Pension Scheme amendments – a new headache for Trustees?
Trustees and employers may not, we hope, be in the position of Claudius (“When sorrows come, they come not single spies, but in battalions”) but they should note the three big issues currently occupying the pensions press: the fallout from the Capita cyber security incident, the report from the Work and Pensions Committee about the LDI crisis last Autumn and now, a High Court decision which casts doubt on the validity of amendments made to final salary contracted-out schemes.
, Pensions partner at Irwin Mitchell, explains the potentially problematic judgment:
Recently, Virgin Media and the Trustees of the NTL Pension Plan asked the High Court to decide whether changes made to the Plan in 1999 reducing the rate of revaluation for benefits accrued after 8 March 1999 were valid. Being contracted-out, this scheme amendment should have been accompanied by an actuarial confirmation under section 37 Pension Schemes Act 1993. Neither Virgin nor the Trustees have been able to locate the requisite actuarial certificate.
The Court’s decision
:
- The amendment was void because the scheme did not have the actuarial confirmation required by law (Section 37 Pension Schemes Act 1993 and Regulation 42 Occupational Pension Scheme (Contracting-out) Regulations 1996).
- Any change to Section 9(2B) rights (contracted-out rights accrued from 6 April 1997) would be invalid and void, and the references in the legislation to section 9 (2B) rights included both past and future service rights
- Invalidity is not limited to adverse / potentially adverse effects on contracted-out rights.
Analysis: another fine mess?
While we now have clarity that amendments without a Section 37 Certificate are invalid, the effect of it is undesirable: members’ benefits (past and future) again become uncertain from changes that have been made more than 25 years ago. This could mean extra costs for schemes where, for example, closure to accrual, indexation changes and caps on salaries are all now ineffective. Schemes going through a buy-in or buyout will now also need to look at the basis for that transaction and may need to re-negotiate terms.
Evidential issues also arise: there will be an element of a lottery as to which schemes can still find old section 37 certificates. Some schemes may never have obtained one and other schemes may have no longer hold a certificate but have some proof in terms of email exchanges meaning it more likely than not that there was a Section 37 Certificate.
These difficulties might be resolved by an appeal. We think it is more likely that approaches will be made to the Pensions Minister and the DWP to resolve them by issuing Regulations. We also hope the Pensions Regulator will provide guidance on the issue.
Until then, our advice is for Trustees to see this as another issue which may eventually need action, and to identify the potential risk by carrying out a review of past amendments to ascertain whether actuarial certificates were obtained. It is too early for any further immediate actions.
How we can help?
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