A High Court judge has ruled that changes to the National Transcommunications Ltd Pension Plan benefits revaluation from 1999 were void because the trustees could not show that an actuarial certificate was obtained at the time. Lawyers have said the ruling introduces an element of lottery for schemes, as some will have had the certificates but might no longer be able to find them.

 

The ruling applies to both past and future service benefits, with the resulting benefit improvements estimated to cost about £10m. It is not clear if the scheme sponsor, Virgin Media, intends to appeal the ruling handed down by Mrs Justice Bacon on 16 June.  

 

The NTL scheme, closed to accrual in 2010, was contracted out of the state earnings-related pension scheme between 6 April 1997 and 6 April 2013. 

  

Virgin Media had asked the court to determine if section 37 of the Pension Schemes Act 1993 and regulation 42 of the Occupational Pension Schemes (Contracting-out) Regulations 1996 void the scheme’s amendment to its trust deed and rules from 1999 on revaluation, and to what extent. The scheme was assumed not to have had actuarial confirmation that it would continue to satisfy the statutory standard following the amendments.  

 

The trustees, as defendants, were neutral, while a third defendant representing those scheme members in whose interest it would be to undo the amendments was appointed by the court.  

 

The judge said that questions around s37 “have been the subject of considerable uncertainty in the pensions industry for some time but have not yet been determined in proceedings concerning other schemes”. 

 

She ruled that without an actuarial certificate, all of the changes are indeed void, affecting both past and future service benefits. Virgin Media had argued that s37 did not render the amendments of the scheme rules void, or alternatively, that the regulation 42 requirements only applied to past service benefits and that any voidness should only apply to adverse alterations. 

 

A Virgin Media spokesperson said: “We brought this claim to establish clarity for the trustees of the NTL Pension Scheme, and we’re grateful for the court’s guidance. We’re now reviewing the decision and its effect in more detail and considering next steps.” 

 

 

The ruling will bring some clarity for schemes that s37 requires an actuarial certificate for contracted-out schemes.   

 

The previous uncertainty meant that many trustees and employers of contracted-out schemes had paused on the question as to whether amendments to such a scheme, without an obvious s37 certificate, are valid, said Penny Cogher, a partner at law firm Irwin Mitchell. 

 

“Now we have the judgment, this blinkered approach is no longer defensible,” she said. 

  

Even before the judgment, pension professionals “had a fair idea as to what the outcome would be if the question of whether a section 37 certificate is needed was considered by a judge” as the regulations are clear on this, she added. "Unlike much pension legislation, they lack any real scope for ambiguity, so the judgment was not a surprise.” 

 

Cogher thinks Virgin Media is unlikely to appeal given the amounts involved and because there is little scope under the regulations for further appeal. However, it could jump the courts to appeal to the government, requesting further regulations to remedy the problem.  

 

“There is no doubt that this approach could easily be justified by the government,” she said. “Without further regulations, the pensions industry once again looks incompetent.” 

 

The ruling means that members’ benefits become uncertain through changes made more than 20 years ago, she noted, something the industry is prone to discovering. 

 

“There will be an element of a lottery as to which schemes can still find old section 37 certificates,” she said. Some schemes never had them, while others might have lost them but have some proof in terms of email exchanges, she suggested. 

 

The issue could now delay the final buy-ins for benefits of schemes that were contracted out because insurers will want further due diligence. 

  

Cogher also wondered how the problem would be resolved for schemes that have already bought out contracted-out benefits and been wound up without a s37 certificate, and for those that were moved into the Pension Protection Fund. “Does their benefit structure all need to be reviewed?” she said. “It’s still early days but some timely guidance from [the Pensions Regulator] would be helpful.” 

  

The judgment on the NTL Pension Plan is potentially impactful, said Lesley Browning, a partner at law firm Norton Rose Fulbright. She said it was entirely possible that the case will be appealed, meaning trustees would need to wait even longer for clarity on the issue.  

 

“That may be very inconvenient for schemes which are in the process of restructurings, particularly total buy-ins,” she added. 

 

Up until the judgment, it was common practice for schemes to have discussed the requirement for certification ahead of making scheme changes, asking if the changes affect contracted out rights. 

 

“Schemes together with their advisers including the scheme actuary will have decided this question and the requirement for confirmation carefully, not as a simple matter of a 'must have’,” said Browning.  

 

“The judgment therefore brings usual processes and practices into question and it does not simply speak to cases where s37 confirmations were forgotten or it can be inferred from the lack of evidence that no confirmation was obtained,” she added. 

  

At some schemes, amendments will have been made in good faith on the basis that no actuarial confirmation was required, for example where the changes impacted the future or where the contracted-out rights were not adversely impacted by the changes, she argued, while the recent judgment now means “that confirmations should have been sought in such situations”. 

 

Sackers partner Faith Dickson said the recent decision by the court did not expose any new risks for pension schemes as the requirement for actuarial confirmation to changes to reference scheme benefits was well known.  

  

“It does, however, highlight the practical difficulty of always being able to put your hands on the full history of documents for even the best governed pension scheme. It would be disappointing if that became a distraction to trustees and employers making good decisions in the interests of scheme members,” she added.