Like a Virgin (Media v NTL Pension Trustees)

20th July, 2023

  • After a number of false starts, the ‘section 37 question’ finally went all the way to court.  Judgment in the case was delivered on 16th June, leaving the industry waking up to the issue and, frankly, feeling scared and cold.

    The case was about these vexed questions:

    1. Whether the lack of written confirmation by the Scheme Actuary that the scheme continued to match the reference scheme (the mythical scheme which you had to match to contract-out of SERPS/S2P) could scupper an amendment to the rules of a contracted-out scheme;
    2. If so, could it scupper amendments in relation to future service as well as past service; and
    3. If so, could it even scupper amendments which improved benefits?

    In a judgment even less popular with the industry than Lloyds1 (1, 2 and 3 – I think we’re all hoping for better sequels this time), the court said 1. Yes; 2. Yes; 3. Yes!


    Didn’t know how lost I was

    The judgment is pretty short (at least in comparison to some pensions judgments) but that masks a great deal of complexity.  And that’s because, as is common with pensions legislation, the legislation under consideration2 is written in a very convoluted fashion (with a sort of three-way effect of prohibition, permission and then prohibition again, along with definitions mixed in).  And, ultimately, that legislation simply didn’t make any real policy sense.

    Virgin’s Counsel offered the court a plethora of credible reasons to avoid a result quite so hard to swallow. In particular, by making the legislation all about the past (given it uses the words “accrued rights”) which would have made it virtually irrelevant. However, instead, the court tried to make the legislation they were looking at mean the same as the shiny and new legislation that was made in 2013 to “clarify” matters.  In fairness, the court hadn’t the hands-on experience to appreciate that pensions legislation (understandably, given the complexity) sometimes just doesn’t say what it should do (indeed, DWP had all but admitted as much in 2013).

     The result is that those whose advisers used their hands-on experience to judge what was a sensible interpretation of the muddled legislation and/or didn’t give enough credence to how the words might be read, will now potentially find themselves with a problem child. The kind that seriously adds to your liabilities and causes you untold hassle in establishing what went on 20 odd years ago.


    Making it Through the Wilderness

    I don’t think there is much doubt that there will be a significant number of benefit amendments that, on the basis of this case, will be void. Depending on who you ask, this could include the most fashionable amendment this millennium – closure to accrual3. Plainly, it could include benefit improvements (though that will be rare in this period). It could also include schemes which have wound up or are in the PPF or FAS. 

    Virgin could fare better in an appeal (it’s understood permission was granted on 20 July). As there are judges in the Court of Appeal whose practice included pensions and who may be more familiar with the established meaning of pensions-speak.

    There’s also a question of what exactly is needed to evidence the confirmation required. It seems clear that will fall short of a certificate but exactly what will be needed is still to be seen (a hearing this month may shed more light on this).

    My own view is that, ultimately, DWP may need to come to the rescue and make some regulations to allow retrospective validation of amendments which did not offend the principle the legislation ought to have been aimed at. As I see it, this was stopping schemes which did not match the reference scheme from continuing to contract out.  Otherwise, there may be many schemes touched by a long-awaited and dreaded judgment. Admittedly perhaps not for the very first time… 

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    1 on GMP equalisation

    2 For the period from 6 April 1997 until 5 April 2013

    3 Albeit this feels very odd since the contracting-out certificate would have been surrendered at this point.

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    • Published byAmanda Banister

      Amanda is a Senior Professional Trustee. Her legal background gives her a strong governance and risk management skillset and an ability to solve testing problems. She has worked in a range of scenarios, including scheme mergers, innovative funding solutions (such...

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