The Court of Appeal has today handed down judgment in Virgin Media v NTL Pension Trustees II and others, an appeal concerning invalidity of pension scheme rule amendments.

Last year the High Court decided that rule amendments in pension schemes that were contracted-out on the salary-related basis between 1997 and 2016 are invalid if not accompanied by the written confirmation from the scheme actuary that was required by section 37 of the Pension Schemes Act 1993. The employer appealed on the limited question of whether the invalidity affected future service benefits as well as past service benefits. The Court of Appeal held that it did, dismissing the appeal. The judgment is clear and this seems to be the end of the road for the appeal process.

Senior partner Anna Rogers commented: “It makes no sense for rule changes to be invalidated if the benefits were in fact good enough to meet the contracting-out test. This is once again a pensions lottery for scheme members. There will be losers as well as winners if generous terms that were ‘hard coded’ are struck out, or unintended benefits for some mean reduced benefits for others. The effect is unpredictable and irrational. We call on the DWP to intervene swiftly and announce that it will remove the unintended consequences of section 37. The DWP has the power to validate amendments retrospectively and has done it before. We need a modern version of the Validation of Rule Alterations Regulations that were made in 1998.”

Managing partner Kate Payne added: “It’s a question of fact whether a written section 37 confirmation was given. Amending deeds may attach a copy but that’s not required, and a ‘confirmation’ can take many possible forms. We think what trustees need is evidence rather than proof, to be decided on the balance of probabilities.”

Calling on the DWP to take action, partner Jane Kola said: “Invalid amendments caused by section 37 issues can produce losers as well as winners among the membership. The effect is unpredictable and unfair to members caught in yet another pensions drafting lottery. We call on the DWP to let common sense prevail and intervene early to end this damaging uncertainty.”

Anna Rogers commented further:

“Tolerance for risk – legal or otherwise – varies between schemes but uncertainty is a fact of life in pensions, and not just on data. Legal risk is no different from investment, funding or covenant risk in the sense that it’s better to acknowledge it than to ignore it.”

Anna and Kate’s comments were published in Professional Pensions, Pensions Expert and Actuarial Post.