Some good news! Virgin Media goes away…sort of

We mentioned as a stop-press at the end of our last briefing (Virgin Media – a potential pensions bombshell?) that the Government had agreed to intervene in the ongoing Virgin Media issue for pension schemes. It’s a big step forward, and although we’ve not seen any draft regulations, will solve a lot, but not all, of the headaches the decision created.

You may remember, a couple of issues ago, that we explored the problem, and some possible solutions, in detail. In short, the issue identified was that some changes to pension schemes that had contracted out of the state second pension, always needed to be certified by actuaries. In many cases, the pensions industry, including lawyers and actuaries, had considered that certification in relation to the contracting-out wasn’t needed because it was assumed only to be necessary for changes affecting existing, not future, benefits.

The Virgin Media decision changed that.Trust-based, defined benefit (final salary-type) pension schemes that fell into the contracted-out category (most of them) suddenly had uncertainty over the validity of over 20 years’ worth of changes affecting member benefits. In many cases, reversing those assumed changes would mean unpicking decades of member benefits, and be extremely expensive. Funding surpluses could become deficits, with employers having to pump in even more money, rather than having the prospect of actually getting some back.

What has the Government announced?

Many industry bodies, including the Association of Pension Lawyers and the Pensions and Lifetime Savings Association (now Pensions UK) worked with the Government to work out a possible solution. There was considerable pessimism about whether we could expect that action would actually be taken as a result, including from some KCs who usually know what’s going on. After all, the Government has an awful lot on its plate at the moment.

But on 5 June 2025 the Pensions Minster, Torsten Bell, announced that the Government would legislate to assist the pension industry. This would provide reassurance in place of the current uncertainty.

The approach the Government has taken is that the Virgin Media decision stands. Without certification by the scheme’s actuary, changes affecting future benefits are still potentially void, or may simply be void.

However, it will be possible, once the regulations are published, to have the current scheme actuary (presumably even if they come from a different firm than the actuary who was involved at the time) certify the change retrospectively. So the change, once the certification is given, is and always has been valid.

And if that is done, the problem goes away. The scheme can be funded on the basis of the benefits that everybody always assumed applied.

So that’s all sorted, then? 

Not quite. The Virgin Media decision and its principles still stand. The announcement provides a route to regularise past changes in schemes on an individual basis. It does not automatically mean that all changes that may be open to question will suddenly become valid. They have to be analysed and individually certified now. Nor does it simply set aside the Virgin Media decision and reset the pensions landscape as it was beforehand.

There is always the question of whether the actuary will provide, or be able to provide, the needed retrospective certification. We don’t know what the certification grounds set out in the new regulations will be, and how broad a scope the actuary will get. But we’d expect that it will be along the lines that if, at the time, the actuary would have certified the change’s compliance with the Pension Schemes Act 1993 for future benefits as well as existing benefits, then they will be able to do so now.

If they can’t certify a particular change, then the problem remains.  An issue that has been identified as something that the scheme’s trustees and, of course, you as an employer, definitely need to deal with, rather than just being a possible issue, the solution will cost money. You will need to work with the trustees to make changes from now on, and there will be a cost in funding additional benefits that nobody thought would arise.

Of course, arguably, if an actuary can’t certify a change retrospectively now, they wouldn’t have been able to do in the past either. So the problem would have been there anyway, and it has taken the Virgin Media case to bring it to light. But without Virgin Media, it’s perfectly possible that a such a scheme might have made it all the way to winding-up without the issue ever having been identified. No-one would really have lost out, as everyone, members included, would just have been aware of the intended benefits which everyone was working with, and which the scheme would have paid out.

The unknowns

There is still key information missing: we don’t know when the draft regulations will be published, if there’ll be an extended period of consultation, or when (and in what form) they will come into force.

Do our trustees and their advisers still need to assess their historic rule amendments?

That’s the big question. The actual issue, of potentially invalid decisions in schemes’ past deeds of amendment, hasn’t gone away. They’re not automatically put right, but they have the potential to be corrected. If they’re identified, and if the scheme actuary will certify them retrospectively, then and only then does the problem go away.

For now, unless you think your scheme may have big problems that can be solved on the basis that the Government is proposing, the best solution may be not to do much. Only if you need absolute certainty, for example, if you are contemplating transferring pension risk to the insurance market via buy-in and then buy-out of assets and liabilities, might you consider acting now.

Even so, the ‘safest’ route is to work through all potentially invalid changes and have the (current) scheme actuary certify them as valid from the time they were made. Once the regulations are in place, and retrospective certification given, the scheme then will run, and will always have run, on the basis that everyone expected it did. We know of some trustee bodies who would like to progress on this basis, even though their schemes are not close to the end point where risk is transferred to the insurance company. Now there is light at the end of the proverbial tunnel, this makes more sense for them. They can start to prepare the ground to obtain certainty as to the scheme’s benefit structure and liabilities.

But historic investigations, and actuarial certifications, take time and cost money. Scheme employers ultimately pay for the work, whether directly by paying trustee advisor fees, by additional contributions, or by seeing some of the scheme’s surplus eaten up by advisor fees. And, again, what if the actuary doesn’t feel able to certify the change? A possible problem has then become a certain problem.

Given that we haven’t seen the regulations yet, we’re generally advising clients, employer and trustee, to keep doing what they were already doing. If they’re investigating, for example as they look to buy in and then buy-out their liabilities, then there is a focus and a possible solution now. If they’re doing initial scoping work only, then that should continue. If they’re doing nothing, then it may be time to plan.

Next time…

Unless something else exciting happens in the world of pensions beforehand (and there’s another big pensions decision, the Pensions Trust case, that should be issued in the autumn on a wide range of issues), we’re going to look at Collective Defined Benefit (CDC) pensions. They’ve been discussed for years now, and have long been a part of the furniture in the Netherlands. But it’s just possible their time has come in the UK.

What are they? Is it the future of private sector pension offerings, closing the gap between what are still fairly limited automatic enrolment schemes and the more generous historic provision? Or is it another false dawn?

If you’d like to discuss anything to do with pension schemes, we’re always pleased to hear from you.