TPR publishes guidance for trustees dealing with Virgin Media issues – a practical approach

The Pensions Regulator (TPR) has published guidance for trustees to address historic pension scheme alterations impacted by the decision in Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors [2024] EWCA Civ 843.

Schemes can now resolve any uncertainty by obtaining retrospective actuarial confirmation in respect of past alterations impacted by the judgment (alterations lacking actuarial confirmation or evidence of the same), as permitted by the Pension Schemes Bill.

Recap on Virgin Media

Virgin Media was a landmark case that cast doubt upon the validity of historic alterations to pension scheme rules (some as far back as 1997). 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. Broadly, actuarial confirmation requires the scheme actuary to confirm that an alteration does not prevent the pension scheme from continuing to meet the "reference scheme test".

In February the Financial Reporting Council (FRC) published guidance for scheme actuaries responsible for giving retrospective confirmation in accordance with the Bill. The FRC made it clear that actuaries could take a proportionate approach and rely on "indirect evidence" that actuarial confirmation would have been given at the time, in recognition of the fact the Bill does not require the actuary to be certain (it needs to be "reasonable to conclude" that the alteration would not have prevented the scheme from continuing to satisfy the statutory standard). 

TPR's guidance

TPR confirms that the guidance is for trustees, scheme managers and responsible authorities (collectively referred to as governing bodies in the guidance) of occupational pension schemes that:

• were contracted-out on the salary-related basis at any point between 6 April 1997 and 5 April 2016, and
• have not been fully wound up or transferred to the Pension Protection Fund (PPF) or the Financial Assistance Scheme (FAS) at the date the Bill receives Royal Assent.

The second bullet point reflects the fact that the Bill confirms that alterations in wound up schemes will be treated as having met the requirements of the regulations from their original effective date and so are to be treated as valid. TPR makes it clear that schemes that have not been fully wound up will need to obtain actuarial confirmation (which indicates TPR does not condone leaving the issues unresolved where the scheme is in the process of winding up in order to benefit from the carve-out in the Bill).

TPR confirms that governing bodies should:

• Establish whether the scheme is affected by the judgments in the Virgin Media case and, if so, decide whether it will use the potential remediation available under the Bill.
• Understand the Virgin Media judgment and the remediation available under the Bill;
• Seek advice and information from the scheme's legal adviser and actuary;
• If using the remediation under the Bill, provide formal written instructions to the scheme actuary to undertake the work.

TPR confirms the scope of work should specify:

• the alterations requiring consideration; and
• "where multiple alterations occurred at the same time, eg in a single deed of amendment, whether your actuary can consider the overall effect of all these alterations together, or consider each alteration individually, or a combination of both approaches. A new trust deed and rules may have contained substantive amendments even if it is called a consolidating deed and these will need to be identified".

• Agree a practical and realistic timescale with the actuary, and discuss timings with the sponsoring employer;
• Ensure that document retention policies will not cause the destruction of relevant records until matters are resolved;
• At the outset, consult the actuary to determine whether they have sufficient information. Consistent with the FRC's guidance advocating a proportionate approach, TPR confirms "we do not expect you to carry out exhaustive searches before your actuary undertakes the remediation work". If further information is required, TPR encourages governing bodies to liaise with former administrators, actuaries, legal advisers, employers, and trustees. 

As a starting point it encourages governing bodies to "consider the circumstances impartially " and determine whether alterations required a s.37 confirmation (noting alterations before 6 April 1997 or after 5 April 2016 will be out of scope) and, thereafter, whether any of those alterations are missing a s.37 confirmation. If so, TPR propose that trustees weigh up the cost/benefit of devoting resource to searching for evidence instead of assuming there was no certification and moving directly to remediation.

TPR notes there will be situations where the actuary cannot provide the retrospective confirmation for all the affected alterations; in such circumstances governing bodies should consider the reasons and decide what to do next. TPR does not address what these circumstances may be, but if an actuary is unable to provide actuarial confirmation it is likely trustees will need input from the scheme's legal adviser as to how it should proceed, including consideration as to whether actuarial confirmation can be provided if further information is provided. TPR also notes that schemes will need to consider the extent to which validity issues impact the funding position of the scheme; this will be more relevant if it becomes apparent the scheme cannot obtain retrospective actuarial confirmation via the Bill.

TPR also provides practical tips by encouraging governing bodies to take the following measures when carrying out this exercise:

• Make decisions in line with decision-making procedures in the scheme's governing documentation;
• Maintain a clear audit trail for decisions, actions, and results;
• Store actuarial confirmations alongside the alterations, with whoever holds the scheme's formal documentation, and provide copies to the sponsoring employer who should be kept informed of decisions;
• Prepare "a reactive response on this issue to manage member queries in a clear and consistent way", and update it following completion of the remedial exercise.
• Assess quality of scheme data in light of the exercise, and improve it as necessary.

Trustees will be pleased to note that TPR confirms that it does not expect governing bodies to report remedial actions or failures to obtain s.37 confirmations in the past.  TPR notes that "any historic breach is very unlikely to be materially significant to us now in carrying out any of our functions".

Commentary

TPR has issued practical guidance that is similar to that issued by the FRC to actuaries, in that it makes it clear that trustees should take a proportionate and cost-effective approach to resolving s.37 issues. This is reflected in its recognition that trustees may decide to assume there is no actuarial confirmation and move directly to remediation instead of carrying out exhaustive searches for evidence. TPR notes that trustees can instruct actuaries before the Bill receives Royal Assent (which is expected to happen in April).

That said, TPR clearly expects schemes to address these issues rather than simply ignoring them and assuming compliance. Schemes in the process of winding up are expected to bottom out any Virgin Media issues, albeit in practice this may not make a practical difference if buy-out providers are unwilling to assume the risk of leaving s.37 issues unresolved (particularly as there should now be a route to validating alterations that would have been given actuarial confirmation had such been sought at the relevant time).

It is also interesting to note that TPR calls on trustees to assess Virgin Media issues "impartially", and in this respect it is noteworthy that TPR suggests that it does not expect to be informed of s.37 issues and that it is "very unlikely" to take any action in respect of the same.