Pensions in dispute - August 2024

Virgin Media – actuarial confirmations required

Written actuarial confirmation was required in relation to any amendment to a scheme that was contracted out on a salary-related basis under section 9(2B) of the Pension Schemes Act 1993 (the Act), if the amendment affected section 9(2B) rights in relation to past or future service, the Court of Appeal has ruled: Virgin Media Ltd v NTL Pension Trustees II Ltd.

Between 1997 and 2016, schemes could contract out of the earnings-related element of the state pension on the basis that the pensions provided were broadly equivalent to or better than those that would be provided under a ‘reference scheme’ under section 9(2B). However, section 37 of the Act provided that the rules of such a scheme could not be altered unless certain conditions were met, one of which (under regulation 42 of the Contracting-out Regulations) was that the scheme actuary had considered any amendment in relation to section 9(2B) rights and had confirmed in writing that the scheme would continue to satisfy the statutory basis if the alteration were made.

The question raised on appeal was whether the requirement for actuarial confirmation only applied if the alteration affected past service benefits, or if it was also required where the alteration related to future service benefits. 

The Court of Appeal has upheld the High Court’s view that the words ‘section 9(2B) rights’ used in regulation 42(2) at the relevant time included both past and future service rights. Without the required confirmation, an amendment would be void under section 37.

What does this ruling mean for trustees?

The decision leaves a number of questions outstanding, including whether a void amendment could be ‘rescued’ by the next triennial certification of the scheme for section 37 purposes. 

At first instance, the High Court held that the requirement for actuarial confirmation applied to all relevant amendments (not merely to adverse changes). This issue was not appealed, so the High Court’s position on this stands: even amendments intended to have a positive impact on section 9(2B) rights required the confirmation to be valid.

There is a possibility that the decision could be appealed. There have also been calls for legislation to remove the unintended consequences of failure to comply with section 37, given the potential difficulty of locating historical confirmations and the implications for schemes of having to rectify the position if no confirmation can be found. In the meantime, you may need to consider how far to investigate the position for your scheme – this may depend on factors such as whether a buy-in or buyout or scheme merger is planned. For further advice please get in touch with your usual A&O Shearman contact. 

BBC case: member ‘interests’ include future service benefits

The Court of Appeal has dismissed an appeal concerning the amendment power in the BBC Pension Scheme. The power is subject to a restriction that no alteration may ‘take effect as regards the Active Members whose interests are certified by the Actuary to be affected thereby’ unless certain conditions are complied with (these are designed to ensure that the relevant ‘interests’ are not substantially prejudiced). The Court of Appeal has ruled that the word ‘interests’ in this restriction covers future service benefits as well as rights earned by past service: BBC v BBC Pension Trust Ltd.

What does this ruling mean for trustees?

The meaning of any scheme’s power of amendment, and the restrictions upon it, are scheme-specific. There is no automatic read across from this case to other schemes, but the detailed consideration in this case may be a useful reference point for schemes with similar wording.

TPO: a TUPE transfer is not ‘at the request of the employer’

The Pensions Ombudsman (TPO) has considered whether a TUPE transfer triggered a right to an unreduced pension on the basis that the member had left service ‘at the request of his Employer’ under the scheme rules, and whether there was a separate agreement to provide enhanced rights on a transfer.

As part of a consultation on scheme changes in 2010, members could opt to continue as an Employee Member with future accrual but a frozen pensionable salary, or to become a Deferred Member with 14% contributions paid into a flexible benefits pot. The member guide explained differences between the categories in terms of early retirement rights and that the rules of the scheme would prevail in the event of any conflict. Following the consultation it was agreed that some deferred members could retire with an unreduced pension on redundancy. Mr R elected to become a deferred member.

In August 2016, Mr R changed employer following a TUPE transfer. He expected to be able to retire immediately with an unreduced pension but was told that this applied only on redundancy.

On the basis of established case law, TPO held that the phrase ‘at the request of the Employer’ meant that an employer had asked the employee to leave service, and the employee had the right to refuse the request (for example, a voluntary redundancy situation). In a TUPE transfer, a member leaves service by operation of law, so there was no request or choice. Nor was there a separate agreement to provide enhanced rights, since the amended terms only referred to redundancy situations. Although Mr R claimed that it had been confirmed verbally in 2010 that this would also apply on a TUPE transfer, he had not had this formally clarified prior to making his decision.

What does this ruling mean for trustees?

This case highlights the importance of ensuring that communications to members/employees about scheme changes are aligned with the language used in scheme rules and are clear and specific about their intent and extent.