The government has announced that DB schemes with a section 37 problem will be allowed to fix it retrospectively. This won’t remove the need to identify whether a particular scheme has such a problem, so trustees should still carry out an initial fact find investigation (if they haven’t already been done) to identify what deeds are within scope and whether those deeds contain a section 37 confirmation. However, they can normally sensibly wait and see what the autumn brings.

A lengthy High Court case (the Verity Trustees litigation) that concluded in March is expected to address validity issues for DB schemes that were contracted-out on the salary-related basis, following the 2023 High Court and 2024 Court of Appeal rulings in Virgin Media. The case may resolve some uncertainties, but judgment is not expected until the autumn.

However, one of the main concerns arising out of the Virgin Media case may now be resolved in any event, as the call of various pensions industry bodies has been answered with the government announcing that DB schemes with a section 37 problem will be allowed to fix it retrospectively.

As we have seen following Virgin Media, it was often the case when it was obvious that the contracting-out test would still be met, that no section 37 confirmation would be sought for amendments. This caused various issues following the Virgin Media judgment, but it has now been announced that schemes will be able to obtain confirmation retrospectively.

We assume this will be done by using the existing power to make regulations about contracting-out glitches but there will still have to be a process to follow and things which need to be considered. We await further details.

It may not be easy to establish on the facts whether the test was met at the time, which could be the best part of 30 years ago. But at least the door is now open to a sensible solution that means DB schemes can get on with doing what they are supposed to do – namely providing the promised benefits to members.

Where DB schemes have already started work on a Virgin Media “fact find” investigation there seems no obvious reason not to carry on, as this will still be needed, but may (unless there are pressing needs, such as imminent insurance transaction) sensibly decide not to do anything beyond that and instead wait a while to see what the government, and the Verity Trustees judgment, produces in the next few months.

Key takeaway

With possible help on hand shortly from both the Government and the Court, trustees can reasonably wait a little longer before deciding what to do next.