Our clients have been asking us whether they should conduct a review of previous deeds of amendment in light of the Court of Appeal decision in the Virgin Media case (for a reminder of the issues in this case please click here). 

This article considers:

• Which deeds of amendment may be impacted by the Virgin Media decision?
• When should you review previous deeds of amendment?
• What if a s37 confirmation cannot be found?

Which deeds may be impacted by the Virgin Media decision?

The Virgin Media decision is potentially relevant to:

• Rule amendments in relation to “section 9(2B) rights” (for past or future service) made from 6 April 1997 to 5 April 2013; and
• Rule amendments in relation to section 9(2B) rights (for future service) made from 6 April 2013 to 5 April 2016.

“Section 9(2B) rights” are rights built up by members of salary-related contracted-out occupational pension schemes in respect of pensionable service between 6 April 1997 and 5 April 2016.  

Schemes which were not contracted-out on a salary-related basis at any time between 6 April 1997 and 5 April 2016 are not affected by the judgment.

Was a s37 confirmation always needed?

From 6 April 1997 to 5 April 2013, rule amendments in relation to any section 9(2B) rights required confirmation from the scheme actuary (“s37 confirmation”) that the scheme would still meet the contracting-out “reference scheme test” following the alteration.  From 6 April 2013 to 5 April 2016, similar confirmation from the actuary was needed in relation to amendments to future service rights. 

Having done a number of s37 reviews for clients, we are comfortable that in some circumstances a s37 confirmation was not needed, even where amendments were made to members’ benefits.  For example, in our view no s37 confirmation was required when introducing new member choices at retirement (such as a pension increase exchange (PIE) option); or when extending the categories of individuals to whom survivors’ benefits may be paid when the member is not married. 

We also consider that where a change to pension benefits was agreed with members outside the rules (an “extrinsic contract”), this agreement may still be relied on, even if a rule amendment to document the agreement is subsequently found to be invalid because a s37 confirmation was not obtained.

In addition, no s37 confirmation was needed for administrative or other amendments unrelated to section 9(2B) rights, for example the addition of a power to agree an apportionment of past service liabilities to a different participating employer, or a change to the scheme’s name.

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When should you review previous deeds of amendment?

Trustees are under no legal duty to review the validity of previous deeds, unless they have specific reason for thinking this may be in doubt.  However, you may feel a review is a good idea, especially if you or your sponsoring employer are being questioned about s37 compliance by your own or the employer’s auditors.  We are aware though of some trustees pushing back in response to auditors’ questions, where there is no specific reason for concern about compliance with s37.

Limitation periods: another reason for review

If a deed of amendment is subsequently found to be invalid because a s37 confirmation was needed but was not obtained, trustees may have a claim against their advisers involved in preparing the deed or advising on the change.  There are strict time limits (“limitation periods”) within which any claim must be brought.  The limitation periods most likely to be relevant are:

• For a claim in negligence:
  • Three years from the date the trustees knew (or ought to have known) about the claim – potentially ruling out claims made after 16 June 2026, three years from the date of the High Court judgment in Virgin Media;
  • This is subject to an overriding 15 year “longstop” period, which (at the time of writing this article) would prevent claims in respect of deeds executed before October 2009; and
• For breach of contract: six years from the date of the breach.

Where the 15 year longstop date is imminent in relation to a particular deed, you may wish to investigate whether a s37 confirmation was needed and obtained.

Where relevant, you may ask your advisers to enter a “standstill agreement”, which effectively stops the limitation period clock running while you review a particular deed or deeds or wait for the legal position to become clearer – please see our comments below on expected developments.

Impact on buy-ins and buy-outs

If you are contemplating a bulk annuity transaction, you may be unable to negotiate a policy which covers risks of s37 non-compliance without first reviewing your relevant deeds.  However, if the outcome of your review is inconclusive it may still be difficult for you to cover these risks through insurance.

Are any further legal developments expected?

The concern that past amendments may be void could be readily resolved by an alteration to the contracting-out regulations.  We are aware of an industry working group liaising with the Department for Work and Pensions (DWP) about the implications of the judgment and how to validate past amendments through legislative change. The DWP has power to bring forward regulations to validate retrospectively scheme amendments which may not have satisfied the legislative procedural requirements.

We are also aware that a further case, listed for hearing in the High Court in February 2025, may consider issues relevant to s37 compliance.

Trustees who are not currently concerned about limitation periods, potential buyouts, or challenges by auditors may therefore decide to await further developments before investing resources in a historic review.  

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What if a s37 confirmation cannot be found?

It is important to remember that s37 required written “confirmation” from the scheme actuary.  A formal certificate was not needed, and such confirmation could be contained in an email or other informal written communication.  For many schemes, the reality is that historic emails and other correspondence may no longer be available.

If a s37 confirmation cannot be found, there may nevertheless be evidence of confirmation having been given, for example in the recitals to the deed of amendment.  There may also be correspondence asking the scheme actuary to consider the deed in draft.  In practice, scheme actuaries were usually kept in the loop in relation to scheme amendments – not least because amendments to benefit rules often required an actuarial certificate under section 67 Pensions Act 1995, and also as (until 2004) an actuary’s certificate was needed every three years confirming that the scheme continued to satisfy the contracting-out reference scheme test.

Where there is not clear evidence that a s37 confirmation was (or was not) obtained, the Courts would decide the question on the “balance of probabilities”, taking into account any relevant evidence.  Failure to locate a s37 confirmation many years after the date of an amendment does not, on its own, mean that no such confirmation was given at the time.

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Reminder: the Virgin Media case

In a nutshell

On 25 July 2024, the Court of Appeal dismissed the employer’s appeal against a High Court decision in June 2023 that historic amendments to members’ contracted-out rights were void.  This increased the value of accrued benefits under the pension scheme by £10m.

The judgment threw into question the validity of past amendments to pension schemes which were formerly contracted-out, if certain procedural requirements were not complied with.

Specifically, the case is relevant to rule amendments relating to “section 9(2B) rights” made between 6 April 1997 and 5 April 2013, plus any amendments to future service rights between 6 April 2013 and 5 April 2016 (when salary-related contracting-out was abolished).

Reminder: what are section 9(2B) rights?

“Section 9(2B) rights” are rights built up by members of salary-related contracted-out occupational pension schemes in respect of pensionable service between 6 April 1997 and 5 April 2016.  Members’ benefits built up in this period must be at least as good as those provided by a reference scheme statutory standard (the so-called “reference scheme test”).

What procedural requirement did Virgin Media consider?

From 6 April 1997 to 5 April 2013, rule amendments in relation to any section 9(2B) rights required confirmation from the scheme actuary (“s37 confirmation”) that the scheme would still meet the reference scheme test following the alteration.  From 6 April 2013 to 5 April 2016, similar confirmation from the actuary was needed in relation to amendments to future service rights.  None of the parties in the Virgin Media case had located confirmation from the scheme actuary in relation to rule amendments in 1999, and the court was asked to decide the position on the assumption that no such confirmation had been issued. 

What did the Courts decide?

In June 2023 the High Court judge interpreted the legislation strictly, holding that where there was not the required confirmation from the actuary, the amendments were void in respect of both past and future service.  It made no difference that the purported amendments would not have any adverse effect on section 9(2B) rights.

The Court of Appeal held that the High Court judge had reached the right conclusion in her “impressive judgment” and dismissed the appeal.

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