Virgin Media decision and the s37 remedy – amendments proposed to Pension Schemes Bill

As we’ve written previously, on 5 June, the Government confirmed that it was intending to legislate to address the effects of the Virgin Media s37 decision (see our September 2024 briefing for more detailed general background to the case). The press release came as welcome news to schemes across the industry, who have been waiting patiently since June for the finer detail.

On 1 September the proposed provisions for a statutory fix were published in the form of draft clauses to be inserted into the Pension Schemes Bill. The draft provisions are one part of a paper running to some 90 pages of amendments that have been tabled for consideration at the Committee stage, as the draft Bill is scrutinised in the Commons.

This may have taken some by surprise, as there is existing provision in the Pension Schemes Act 1993 for regulations to be laid “so as to validate with retrospective effect any alteration of the rules which would otherwise be void” under s37. However, industry discussion over the past few months has suggested that in order to provide as complete a solution as possible to the s37 issue, including for example in respect of schemes that have transferred to the PPF or FAS, primary legislation would be needed.

Shape of the remedy

The draft clauses run to almost 10 pages – there are 4 clauses in respect of “GB schemes”, being those occupational pension schemes who were salary-related contracted-out schemes in England and Wales or Scotland. These are followed by a further 4 clauses to make the equivalent changes in Northern Ireland.

The process looks to be as anticipated in the June ministerial statement – namely retrospective confirmation is requested from the actuary in respect of each change where evidence of confirmation is missing. The process has two key stages:

• where there is a “potentially remediable alteration” (more on this definition below), the trustees or managers of the scheme make a written request to the scheme 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
• the scheme actuary confirms to the trustees or managers in writing that “in the actuary’s opinion it is reasonable to conclude that, on the assumption it was validly made, the alteration would not have prevented the scheme from continuing to satisfy the statutory standard”. 

The definition of “potentially remediable alteration” suggested is an alteration that:

• as a result of s37 and regulation 42 as they stood at the time, required an actuarial confirmation that the reference scheme test would continue to be met; and
• was treated by the trustees / scheme managers as a valid alteration, 

provided that it is not excluded from the scope of the remedy, either by reason of “positive action” having been taken by the trustees or managers on the basis they consider the amendment to be void, or as a result of legal proceedings (again, see below for more details).

If the process for the remedy comes into force as set out in the draft clauses, it will be interesting to see how the interplay between legal and actuarial advice develops as there is clearly a key role for both sets of advisors in applying the fix. We can see that there will be legal advice necessary to work out to what is a “potentially remediable alteration” as there will be questions as to whether a particular amendment required a s37 confirmation in the first place and there may also be questions as to whether there is sufficient evidence that that confirmation has already been given in the past. Equally there will be actuarial advice required in order to give the retrospective confirmation. It is possible that future case law and / or guidance to the actuarial profession may assist here. 

Key points 

Some key points to note in relation to the draft clauses are:

• Individual changes will need to be considered on a case-by-case basis – this is not a blanket remedy and schemes will still need to consider historic changes carefully and identify where evidence of compliance for amendments is lacking and confirmation is needed;
• In each case where a confirmation was needed but was not obtained, in order to “save” the alteration from being void, the scheme actuary will need to confirm that in their opinion it is reasonable to conclude that making the alteration would not have prevented the scheme from continuing to satisfy the statutory standard. It may well be that this “negative” test results in an easier threshold to meet than the corresponding “positive” requirement to confirm that the test would have been met.
• There are some important exemptions to the scope of the remedy. As it stands, the option to obtain the confirmation would not be available in respect of either:
  • Any change that would otherwise be “potentially remediable” but in respect of which “positive action” has been taken by the trustees or managers on the basis they consider the alteration to be void. “Positive action” is defined as either:
    • notifying any members in writing to the effect that the trustees or managers consider the alteration to be void by reason of non-compliance with s37 and that the scheme will be administered on that basis; or
    • taking any other step in relation to the administration of the scheme, as a result of the trustees or managers considering the alteration to be void, which has (or will have) the result of altering payments to or in respect of scheme members.
  • Any change where either the question of whether or not the alteration was valid in respect of s37 compliance has been determined by a court already, or where it was in issue on or before 5 June 2025 in legal proceedings to which the trustees or managers are a party and either,
    • remains in issue when the fix comes into force, or 
    • has been settled by agreement between the parties before the fix comes into force. 

