Appeal dismissed in Virgin Media section 37 certificate case

The Court of Appeal has dismissed an appeal in the case of Virgin Media Ltd v NTL Pension Trustees II Ltd.  The case concerned the validity of amendments made to pension schemes that were contracted-out of the state pension system in the period from 6 April 1997 until 6 April 2016 (when contracting-out was abolished). Section 37 of the Pension Schemes Act 1993 provided that the rules of a contracted-out scheme could not be amended unless the amendment was of a type specifically permitted by regulations.

The wording of the relevant regulations was convoluted, but they essentially provided that to make amendments in relation to defined benefit pension rights in respect of post-6 April 1997 service:

(a) the trustees had to inform the actuary in writing of the proposed alteration(s); and

(b) the actuary had to confirm to the trustees in writing that the actuary was satisfied that the scheme would continue to meet the standards for contracting-out if the alteration(s) were made.

This written confirmation from the actuary is frequently referred to as a "section 37 certificate" (although there was no requirement for a certificate – a letter or e-mail containing the required confirmation would have been sufficient).

In the Virgin Media case, the High Court held that a failure to obtain a section 37 certificate when required by legislation will render the amendment void.  This is the case even if there would have been no issue with the actuary giving the certificate at the time.  An appeal to the Court of Appeal was dismissed on 25 July 2024.  For more detail on what this means for defined benefit pension schemes generally, click here.

Court of Appeal rules on meaning of amendment power restriction

The Court of Appeal has dismissed an appeal in the case of British Broadcasting Corporation v BBC Pension Trust Limited.

The otherwise broad amendment power contained a proviso which stipulated that no amendment could "take effect as regards the Active Members whose interests are certified by the Actuary to be affected thereby" unless the Actuary certified that the amendment did not "substantially prejudice the interests of such members" (or other conditions to protect members were met). The key issue was whether "interests" in this context covered future accrual of benefits as well as benefits already accrued.  The High Court held that it did, and the Court of Appeal upheld this interpretation.

One notable feature of this case was that the amendment power wording derived from the Scheme's first definitive deed executed in 1949.  At that time a pension was only payable to an employee who retired from the BBC's service after reaching normal retirement age.  An employee who left before reaching normal retirement age would not be entitled to any pension at all.  So that pointed towards an interpretation that "interests" must have been intended to refer to future service rights, as in 1949 there was no such thing as past service rights for active members. 

Our thoughts

This case may be relevant to the interpretation of other scheme amendment powers which contain a proviso protecting members' "interests".  However, this judgment does not mean that the courts will always construe a reference to "interests" as covering future service rights as the Court was clear that the word "interests" can have different meanings in different contexts and that context is key when deciding how the word "interests" should be interpreted.

Court claim where benefit statements sent to wrong address

The case of Farley v Paymaster (1836) Limited involves data protection claims brought by a group of over 400 pension scheme members against a scheme administrator that inadvertently sent the members' annual benefit statements to their old addresses. The High Court initially struck out those claims where the letters had been returned unopened or where there was no positive evidence that the letters had been opened and read.  However, the Court of Appeal has now granted permission to appeal in those cases.  The Court of Appeal said that it was clear in principle that an individual may establish that personal data has been processed in breach of the individual's data protection rights without proving that information or data has in fact been read or otherwise communicated with anyone.  It accepted that there was an arguable case that the members were entitled to compensation for the distress caused by infringement of their data protection rights.  

In most of the cases where the members were able to produce evidence that the wrongly addressed letter had been opened and read, the letter had been opened by a family member still living at the old address. None of the members produced evidence of further unauthorised use of the information.  The High Court judge had considered that these claims appeared to be "very far from being serious cases", but decided that they should nevertheless be allowed to go to trial rather than being struck out without a full hearing. 

Our thoughts

The courts have not yet ruled on whether the claimants in this case are entitled to compensation.  The judgments given so far have dealt with the question of whether the claims should be struck out as having no prospect of success or allowed to proceed to trial.  Whatever the eventual outcome of the case, this case illustrates that data protection breaches may give rise to claims that are costly and time consuming to defend.

New Pension Schemes Bill to include measures on small pots and decumulation options

The King's Speech announced that the Government will introduce a new Pension Schemes Bill which will include measures to:

• automatically bring together deferred small pension pots;
• place duties on trustees of occupational pension schemes to offer a retirement income solution or range of solutions, including default investment options, to their members; and
• introduce a standardised test that trust-based defined contribution schemes will need to meet to demonstrate that they deliver value.  

Our thoughts

The pensions measures announced in the King's Speech do not represent "brand new" thinking on pensions policy.  The previous Conservative government had been progressing measures in relation to all the areas covered above. Regarding the standardised "Value for Money" test for DC schemes, the FCA has since published a consultation on this (see separate item on this below). It remains to be seen whether the current government will follow the previous government's thinking on the other policy areas in all respects or whether it will take a different approach to some of the detail.  

