High Court: lack of actuarial certificate invalidated contracted-out scheme rule amendments
The High Court has ruled that where a contracted-out salary-related scheme failed to obtain an actuarial certificate before making rule amendments, those rule amendments would be invalid: Virgin Media Ltd v NTL Pension Trustees II Ltd and Others.
Between 1978 and 2016, schemes could ‘contract-out’ of the earnings-related portion of the state pension (SERPs). This meant that, in return for lower national insurance contributions being made, the scheme’s members would not accrue that additional state pension. In order to contract-out, a scheme had to provide a minimum level of pension. From 1997, contracted-out salary-related schemes had to demonstrate this minimum level by complying with a ‘reference scheme test’; an actuary had to certify that the benefits under the scheme were broadly equivalent to or better than those under a reference scheme set out in legislation. Rights under a salary-related contracted-out scheme between 6 April 1997 and 5 April 2016 were referred to as ‘section 9(2B) rights’.
In order for amendments to be made to a scheme that was contracted-out on a reference scheme basis, section 37 of the Pension Schemes Act 1993 and regulations under that section required the actuary to confirm to the trustees in writing that the scheme would continue to satisfy the test. In the Virgin Media case, the Court was asked to decide whether a failure to obtain an actuary’s confirmation before an amendment was made would mean that the amendment was void. No decision was taken on whether or not the confirmation had in fact been obtained in this case; the parties asked the judge to proceed on the basis that it had not.
The judge held that:
- an amendment to the rules of a contracted-out scheme which related to section 9(2B) rights was void where it was introduced without the required actuarial confirmation;
- this applied to amendments to section 9(2B) rights already accrued at the time of the amendment and future service rights accrued afterwards; and
- the failure to obtain the actuarial confirmation voided all alterations to section 9(2B) rights, not only those that would or might adversely affect such rights.
The implications of this case could be wide-reaching: where other schemes which contracted out in this way find they did not obtain the necessary actuarial confirmation before making amendments, the validity of those amendments could be thrown into question. The case may be appealed and there is a provision in the legislation which could allow the government to retrospectively validate changes that were not made in line with the requirements at the time, so the impact of the case remains to be seen.
Read the case.
DWP review of transfer flags regulations
The DWP has published its review of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, which introduced the red and amber flags system for pensions transfers. The review suggests the DWP will consider changes to remedy some known issues with the system.
The review sets out statistics and analysis aimed at assessing the impact of the flags system since its introduction. It also identifies some issues with the regulations highlighted by industry feedback: the overseas investment amber flag being too broad; uncertainty over the incentives flag; delays caused by the additional due diligence required and waiting times for MoneyHelper appointments; people having to attend multiple safeguarding appointments; and employment link evidence requirements being too onerous.
The review concludes that ‘whilst the original policy intent remains appropriate, feedback from the pensions industry suggests the incentives and overseas investments flags are the main concerns with the application of the regulations. DWP will therefore conduct further work with the pensions industry and the Pensions Regulator to consider if changes could be implemented to the regulations to improve the pension transfer experience, without undermining the policy intent.’
Read the review.
Dashboards connection FAQs
The Pensions Dashboards Programme (PDP) has published a list of frequently asked questions in relation to dashboards connection. This follows the announcement that the connection deadline for all schemes will now be 31 October 2026, with a staging deadline to be set out in guidance rather than legislation.
The PDP suggests that, while not mandatory, there will be a strong expectation that trustees comply with the staging deadline, at least being ‘expected to demonstrate how they have had regard to the guidance’. In response to the question ‘how much notice and support will industry have for connection?’ the PDP says that it will ‘ensure there is sufficient lead time ahead of connection’ and ‘will engage with industry to ensure they can input into the development of supporting materials. These will be finalised as part of the work on preparing the guidance that will also set out the connection windows’.
Read the FAQs.
PLSA resources on helping members with cost-of-living
The Pensions and Lifetime Savings Association (PLSA) has published resources for schemes aimed at helping to support members through the current cost-of-living crisis.
This includes a guide setting out information the PLSA recommends schemes make available to members on how they can improve their general wellbeing – for example signposting mental health resources, budgeting support, government benefits and information on avoiding scams; and how to improve their fiscal health in retirement – including advice on how much is needed for retirement and information on taking benefits early, opting out and reducing pension contributions. It also includes links to other resources such as a MoneyHelper guide on cost-of-living.
Read more.