There is an interesting question here as to what is meant by “in issue in legal proceedings”– does a formal claim form need to have been issued or might, for example, an issue which is raised in pre-action correspondence be caught by this exclusion? Would it only cover declaratory proceedings in the High Court as to the validity of the amendment, or would it cover Pensions Ombudsman claims which relate to the administration of benefits subject to s37 issues? 

(The Bill separately provides for confirmation that the Pensions Ombudsman is a competent court for the purposes of section 91(6) of the Pensions Act 1995 on the separate issue of allowing the recovery of overpayments, so it would be unfortunate to say the least if these provisions created other uncertainty as to its standing or the relevance of claims before it.) 

• The position is different for schemes that have already been wound up or that have transferred to the PPF or FAS. For these schemes a blanket fix is proposed. Where there is a “potentially remediable alteration” purportedly made to such a scheme it is proposed that the alteration will be treated “for all purposes” as having met the s37/regulation 42 requirements and therefore to be have always been a valid amendment for the purposes of s37. This will apply to all schemes that wind up or enter the PPF / FAS before the date on which these provisions come into force – might we see some schemes seeking to accelerate their wind-up processes to meet this deadline?
• This is not the final legislation – further changes may still be made. However, we know from our involvement that a significant amount of work has been happening behind the scenes in consultation with industry bodies and representatives. It may be that any future changes are relatively minor, rather than a significant overhaul of the shape of the remedy proposed.
• That being said, we note that the final provision in the draft clauses for each of GB and NI schemes is a regulation making power which specifically allows for further categories of alteration to be specified as being outside of the scope of the remedy. There is also power to make regulations for “incidental, supplementary, consequential and transitional” provisions in respect of any of the new clauses.

Next steps

At this stage, the proposed changes are only draft amendments and for most schemes, it is likely to be premature to take any action just now. The update is helpful as schemes can start to prepare and plan for future actions on the basis that it is likely that the remedy will be in broadly this form.

For those with reviews of historic documentation for s37 compliance already in progress it is likely to be sensible to continue and complete that analysis, to identify those alterations (if any) that might be in need of confirmation under the remedial process. At this stage it is unlikely to be appropriate for schemes to notify members of any alterations that they think could be missing confirmations that have been identified or to alter the basis on which the scheme is administered (as under the draft clauses doing so would render the alteration ineligible for the remedy).

For certain schemes though, particularly those that are in the process of winding up, and perhaps those in the process of buying out as a precursor to winding up in the short term, there may be the need for some deeper consideration to the draft clauses. As set out above, where there is an alteration in need of remedy the process for obtaining a fix looks like it will be different for schemes that wind up before and after the date the provisions in the Bill come into force.

Where schemes have s37 issues in issue in legal proceedings, it will be necessary to consider whether those issues should sensibly remain in the proceedings before the provisions come into force. We note that the remedy will not be available where a question in relation to the validity of an alteration was in issue in legal proceedings before 5 June 2025 and the proceedings remain in issue at the time this comes into force, regardless of whether those proceedings are then pursued to a conclusion.

Otherwise, for the time being it is a watching brief for schemes and their advisors as we wait to see the final shape of the remedy, and the timescales for implementation. Of course, the other important piece of the s37 jigsaw is the decision in the Verity Trustees case, judgment in which is expected to be handed down this Autumn. It will be interesting to see, for example, the conclusions reached in relation to issues such as whether a s37 confirmation was required in respect of a closure to future accrual. 

If you have any questions at all about s37 compliance in your scheme, please do contact Richard Knight or your usual Burges Salmon contact.