FRC issues guidance for actuaries to deal with Virgin Media issues

The Financial Reporting Council (FRC) has issued practical, non-prescriptive guidance to actuaries tasked with reviewing historic pension scheme alterations impacted by the decision in Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors [2024] EWCA Civ 843.

The decision in Virgin Media Ltd was a landmark case that cast doubt upon the validity of historic alterations to pension scheme rules (some as far back as 1997).  Employers and trustees of pension schemes will be pleased to note that the FRC has called on actuaries to adopt a proportionate approach when deciding whether an alteration would have prevented the pension scheme from continuing to meet the reference scheme test.

Background

The Virgin Media fallout

In September 2025, the government introduced draft legislation (via the Pension Schemes Bill) to deal with industry-wide concerns following the Court of Appeal decision in Virgin Media. The Court held that a lack of written actuarial confirmation (as required by section 37 of the Pension Schemes Act 1993 for amendments impacting member benefits in contracted-out schemes) would render an amendment void, regardless of whether such actuarial confirmation would have been granted had it been sought at the time.

The draft legislation deals with this potential unfairness arising from a strict reading of section 37 (whereby alterations are void – as opposed to voidable – in the absence of written actuarial confirmation) following Virgin Media. This is a relief for schemes that have grappled with the uncertainty about the validity of historic alterations, particularly amendments that had sought to reduce benefits and therefore had the potential to trigger higher liabilities if alterations were void because of Virgin Media (simply because the actuarial confirmation cannot be located or was not obtained, despite the fact the scheme actuary would have considered the alteration at the time).

The draft legislation

As it stands, section 101 of the draft Pension Schemes Bill broadly states that "potentially remediable alterations"[1] are to be treated for all purposes as having met the requirements of section 37 and having always been a valid alteration subject to satisfying the conditions in subsection (3).

Those conditions are:

1. that the trustees or managers of the scheme have made a request in writing to the scheme actuary for the actuary to consider whether or not, on the assumption that it was validly made, the alteration would have prevented the scheme from continuing to satisfy the statutory standard, and

2. that the scheme actuary has confirmed to the trustees or managers in writing that in the actuary’s opinion it is reasonable to conclude that, on the assumption that it was validly made, the alteration would not have prevented the scheme from continuing to satisfy the statutory standard. (Our emphasis)

The FRC's guidance

The FRC's guidance is designed to assist actuaries tasked with providing a retrospective confirmation under section 101(3). In particular, it provides guidance for actuaries required to form an opinion as to whether it is "reasonable to conclude" an alteration would not have prevented the pension scheme from continuing to meet the reference scheme test

The test – certainty not required

Pension schemes will be relieved that the FRC expects actuaries to take a proportionate and broadbrush approach in deciding whether it is "reasonable to conclude" that an alteration could have been given at the relevant time. This is a sensible approach, given that many alterations will be historic (particularly as many section 37 issues are likely to arise due to a lack of written evidence, not helped by the time that has lapsed since the alteration was made).

The FRC confirms the following in respect of this test:

"The test does not require the scheme actuary to have certainty about whether the rule alteration would not have prevented the pension scheme from continuing to meet the reference scheme test. Instead, the test requires the scheme actuary to reach a reasoned and justifiable conclusion taking into account all the relevant facts and circumstances identified after taking a proportionate approach to the gathering of data".

The requirement for a proportionate approach

The FRC emphasises the importance of actuaries taking a proportionate approach in deciding whether further information is required to form a view:

"The scheme actuary is expected to exercise judgement over what information is sufficient for the purpose of forming an opinion. In doing so, the scheme actuary is encouraged to use information which is readily available, that is information which can be obtained without incurring a disproportionate amount of time and effort."

The FRC acknowledges that there will be situations where no further information is required for the actuary to give retrospective actuarial confirmation based on an understanding of the rule alteration alone. The guidance sets out several examples, such  as alterations that (1) did not decrease benefits; (2) impacted benefits that are irrelevant to the reference scheme test (such as lump sum benefits on death in service); (3) impacted benefits that are subject to a reference scheme underpin; or (4) changes in indexation or revaluation reflecting changes in legislation. The guidance also notes that there will be situations "where a simple assessment is sufficient to reach a conclusion".

Reliance on "indirect evidence"

Where further information is required, actuaries are encouraged to rely on "indirect evidence" on the basis they do not need to be certain that actuarial confirmation would have been given.

Examples of indirect evidence given in the guidance include subsequent actuarial confirmations and "legal advice, trustees’ meeting minutes, member communications or other documents relating to the rule alteration". Generally, the FRC appear to be recommending that actuaries look for documentation that would suggest the alterations were considered and endorsed by the scheme actuary at the relevant time.

Commentary

The FRC is encouraging a proportionate and pragmatic approach. In this respect it is consistent with the government's decision to introduce draft legislation to address the fallout arising from Virgin Media, by allowing schemes to obtain actuarial confirmation retrospectively for alterations in recognition of the uncertainty caused by the judgment.

The guidance is welcome news for pension schemes – particularly sponsoring employers – as the actuaries' ability to take a pragmatic approach and rely on "indirect evidence" where further information is required (as opposed to having to go through member data to determine the position with a greater level of certainty for each alteration impacted by Virgin Media) should allow schemes to mitigate the cost of resolving the fallout.

Schemes that were proactive in looking to address the fallout may find themselves in an unfortunate position given that the draft legislation excludes section 37 issues that are the subject of proceedings issued on or before 5 June 2025. Schemes that waited for government intervention following the Court of Appeal decision in July 2024 may now look to instruct actuaries to start work on reviewing alterations that have been impacted by Virgin Media on the assumption the relevant draft legislation is unlikely to materially change as it passes through the House of Lords.

That said, some schemes may hold out for the long-awaited High Court judgment in Verity Trustees v Wood [2024] EWCA Civ 843 (heard last February) which is expected to provide further guidance on the scope of amendments requiring a section 37 actuarial confirmation, such that certain alterations may not, in fact, be impacted by Virgin Media and therefore will not require legal resolution (in particular closure of a scheme to future accrual). Notably the High Court was asked to confirm what qualifies as written actuarial confirmation, whether a triennial valuation by the actuary would suffice, and whether a presumption of regularity can be inferred. Interestingly, the latter may be the kind of "indirect evidence" that an actuary can consider in reaching a view under the legislation. 

[1] "Potentially remediable alterations" are defined in s.100(7). Broadly, the subsection requires the alteration to have been treated as valid by trustees with no positive action taken on the basis the alteration was void because of s.37. An alteration may also be excluded from the scope of remediation if any question relating to the validity of the alteration (due to s.37) has been determined by the court or is subject to proceedings issued on or before 5 June 2025 (when the Government confirmed its intention to introduce draft legislation).