The Government has published legislation to address the issues arising from the Virgin Media case – we cover the validation process and immediate next steps for schemes.
Bringing much comfort to formerly contracted-out defined benefit pension schemes, the Government has tabled Pension Schemes Bill amendments to address the issues arising from the Court of Appeal’s 2024 decision in the Virgin Media Ltd v NTL Pension Trustees II Ltd case.
The Court decided that rule alterations of post 6 April 1997 contracted-out benefits (known as section 9(2B) rights) between 6 April 1997 and 5 April 2016 made without written actuarial confirmation required under section 37, Pension Schemes Act 1993 (section 37 confirmation) that the scheme would continue to meet the ‘reference scheme test’ (the RST) will be void. The draft legislation follows the Government’s 5 June 2025 announcement that it would legislate to address the issue.
Affected schemes can now breathe a sigh of relief, albeit there will still be some work to do to avail themselves of the solution and ratify impacted amendments, including those where section 37 confirmation might have been obtained but this cannot be evidenced.
Background
Between 6 April 1997 and 5 April 2016 when contracting-out was abolished, a contracted-out salary– related pension scheme (a COSR scheme) had to meet an overall scheme test known as the RST. It met this test by providing certain minimum levels of benefits for at least 90% of scheme members. The scheme actuary had to certify that a COSR scheme would meet the RST.
The Court’s decision that in-scope rule alterations made without obtaining section 37 confirmation are invalid caused widespread concern across the pensions industry as historic practices in relation to this issue varied considerably and many schemes had made alterations without obtaining the necessary section 37 confirmation.
What rule alterations are in scope?
The draft statutory solution will apply to ‘potentially remediable alterations’ (PRAs) which are alterations (or purported alterations) which:
- could not have been made without section 37 confirmation;
- have been treated by the scheme trustees as being valid;
- in respect of which no ‘positive action’ has been taken by the trustees after being purportedly made; and
- on 5 June 2025 (when the Government announced that it would take steps to address this issue), the trustees were not party to legal proceedings questioning the amendment’s validity on the grounds of not obtaining section 37 confirmation – this covers proceedings determined by a court or started but settled before the provisions come into force and those proceedings that were started on/ before 5 June and that are still in issue when the provisions come into effect.
Exclusions
Positive action alterations not in scope - These are alterations in respect of which the trustees have considered an amendment to be void and they have either: (1) written to scheme members to tell them this and that they will administer the scheme on that basis; or (2) taken steps to administer the scheme so that member payments are altered (or will be).
Section 37 legal proceedings not in scope - Legal proceedings are not defined, and the precise ambit of this exclusion will need to be considered further.
Procedure for retrospective validation of alterations
To be treated as a valid alteration for section 37 purposes:
- the trustees must make a written request to the scheme actuary to consider whether the alteration would have meant that the scheme no longer satisfied the RST; and
- the actuary must confirm in writing that, in their opinion, it is reasonable to conclude that the alteration would not have prevented the scheme from meeting the RST. When deciding whether to provide this confirmation, the actuary may:
- take any professional approach that is open to them in the circumstances (including making assumptions and relying on presumptions); and
- act on the information available, provided they consider it is sufficient to form an opinion on the matter.
Timing: the draft legislation allows these steps to be taken before it comes into force. However, unless immediate validation is required, trustees may prefer to wait for the legislation to be finalised to see if any changes are made.
What about schemes that have already wound-up or have transferred to the PPF or FAS?
The legislation provides a generalised solution for PRAs of schemes that have already wound-up or transferred to the Pension Protection Fund (PPF) or Financial Assistance Scheme before the provisions come into force – PRAs are to be treated as if they have always been validly made for the purposes of section 37. The PPF will also have the power to direct schemes in a PPF assessment period or operating as a closed scheme to request the actuary to consider a PRA.
When will the provisions come into effect?
The Pension Schemes Bill is expected to receive Royal Assent in 2026 which means schemes should not have too long to wait until the section 37 provisions are in effect.
Next steps
Most schemes may prefer to adopt a ‘wait and see approach’ before asking the actuary to consider a PRA so that they can see that the proposed fix has parliamentary support and whether any changes are made. In the meantime, if they have not already done so, trustees might find it helpful to draw up a list of amendments made to section 9(2B) rights between 6 April 1997 and 5 April 2016 in respect of which it is not clear whether section 37 confirmation was obtained so that they are ready to send these over to the actuary for consideration when the legislation is in final form.
Schemes in winding up (or buying out before winding up) may wish to take a different approach depending upon the stage they are at (and noting that the legislation as it stands applies an automatic fix for wind-ups that complete before the provisions come into force).
Schemes in the midst of legal proceedings or which have taken potentially ‘positive action’ will also wish to consider matters with their advisers.
We also expect that the judgment from the Verity Trustees v Woods case will be handed down soon. This will provide useful clarification on several issues flowing from the Virgin Media case including which alterations come within scope of section 37 – some clearly do not, for example, administrative changes such as trustee removal and appointments but for others it is less clear, for example, late or early retirement and non-spouse/ civil partner survivor pensions – the case will also confirm whether section 37 confirmation was required for a closure to future accrual amendment.