Virgin Media - a legal solution?

In that case, the Courts held that certain amendments made to the rules of contracted-out salary related (COSR) schemes between 1997 and 2016 were invalid where the necessary actuarial confirmation was not obtained before the amendments were made.

This has created significant uncertainty about the validity of historic amendments made to many schemes that were formerly contracted-out. The proposed legal solution could offer them the chance to resolve this uncertainty. This will, however, depend in many cases on the scheme actuary being able to provide the confirmation needed to validate relevant amendments.

What is the proposed solution?

The proposed legal solution – contained in amendments to the Pension Schemes Bill tabled by the government - will enable schemes to validate an amendment which:

• was subject to the requirements under Regulation 42(2) of the Occupational Pension Schemes (Contracting-out) Regulations 1996 when it was made
• has been treated by the trustees of the scheme as a valid alteration, and 
• is one where the trustees have taken no “positive action” on the basis that they thought the alteration was void

‘Positive action’ has a specific meaning for these purposes. For example, it requires trustees to have already (a) told members in writing that an historic amendment is void or (b) taken any other step in relation to the administration of the scheme as a result of thinking an historic amendment is void which has (or will have) the effect of altering benefits payable under the scheme.

If the trustees want to use this new power to validate an historic amendment, they will need to ask the scheme actuary in writing to provide a similar written confirmation to the trustee now. This must confirm that, in the actuary’s opinion, it is reasonable to conclude that the alteration would not have prevented the scheme from continuing to satisfy the statutory ‘reference scheme test’ at the time it was made. 

The draft law allows an actuary to take ‘any professional approach’ (including making assumptions or relying on presumptions) that is open to the actuary. They can also act on the basis of the information currently available to them, as long as they consider it sufficient for the purpose of forming their opinion. 

We hope that this gives actuaries sufficient flexibility to provide the necessary confirmation (at least in most cases).

Will this apply to all alterations?

On the face of it, the solution should allow trustees to validate a significant proportion of the historic amendments that were called into question by the Virgin Media case. However, the useability of the proposed new law will largely depend on scheme actuaries being comfortable they can provide the necessary confirmation. We hope that guidance will be issued to support actuaries in this and to help ensure a consistent and pragmatic approach across the industry. There is also a question over how far it applies to certain types of deed and amendments.

Some alterations are also excluded from the scope of the solution. However, this is currently limited to circumstances where legal proceedings about the validity of an historic amendment as a result of non-compliance with Regulation 42:

• have already completed or been settled before these provisions come into force, or
• were started before 5 June 2025 and are still ongoing when these provisions come into force

We expect that schemes involved in any type of litigation related to the issues in Virgin Media will want to consider with their legal advisers if they might be covered by this exclusion and, if so, how this potentially impacts those proceedings.

What about schemes that have already wound-up?

Where a scheme has wound-up before the legal solution comes into force, the proposed legislation (as drafted) should validate any alteration that would otherwise be void due to non-compliance with Regulation 42. The same applies where a scheme has entered the Pension Protection Fund or the Financial Assistance Scheme before the legislation comes into force.  

When will the solution be available?

The legislation is due to come into force two months after the Pension Schemes Bill receives Royal Assent. This means it is likely to be available from the middle of next year.

What should schemes do now?

The legislation is still in draft. It is sensible for schemes to take some preparatory steps such as those below. However, unless there is a pressing need to address concerns with historic deeds, we would expect most schemes to wait for the final legislation before taking significant action.

Schemes that have reviewed their historic amendments - to identify any that might be invalid as a result of the Virgin Media case - may want to consider with their legal advisers and scheme actuary whether they will be able to make use of the proposed legal solution, once it is in force, to address any areas of uncertainty. 

Any trustees considering taking action based on these reviews - such as initiating legal proceedings or taking steps to reinstate any potentially invalid amendments - should speak to their legal advisers to consider whether this is still the right course of action. This is particularly important because actions taken by trustees may, in some circumstances, prevent them from being able to make use of the legal solution.

Schemes that have adopted a ‘wait and see’ approach do not need to take any immediate action but, in due course, will need to consider with their legal advisers whether they identify and take steps to validate any historic amendments that might otherwise be invalid.

Comment

We welcome the fact the government is introducing this solution. Although it may not solve every issue arising from the Virgin Media case, on the face of it, it appears it will offer a route for schemes to address many of them. All eyes are now on scheme actuaries and their professional bodies to see how they respond.