The Virgin Media case

The Virgin Media case is a legal dispute over the validity of amendments made to contracted-out pension schemes between 1997 and 2016 and has potential implications for other defined benefit schemes that were also contracted out in that period. The case involved Virgin Media and NTL Pension Trustees II Ltd. 

In June 2023, the High Court ruled that amendments to contracted-out pension schemes were invalid if they lacked actuarial confirmation. 

In summary, any amendments to contracted-out pension schemes are void, unless the scheme actuary had not confirmed at the time of the rule change that the scheme would continue to satisfy the applicable statutory standard. This conclusion is known as a section 37 certificate. 

This ruling was taken to the Court of Appeal, but Virgin Media’s case against the High Court’s decision was dismissed in July 2024.

The case has the possibility to lead to increased liabilities for schemes and an additional workload for scheme administrators and trustees.

What are we expecting to happen next?

Trustees are under no legal duty to review the validity of previous deeds, unless they have a specific reason for thinking this may be in doubt.

For schemes that believe they may be affected, the process could be a highly resourced, intensive exercise. However, there is a risk that this ruling could be appealed in the Supreme Court, or the DWP could intervene by making changes to legislation that would remove this uncertainty. This could include retrospectively validating any amendment that is classified to be void, solely because either a written actuarial confirmation cannot be located, or it is known that it was not received before the amendment was made.

Understandably, trustees aren’t rushing to spend money on calculating the likely impact of this case, unless there is a specific reason to accurately quantify liabilities immediately, such as the scheme about to enter a buy-out position.  Even then, there may be difficulties factoring the effect into actuarial valuations due to lack of information.

This wait and see approach is not helpful for the scheme accounts. Trustees need to consider the likely impact on their accounts including retrospective and future liabilities.

Under the FRS102 Pensions SORP, a contingent liability is defined as: either a possible but uncertain obligation, or a present obligation that is not probable and/or cannot be reliably determined.

It then goes on to say: Unless the possibility of settling the contingent liability is remote, or it is not material, disclosure should be made in the notes to the financial statements of the estimated financial effect and an indication of the uncertainties relating to the amount or timing and any possible reimbursement.

Many trustees have simply acknowledged the case in disclosures but have stated that it is not possible to estimate the potential impact, if any, on the scheme at present.  Whilst trustees of non-contracted out schemes or those who are confident that there were no rule amendments that would be affected, have chosen not to disclose.

We are expecting PRAG (Pensions Research Accountants Group) to issue guidance in this area.

As auditors, we will need to review the trustee’s response to this case and update as it unfolds.