In October 2023 (PART 2 – A Snapshot from the Courts – Wedlake Bell) we provided a snapshot of some interesting High Court decisions which could have significant ramifications for pension schemes and members. Unsurprisingly, two of these cases: (i) Virgin Media v NTL Trustees; and (ii) BBC v BBC Pension Trust, made their way to the Court of Appeal with judgments handed down during the summer.
VIRGIN MEDIA V NTL TRUSTEES
2023 HIGH COURT DECISION
On 16 June 2023 the High Court ruled on several issues relating to the statutory requirements concerning alterations to the rules of a contracted-out salary related pension scheme in section 37 of the Pension Schemes Act 1993, read together with regulation 42 of the Occupational Pension Schemes (Contracting-out) Regulations 199 (SI 1996/1172) (“Statutory Requirements“). Under the combined effect of section 37 and regulation 42, the trustees were required to inform the scheme actuary in writing of proposed amendments and having considered the proposed amendments, the actuary had to confirm in writing to the trustees that the scheme would continue to satisfy the reference scheme test after the alterations had been made (“Actuarial Confirmation“). Unless the Actuarial Confirmation was obtained, section 37 states that the amendments are void.
In Virgin Media, the sponsoring employer of a former contracted-out salary related scheme sought directions from the High Court following the discovery that no regulation 42 confirmation could be located in relation to amendments to the scheme’s revaluation provisions purported to take effect from 8 March 1999. The judge subsequently decided that: (i) without Actuarial Confirmation, the amendments were void; (ii) Actuarial Confirmation was needed for amendments to future service rights as well as for amendments to past service rights; and (iii) even amendments that were beneficial to members would, in the absence of Actuarial Confirmation, be void.
2024 COURT OF APPEAL DECISION
Virgin Media subsequently appealed to the Court of Appeal asking the court to consider whether the conditions for amendment related to both past and future service amendments or to past service only.
In its judgment handed down on 25 July 2024, the Court of Appeal concluded that the appeal should be dismissed upholding the High Court’s 2023 decision that the conditions applied to amendments to both past service rights and future service rights. The court said its interpretation was guided by the purpose of the legislation, which was to ensure that members of contracted-out pension schemes receive the benefits that such schemes commit to provide in return for being able to contract-out – that is, benefits that are at least broadly equivalent to the second tier state pension. The court did not find any intention to restrict the scope of the Statutory Requirements to amendments affecting past service rights only.
WHAT NEXT?
We understand that Virgin Media will not appeal to the Supreme Court. However, it may return to the High Court to address some supplementary legal issues around evidential requirements relating to Actuarial Confirmation. Clearly the implications are far reaching.
The period in question stretches back to 1997 and includes amendments up to 6 April 2016. Many schemes will have obtained Actuarial Confirmation, however evidencing this will often not be straightforward. Sometimes copies of Actuarial Confirmations will have been attached to the amending deed or document. In other cases, there may be a recital confirming compliance or no recital at all – the legislation only stipulates that confirmation must be in “writing” and accordingly, Actuarial Confirmations could exist in many other places, for example, in correspondence, minutes, attendance notes or in other papers.
The legal position remains uncertain pending possible further case law in the months to come and possible retrospective amending regulations from the DWP. Meanwhile, trustees and sponsoring employers which are potentially affected should be seeking legal advice on what action to take.
BBC V BBC PENSION TRUST LTD
In a judgment handed down on 9 July 2024, the Court of Appeal has upheld the earlier decision in BBC v BBC Pension Trust [2023] that “interests” of active members includes future service benefits as well as rights earned by past service.
The amendment power in the BBC pension scheme included a proviso that made clear that any proposed changes to the trust deed or rules which affected “interests” of the active members would be ineffective unless the scheme actuary certified that the changes did not substantially prejudice those interests.
The BBC’s position was that an active member’s “interests” only extended to the past service rights. However, the High Court’s view, on an ordinary interpretation of the language which was first introduced in a 1949 deed, was that there was nothing to suggest that there was any distinction to be drawn between “benefits already earned by past service” and “those which are yet to be earned”.
COURT OF APPEAL DECISION
The BBC appealed and the Court of Appeal held that the High Court judge had been correct to conclude that the interests protected under the proviso included active members’ right to future accrual. Lord Justice Lewison stated in his judgment that:
“the use of the word “interests” is a deliberately simple, broad and open-textured word. Unlike other examples of fetters on powers of amendment…. it is not tied to “rights”; still less to rights that have “accrued” or been “secured”. Nor is it limited by reference to any particular cut-off date. Nor is there any limitation by reference to “past contributions” or “contributions already made””
The Court of Appeal found that one of the most valuable interests that an active member has is the ability to continue to accrue benefits on particular terms as their length of pensionable service increases, even if they have no enforceable legal right under the scheme to continue in employment with the BBC.
COMMENT
This is definitely not the decision the BBC will have been hoping for as it places significant limitations on future exercises of the amendment power. The court was asked to consider only specific questions as to the scope of the amendment power, rather than any proposed amendments and inevitably, the BBC will now be looking at other means to alter the scheme’s accrual in future. The court’s interpretation may give rise to potential questions and the judgment noted that the parties had agreed that any future questions that arise might be answered (if at all) in later proceedings.
Trustees and sponsoring employers alike should ensure that scheme amendment powers are clear and unambiguous to prevent uncertainty as to scope of the powers at their disposal.