12 July 2023

The High Court has considered the question of whether amendments made to rights to the payment of pensions and accrued rights to pensions in a contracted-out Scheme (“section 9(2B) rights”) would be invalid in the absence of actuarial confirmation that the scheme would continue to meet the “reference scheme test”, as required by Section 37 Pension Schemes Act 1993 (“Section 37”) and Regulation 42 of the Occupational Pension Schemes (Contracting-out) Regulations 1996 (“Regulation 42”).

In a significant judgment, which is already attracting considerable interest, the Court decided that the absence of the required actuarial confirmation rendered amendments to section 9(2B) rights (both pre- and post-dating the amendment) void under Section 37.


The National Transcommunications Limited Pension Plan (the “Plan”) was, at the relevant time, a contracted-out defined benefit occupational pension plan and therefore subject to the “reference scheme test” which applied to alterations to contracted-out service after 6 April 1997. More specifically, Section 37 and Regulation 42 provide that before amendments to a contracted-out scheme can be made, the Scheme Actuary must provide confirmation that the scheme will continue to meet the reference scheme test after the amendments take effect.

In 1999 the employer and the trustees of the Plan executed a Definitive Trust Deed and Rules (the “1999 DDR”) which sought to reduce the rate of revaluation of deferred pensions for service after 8 March 1999. 

In circumstances where the parties could not locate actuarial confirmation that the Plan would meet the reference scheme test if the amendments were made, the employer sought the Court’s view on the validity of the changes made by the 1999 DDR on the assumption that actuarial confirmation of compliance with the test did not exist. This question, which only arises in relation to contracted-out schemes, has been presenting employers and trustees alike with uncertainty. Whilst the need to obtain actuarial confirmation was widely known, there has been considerable uncertainty as to what form the confirmation referred to in the legislation should take, and what the consequences might be if the confirmation was either not obtained, or obtained but mislaid.

The arguments

The parties, being the principal employer on the one hand and a representative of affected members on the other (the trustees having adopted a neutral position in the case) adopted the following positions regarding the impact of the legislation:

  • The principal employer argued that non-compliance with the legislation did not render the amendments void because it was not intended to have that effect. Alternatively, if the court found that this was the intention of the legislation then only changes to past service benefits would be rendered void leaving the amendments made in the 1999 DDR (which affected future service) valid and effective. In the further alternative, the employer argued that if the legislation rendered both past service and future service changes invalid, only changes which adversely affected contracted-out benefits would be caught and other changes with no impact to contracted-out benefits would remain valid and effective.
  • The representative member argued that, absent the actuarial confirmation required by the legislation, the correct outcome was that the amendments made by the 1999 DDR were void and of no effect for both past and future service and in relation to all changes made to contracted-out benefits and not just those that would or might adversely affect such benefits.

We consider the various arguments advanced by the employer and the court’s determination on each issue in turn.

Issue 1: Consequences of failure to provide actuarial confirmation in respect of a scheme alteration

The employer accepted that Regulation 42 meant that actuarial confirmation was required for any amendments to a contracted-out scheme to take effect but argued that failure to obtain such confirmation did not render the 1999 DDR automatically void; rather, the changes would take effect but the absence of actuarial confirmation risked the Secretary of State varying or cancelling the scheme’s contracting-out certificate. In doing so, the employer argued for a measured and pragmatic outcome if actuarial confirmation did not exist.

The employer supported this position by advancing numerous arguments based on interpreting Section 37 by reference to earlier versions of it, actuarial guidance, contributions agency guidance and overarching fairness.

Mrs Justice Bacon, however, found that the wording “cannot be altered” in Section 37(1) was clear and that nothing in Section 37 or Regulation 42 allowed for a non-compliant alteration (such as the one in the 1999 DDR) to be deemed valid in circumstances where the legislation had not been complied with to the letter. In particular, Mrs Justice Bacon refused to use other sections of the 1993 Act to interpret Section 37 to mean something different to that which she held was intended. Mrs Justice Bacon also found that both the actuarial guidance and the contributions agency guidance was clear in that alterations could only be made to the rules of a contracted-out scheme if the scheme actuary had first provided the actuarial confirmation required by Regulation 42.

Issue 2: Whether section 9(2B) rights affected past service benefits or all benefits

The employer argued that the purpose of section 9(2B) rights was to protect benefits accrued as at the date of the alteration and not future service benefits. If, which it said was not the case, non-compliance with the legislation rendered alterations void, this would not affect alterations which applied only to future service benefits. Despite Mrs Justice Bacon acknowledging that the definition of section 9(2B) rights distinguished between rights and accrued rights, she found that whereas elsewhere the Regulations explicitly stated where a provision was intended to only protect rights acquired before a specified date, Regulation 42(2) contained no such wording. Having regard to the statutory language and the context of the Regulations as a whole, Mrs Justice Bacon concluded that section 9(2B) included both past and future service rights.

Issue 3: Whether voidness under Section 37 applied only to adverse alterations to section 9(2B) rights or to all alterations to section 9(2B) rights.

The employer argued that Regulation 42(2) only required actuarial confirmation where alterations would or might adversely affect section 9(2B) rights. However, Mrs Justice Bacon dismissed this and concluded that “Regulation 42(2) provided, on its face, a straightforward and unambiguous mechanism requiring actuarial confirmation in relation to any alteration” to section 9(2B) rights and not merely to alterations that would or might adversely affect such rights.


By finding against the employer on all three issues, Mrs Justice Bacon has confirmed that the absence of actuarial confirmation in respect of changes made to section 9(2B) rights (including improvements to those rights) is, on the face of it, potentially problematic. 

We say “potentially” because, as is often the case, the decision has raised more questions than it has answered and drawing any solid conclusions about where this judgment leaves the industry is impossible before further questions are addressed. We understand that the employer is seeking confirmation on a couple of points before deciding whether to appeal and/or whether to seek a further hearing to deal with some of the unanswered questions raised by the judgment. Those questions may include:

  • what will or will not suffice for “actuarial confirmation” that a scheme would continue to meet the reference scheme test? Some in the industry interpreted this to mean a certificate signed by the scheme actuary even though the legislation is completely silent on what form the confirmation should take;
  • must the scheme actuary sign the confirmation? Again, the legislation is silent on the point;
  • must the confirmation come from the scheme actuary or is it sufficient if the confirmation comes from a colleague?
  • is it sufficient if the confirmation takes the form of a recital in the relevant amending deed, which the actuary has seen and approved?
  • what if it can be established confirmation was obtained but it has subsequently been mislaid?
  • what if the scheme actuary believes confirmation was addressed but there are no documents supporting that position one way or the other?
  • what is the effect of actuarial confirmation obtained subsequently perhaps for other amendments, on a triennial valuation or when periodically confirming that the scheme continued to satisfy the reference scheme test as previously required by Regulation 16 of the Occupational Pension Schemes (Contracting-out) Regulations 1996?
  • must employers and/or trustees go searching for confirmation now?
  • how, if at all, are ongoing buy-out negotiations affected?
  • should new buy-out negotiations be approached differently?
  • how, if at all, does this affect renewal of professional indemnity insurance including the purchase of run-off cover?

We will report on any further developments as soon as they are available. However, if you require immediate advice on the impact of the judgment, for example, because your scheme is due to buy-out imminently, please contact any author or your normal pensions contact in the Pensions Team,

Written by Caius Mills, Justin Briggs and Suzanne Padmore.

Key contact


Suzanne Padmore Partner

  • Pensions Disputes
  • Professional Negligence
  • Financial services Disputes and Enforcement 

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