensions make regulations to retrospectively validate amendments affected by the decision.
Further legal clarification:
The Court of Appeal left open the possibility that subsequent triennial certifications by scheme actuaries might validate otherwise ineffective rule amendments.
Additional considerations
While not directly related to the Virgin Media case, the recent BBC Court of Appeal decision in relation to the judgement handed down by the High Court in BBC v BBC Pension Trust Limited & Anor [2023] EWHC 1965 (Ch)) may also have implications for pension schemes with similar amendment powers. The Court of Appeal rejected the appeal and confirmed the High Court's ruling that the restriction on the Scheme’s amendment power safeguards future service benefits.
Trustees and employers should discuss these recent judgments with their legal advisers to establish whether they are likely to affect their own schemes, particularly in terms of any similarly worded restrictions or amendment powers.
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