The Court of Appeal has upheld the High Court’s ruling in the Virgin Media v NTL Pension Trustees II court case relating to section 37 and contracted-out defined benefit (DB) scheme amendments.

In June 2023, the High Court ruled that a lack of actuarial confirmation would render relevant amendments to affected contracted-out DB pension schemes’ rules invalid and void.

The Court of Appeal rejected the appeal to this decision and industry experts have warned that this could have far-reaching implications for a significant number of DB schemes, with deeds affecting the way benefits have accrued potentially being confirmed as invalid.

Under section 37 of the Pension Schemes Act 1993, the rules of salary-related contracted-out schemes could not be changed in relation to section 9 (2B) rights unless the actuary had supplied written confirmation that the scheme would continue to meet the statutory standards.

Section 9 (2B) rights are attributable to contracted-out service from 6 April 1997, while the statutory standards are a benefits test based on rights under a notional ‘reference scheme’.

The ruling confirmed the need for an actuarial certificate when salary-related contracted-out schemes were making changes to benefits between 6 April 1997 and 2016, and any amendments that affected relevant benefits were void without the appropriate certificate.

Broadstone chief actuary, David Hamilton, said that the upholding of the original decision was expected to cause “major issues” across the DB pensions industry.

“Those hoping this would all blow over on appeal might now need to start rummaging through archive files in search of historic evidence of actuarial confirmations,” he continued.

“Meanwhile many will be looking desperately to the Department for Work and Pensions to provide a solution that avoids a lot of unexpected and unwelcome rectification exercises.

“It is frustrating that significant amounts of time and money that could be spent more productively will now need to be ploughed into evidencing or justifying historic decisions that all parties (company, trustees and members) were entirely comfortable were made properly.”

Also commenting on the decision, Association of Consulting Actuaries (ACA) chair, Stewart Hastie, said: “The consequences of this decision are a real concern with significant ramifications for sponsors and schemes that are unintended and unnecessary.

“Along with others, ACA is looking to the government to bring forward clarifying legislation or regulations to help schemes and their sponsors address the situation positively.

“Without clarifying action, we also fear this could add unbearable pressure to scheme administration and member services, on top of existing major projects like GMP equalisation and dashboards implementation.

“The most immediate concern is financial reporting for sponsors that may be forced into recognising material P&L charges that later become unwound and unnecessary.”

The original court case related to a deed in 1999 reducing the rate of revaluation and the confirmation from the scheme actuary could not be located.

Virgin Media Limited was the principal employer of the NTL Pensions Plan, a contracted-out DB scheme.

As the changes in the deed were deemed invalid, the liabilities of the scheme were to increase by £10m.

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