Other pensions policy announcements since the General Election

On 20 July 2024 the Government issued a press release saying that the Chancellor has announced a "landmark pensions review" as part of the new Government's "mission to 'boost growth and make every part of Britain better off'".  The press release says that, "The first stage of the review will examine actions to support greater productive investment and better retirement outcomes, including through further consolidation and encouraging at-scale schemes to increase returns through broader investment strategies."    The first stage of the review is due to report "in the next few months".  As far as private sector pension schemes are concerned, the Government's main area of focus appears to be achieving greater investment in "productive assets" by DC schemes.

Prior to the General Election, Labour had said that that it would set up an "opt-in scheme" modelled on the French  "Tibi" scheme for DC funds to invest a proportion of their assets in UK growth assets.  The press release on 20 July does not specifically mention this.

The following policy proposals put forward by the last government have been noticeable by their absence as regards government announcements since the General Election, suggesting that the current government may not be planning to pursue the policies, or at least does not regard them as a priority:

• extension of pensions auto-enrolment so that it applies from age 18, and abolition of the lower limit for "qualifying earnings" for auto-enrolment purposes;
• providing for the PPF to act as a public sector consolidator of defined benefit schemes; and
• relaxing requirements for the extraction of surplus.

Abolition of lifetime allowance

On 9 June 2024 the FT reported that it had been told by "allies" of Rachel Reeves that Labour had abandoned plans to bring back the LTA.  There has been no official announcement from Labour on this point.  The Labour party manifesto did not mention the LTA.

Another set of regulations is due to be made with retrospective effect from 6 April 2024 covering various points mentioned in HMRC newsletters, plus possibly other points from HMRC's running list of issues raised by the pensions industry.  HMRC has confirmed in its Pension schemes newsletter 161 (published since the General Election) that the government plans to introduce the necessary regulations as soon as the parliamentary timetable permits after the summer recess.

DB funding code laid in Parliament

The Pensions Regulator published its DB funding code in final form on 29 July 2024.  The code and related documentation, together with the related scheme funding regulations, flesh out the detail of the requirement introduced by the Pension Schemes Act 2021 for defined benefit schemes to have a formal funding and investment strategy.  For more detail, click here.

Regulator updates superfunds guidance

On 26 July 2024 the Pensions Regulator published updates to its superfunds guidance.  The updated guidance involves three main changes:

• Capital Release: the previous version of the guidance only allowed capital to be released from the superfund when benefits were bought out.  The new version allows capital release when the total assets exceed minimum capital adequacy expectations as set out in the guidance.
• Standalone Principle: The previous version of the guidance stated that upon a transfer of a new scheme to the superfund, fresh capital was to be provided at a level which, together with value obtained through the transaction, would satisfy capital requirements if that pension scheme was considered in isolation. The new version dispenses with the standalone test as long as the superfund in total is funded above the level at which capital might be released.
• Reduced capital adequacy on employer insolvency: The standard capital adequacy requirements may now be relaxed where a pension scheme’s sponsoring employer becomes insolvent and the scheme is unable to afford the buy-out of full benefits, or to enter a superfund or capital backed arrangement on full capital adequacy terms.  In such circumstances, trustees should be confident that the transaction is in members’ best interests and that, even on the lower capital adequacy basis, the level of benefits members might receive would represent a material improvement from buying out with an insurer on PPF+ benefits levels.

Complainants will have to go through IDRP before being considered by Ombudsman

In a blog post published on 18 June 2024 the Pensions Ombudsman (TPO) announced that in future all complainants will be required to exhaust the scheme's internal disputes resolution procedure (IDRP) before TPO will consider investigating the complaint.  TPO's legislative framework sets out that generally TPO will not investigate complaints until the IDRP process has been exhausted.  However, TPO had relaxed that requirement in 2018 when the Pensions Advisory Service moved its informal dispute resolution function to TPO.  TPO's team of volunteer advisers will continue to offer their support to individuals prior to or during the IDRP process.  This will be focused on supporting vulnerable members and cases, for example where the risk of financial harm is high or there is a time-critical situation.

Scheme ordered to pay£1000 and £1500 for disappointment and distress in two separate overpayments cases  

Two separate overpayments cases involving the Teachers' Pension Scheme have highlighted the importance of following a proper procedure in overpayments cases, and of ensuring that communications with members in such cases are timely and sensitive.  For more detail, click here.

Complaint dismissed in pension sharing case where fund value fell before disinvestment

The Pensions Ombudsman has dismissed a complaint by a member in a pension sharing on divorce case where the member's fund value fell in the period between valuing his pension fund for pension sharing purposes and making the disinvestment to give effect to the order.  For more detail on the issues raised by the case and what lessons can be learned, click here.

Value for Money consultation

On 8 August 2024 the FCA published a consultation on the introduction of a "Value for Money" (VfM) framework. The key idea behind this is to provide a consistent framework for assessing the performance of DC arrangements, and to require pension providers to take action where an arrangement fails the VfM test.   The consultation relates to FCA-regulated firms operating personal pension schemes, but the FCA has worked with the DWP and TPR on the proposed requirements, and ultimately it is intended that equivalent frameworks will apply across the DC workplace pensions market (ie to occupational pension schemes too).  For more detail, click here.