Virgin Media has been given the green light to appeal the 2023 ruling which invalidated past pension changes in the contracted-out NTL Pension Plan. The appeal will be heard in June. 

The judgment handed down last June in Virgin Media v NTL Pension Trustees II Ltd has wide-ranging implications. As it voids changes to contracted-out schemes that were made without a section 37 certificate under the Pension Schemes Act 1993 it will, if upheld, require affected schemes to undergo rectification exercises and could lead to substantial extra liabilities for some sponsors.   

Virgin has, as was expected, decided to appeal the judge’s verdict. A Virgin Media spokesperson said: "Having carefully reviewed the High Court judgment, we requested permission to bring the case to the Court of Appeal, and this has now been granted.” 

 

The date has been set for 25-26 June this year. Should the appeal not be successful, the Department for Work and Pensions could override the court ruling with legislation.  

 

"Many in the industry would heave a sigh of relief if the appeal were to be successful – it is causing a bit of a headache, particularly for schemes heading to buy-in,” says Lesley Browning, a partner at law firm Norton Rose Fulbright.  

  

mallowstreet understands some parties in the case believe there is a good chance the appeal will succeed, but Browning does not share this optimism. She is concerned about the chances of success, because the wording of s37 and the regulations is “so very prescriptive”. 

 

It requires that the trustees must inform the actuary in advance of a change being made to a contracted-out scheme, and the actuary must confirm in writing that the statutory standard will continue to be met.   

Unlike some in the industry, she is also not hopeful that if the appeal fails, the DWP will intervene: “I don’t feel that is very likely, and even if it did, there would probably be years of consultation, draft legislation etc, so the uncertainty would be prolonged.” 

 

If the appeal judge agrees with the first High Court judge, this could mean schemes having to pay benefits that they thought had been cancelled in the past, “and that could be really very expensive”, she notes.  
 

Some schemes do not even have time to wait if the next round of the case will be decided in their favour. While those that are not undergoing further change can wait for the appeal before reviewing their deeds, “schemes in buy-in have not had that luxury”, she adds. 

  

For the appeal to be successful, potential avenues include arguing whether a confirmation was needed for future service benefit changes, she says, and that in 1999 when the change to NTL was made, s37 “arguably directed focus on past service changes”. 

 

The first instance judge said the wording applied to past and future service changes. However, Browning believes this is “questionable, particularly as subsequent legislation directed both changes to the past and future to be reviewed”. 

  

The problem is partly in the legislation itself. “Section 37 is an odd and draconian piece of legislation. Rendering an amendment void is quite severe – particularly just for a failure in process, where in many cases there would be no damage caused because the reference test continued to be met after the change was made,” she says.  

 

The reference test was the minimum benefit requirement for a scheme to be contracted out, and all that the actuary’s confirmation was supposed to deal with.
     
That a failure in process could void past changes is not obvious, according to Browning: “I don’t think that can be correct, as the ‘blue pencil' test is established law and was endorsed in the [Avon Cosmetics Ltd v Dalriada Trustees & Ors] decision last [month], which effectively said it is possible to sever invalid and valid amendments.”  

 

Virgin Media could potentially also argue in court about the form a confirmation should take, and if, for example, a short note by the actuary to say that they have no comments would be sufficient, she suggests.  

 

Mark Tinsley, senior consulting actuary at Barnett Waddingham, agrees the ruling could have significant consequences for pension schemes where an actuarial certificate was not provided or cannot be found for benefit amendments such as changes in the normal retirement age, accrual rate or pension increase caps.  

For example, if a historical change in a scheme’s accrual rate from 60ths to 80ths is found to have been ineffective, “the cost of the benefits in question will be a whopping 33% higher than previously thought”, he observes. 

  

“With many schemes in the process of undertaking an insurance transaction, the last thing that the industry needs right now is more benefit rectification exercises,” Tinsley adds.  

 

However, he points out that s37 includes a power to retrospectively amend the regulations: “If needed, hopefully the [DWP] recognises the ‘windfall’ nature of these benefits and will use this power to enforce the ‘spirit’ of the regulations, avoiding amendments being deemed voided where certificates could have reasonably expected to have been provided at the time.”
   

    

Are you concerned about the effect on your schemes if the appeal is unsuccessful?