The Institute of Chartered Accountants in England and Wales (ICAEW) has issued new guidance on the Virgin Media judgment, acknowledging that there is currently much uncertainty about how the ruling should be reflected in scheme and employer reporting.

In the guide, the ICAEW outlined the key trustee, accounting and auditor considerations stemming from the ruling, which previously raised concerns about the validity of past pension scheme amendments.

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

This ruling was also upheld by the Court of Appeal in July 2024, with industry experts warning at the time that this could have far-reaching implications for many DB schemes.

The decision reinforced the requirement for an actuary to certify past benefit amendments made to contracted-out schemes and has created challenges for trustees, sponsors and auditors amid ongoing legal and regulatory uncertainties.

However, ICAEW acknowledged that there is currently "much uncertainty" within the pensions sector about how the ruling should be reflected in scheme and employer reporting, emphasising that the July 2024 ruling has not completely settled the matter.

Given the current uncertainties around the case in mind, ICAEW said that auditors of scheme and sponsor entity financial statements must consider what impact (if any) the ruling may have on their risk assessment and planned procedures, as well as the auditor’s report.

In particular, the ICAEW suggested that, if trustees believe that their scheme may be unable to locate the actuarial confirmation that should have been obtained when amendments were made, they may wish to discuss the issue with their legal and actuarial advisers to help determine the next steps.

It said that it may also be appropriate to consult the scheme sponsor, clarifying that the best course of action selected will depend on the specific circumstances of each scheme.

"Trustees and sponsors should consider whether any formal advice obtained may then be passed on to their respective auditors to demonstrate the rationale for the trustees’ chosen course of action," it stated.

ICAEW acknowledged that some trustees are already adopting a "wait and see approach", emphasising however, that "this is not to say that trustees should do nothing".

"Trustees may, as a minimum, wish to be aware of what amendments have been made to their scheme and understand what each amendment does, as well as whether a written confirmation was required," it stated.

"Trustees may know whether the correct process was likely to have been followed when amending documents were being drafted. This could give an idea of the potential likelihood of the scheme incurring additional obligations, even if no formal investigation is taking place.

"Sponsor employers and auditors may wish to obtain such information when performing their risk assessments."

The ICAEW noted that other trustees have taken an information-gathering approach, although it admitted that obtaining additional information may be challenging, as there was no requirement to append the actuarial confirmation to the amending documents, so these could be stored elsewhere.

Additionally, it said that a full legal review by a pension lawyer might be necessary to determine whether s37 was applicable to the rule change and, therefore, whether a confirmation was needed in the first place.

Despite these challenges, the ICAEW said that performing even a limited investigation could help trustees to make more informed decisions about what to do next.

However, the ICAEW cautioned that a more in-depth investigation may not always be appropriate, noting that trustees have a fiduciary duty to protect the interests of their members and may therefore conclude that it is not a prudent use of scheme resources to perform a detailed assessment while so many uncertainties remain.

"Trustees may wish to consider whether a more in-depth investigation or analysis is needed or whether, based on the evidence available, they believe that appropriate processes were followed, even if the required written confirmation cannot be located, and therefore assess that the risk of an additional liability is low," it stated.

"Any changes made to scheme benefits as a result of such an investigation may have to be reversed later as future events provide more clarity on the implications of the ruling for schemes."

And future clarification could be seen, as the ICAEW noted that the presiding judge included a footnote in the ruling noting a possible argument that amendments might become valid when the actuary next re-certifies the scheme as part of the triennial valuation process.

It also pointed out that another legal case is due to be heard in 2025, suggesting that the outcome may provide more clarity on this point.

"It seems likely that there will be further cases to settle some of the other uncertainties that remain, such as whether whole amendments will be deemed invalid if no actuarial certification can be located, or just the parts of amendments that relate to section 9(2B) rights," it stated.

In addition to this, it noted that various industry bodies have already called for the Department for Work and Pensions (DWP) to introduce regulations to validate any amendments that are held to be void solely because a written actuarial confirmation cannot be located.

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