The Court of Appeal has upheld the High Court’s ruling that a written actuarial confirmation was required where an alteration to the Virgin Media scheme’s rules affected pension benefits for past or future service benefits.
This was in relation to section 9(2B) contracted-out rights and was based on the relevant legislation between 6 April 1997 and 6 April 2016. Between these dates, schemes could contract members out of the second tier of a state pension on a final salary reference scheme test basis, meaning they had to provide benefits equivalent to or better than a reference scheme, in this case benefits at age 65 worth one 80th of a salary that a member paid national insurance contributions on for each year of service, and a spouse’s pension of 50% of the member’s benefits.
The actuary needed to certify that a contracted-out scheme continued to meet the reference scheme test every three years. Section 37 of the Pension Schemes Act 1993 states that a scheme with salary-related contracted-out benefits can only be amended if prescribed conditions are complied with, otherwise the amendment will be void.
When the case came to the High Court, it was concluded that the amendment was void if the required actuarial confirmation was not obtained. The employer then appealed to the Court of Appeal, regarding whether the amendment conditions applied up to 2013 related to both past and future service amendments, or just to past service.
Tom Jackman, partner at Sackers, said: “This greatly anticipated appeal ultimately considered a single limited issue: whether the words section 9(2B) rights and the requirement for a written actuarial confirmation applied to both past and future service rights. This decision isn’t particularly surprising and it doesn’t create any new risks for pensions schemes, but the case has brought the question of Section 37 compliance to the fore.
“What evidence might be sufficient to demonstrate that a compliant actuarial confirmation was, in fact, provided? That wasn’t considered in this case, and the legislation isn’t prescriptive about the form of the written confirmation, so there is still considerable uncertainty. Trustees and sponsors will need to think about whether it is appropriate to take any action in the meantime, based on the particular circumstances of their scheme.”
