Lawyers call for more guidance on Virgin Media ruling effects

Speakers at a Society of Pension Professionals (SPP) webinar said additional guidance would be required despite the government’s pledge to mitigate the effects of the ruling through amendments to the Pension Schemes Bill.

Eversheds Sutherland partner and head of pensions Jeremy Goodwin flagged the uncertainty many schemes face.

Last year’s Virgin Media vs NTL Pension Trustees case ruling on pension amendments posed financial and reporting challenges for trustees, sponsors, and auditors. The court’s ruling meant that any amendments made to pension schemes that were contracted out of the state second pension could be rendered invalid if the trustees could not prove the changes had been approved by an actuary.

The government has confirmed it will legislate to provide further clarity via the Pension Schemes Bill, but Goodwin said actuaries needed guidance tailored to them.

“We really need the actuarial guidance to come through and be as broad, flexible and helpful as humanly possible.”

Jeremy Goodwin, Eversheds Sutherland

“We understand there are conversations between the two main actuarial bodies thinking about what that guidance might be in relation to new powers that have come through, because clearly a number of questions are going to arise,” explained Goodwin. “We really need the actuarial guidance to come through and be as broad, flexible and helpful as humanly possible.”

While Goodwin recognised the government’s proactive approach in this area, he was not holding out too much for the Pension Schemes Bill to provide comprehensive solutions.

Not only was there some time before the bill was expected to come into force, but he admitted he felt it was unlikely that “anything substantive” would come through in the relevant amendments.

“I’m hoping, while we wouldn’t necessarily get an amendment to the bill, we might have exercise of the [secretary of state’s] regulation-making power to try and address some of those bits that don’t yet come through,” he added.

Amendments have been added to the Pension Schemes Bill following its committee stage, which concluded last week. These include a rule allowing an affected rule change to be deemed valid “if the actuary confirms that it is reasonable to conclude that at that time the alteration would not have prevented the scheme from continuing to meet the statutory standard for contracted-out schemes”.

Pensions minister Torsten Bell told the committee: “The new clauses let schemes ask their actuary to confirm retrospectively that a past change to benefits would not have stopped the scheme from meeting these legal requirements at the time, rather than requiring the scheme to produce actuarial confirmation of the same facts at the time that the change was actually made. They will help members and schemes get the certainty they need.”

Lawyers braced for ‘stressful’ surplus discussions

The panel also discussed recent cases related to surplus management, with A&O Shearman partner Andy Cork looking at cases such as Arcadia Group Pension Trust vs Smith and the Littlewoods determination panel ruling.

“We’re going to have lots of very stressful conversations around surplus distributions at trustee meetings, going back to the basics of how trustees go about those decisions.”

Andy Cork, A&O Shearman

“We’re going to have lots of very stressful conversations around surplus distributions at trustee meetings, going back to the basics of how trustees go about those decisions,” said Cork, who applauded the authorities’ use of pragmatism in such cases.

“Going into a new policy area, we’re going to have to see some creativity and pragmatism in how we operate these rules. It’s reassuring – from the High Court in Arcadia, from the regulator in Littlewoods – that we are seeing a pragmatic way to approach these decisions that should inform us as an industry of how we advise trustees.”

Earlier this year, the Pensions Regulator signed off on an amendment to the rules of the Littlewoods Pension Scheme to allow surplus to be released and returned to the employer, after a quirk of its rulebook meant between £10m and £16m was ‘stuck’ in the scheme, preventing its wind-up.

With Arcadia, the trustees of the collapsed retailer’s two pension schemes had to apply to the court for clearance to merge the schemes and put members on an equal footing before a buy-in with Legal & General could be completed. This was granted in February this year.