Legal Update - Virgin Media unwound?

Summary

• The validity of many historical amendments to defined benefit pension schemes has been thrown into doubt by the Virgin Media litigation. A defective amendment could give rise to significant additional costs to sponsors.
• On 5 June 2025, the Pensions Minister announced that the Government would legislate to give affected schemes the ability to “fix” the uncertainty caused by Virgin Media.
• On 1 September 2025, the Government moved amendments to the Pensions Schemes Bill 2025 that included this draft “fix”. The legislation should be in force towards the middle or end of 2026.
• The “fix” involves asking the current scheme actuary to confirm now that, in short, the required actuarial confirmation could have been given at the time. If so, then the amendment is treated as having always been valid.
• Trustees should be aware, however, that certain actions taken now could render the scheme ineligible for the “fix” when the law comes into force. So advice should be sought before taking any positive steps to address a potential issue.
• The parameters of (i) which historical amendments need backdated actuarial confirmation and (ii) the approach the current scheme actuary needs to take to provide that backdated confirmation need fleshing out. The forthcoming Verity Trustees judgment may provide further detail on the former, and it is to be hoped that regulatory and professional guidance will address the latter.

Recap: what was the Virgin Media litigation about and why has it caused an issue?

Defined benefit pension schemes that contracted-out of the State Second Pension (formerly the State Earnings Related Pension) on a salary-related basis between 1997 and 2016 (COSRs) had to provide benefits that were at least broadly equivalent to benefits set out in a statutory “reference scheme” prescribed by the Pension Schemes Act 1993.

Trustees of these COSR schemes had to obtain periodic actuarial confirmation that their scheme provided at least this minimum benefit level. Importantly, these actuarial confirmations were required before certain benefit changes were made.

The Virgin Media litigation established that:

(i) Any amendment made to a COSR scheme between 6 April 1997 and 6 April 2016 was void in the absence of prior written actuarial confirmation that benefits after the alteration would continue to satisfy the statutory standard for a COSR scheme.

(ii) Actuarial confirmation was needed for amendments to future service rights, as well as amendments to rights that had already accrued at the date of amendment.

(iii) The need for prior actuarial confirmation applied to any changes to those rights, not simply adverse changes.

For further detail see our 31 July 2024 case law update on the Court of Appeal’s decision here.

The “problem” for many schemes is that there was some historical uncertainty as to when actuarial confirmation was required – so some COSR schemes did not seek a confirmation for certain amendments. Further, even if such a written confirmation was sought, it may have been lost.

Many amendments to COSR schemes between 1997 and 2016 reduced or terminated future service accrual. This means that if the amendments are defective, and to be treated as void, significant additional unfunded liabilities could arise for many pension schemes and their sponsors.

An outline of the proposed “fix”

New clauses 23 to 30 of the Pension Schemes Bill 2025 allow the trustees of COSR schemes to ask their actuary to confirm that it would be “reasonable to conclude that, on the assumption it was validly made, the alteration would not have prevented” the scheme continuing to provide the statutory minimum benefits that were the “price” of contracting-out of the State Second Pension on the COSR basis.

If the actuary can give this confirmation, then the potentially defective amendment is treated as having always been valid for the purposes of the Pension Schemes Act 1993 requirements governing amendments to COSRs.

It is positive for trustees that actuaries have been given a wide discretion, when considering such a request from trustees, to:

(i) take any professional approach, including making assumptions or relying on presumptions, that is open to the actuary in the circumstances of the case; and

(ii) act on the basis of any information available to the actuary, provided the actuary considers it sufficient to allow them to form an opinion on the question.

This wide actuarial discretion is designed to allow actuaries to act on the basis of the information currently available to them when considering whether the required statutory minimum COSR benefits were still provided after the historical amendment came into force.

This retrospective actuarial confirmation route will not, however, be available to trustees who:

(i) have already taken any “positive action” on the basis that they considered the amendment in question void. For these purposes “positive action” means notifying members, or administering the scheme on the basis, that the amendment was void; or

(ii) were litigating on the issue of whether an amendment was potentially defective on 5 June 2025 – i.e. the date the Pensions Minister announced there would be a “fix”.

The Secretary of State will also have power to exclude other categories of alteration from the “fix”.

Retrospective actual confirmation will not be necessary, and the potentially defective amendment will be treated as always having been valid, where it is not practical to obtain a retrospective actuarial confirmation because the scheme has:

(i) wound-up; or

(ii) been assumed by the Pension Protection Fund or the Financial Assistance Scheme.

Our view

The issue the Government is trying to solve is that a procedural slip (or lack of evidence) could render void an amendment for which the actuary would have been able to provide a confirmation at the time.

The proposed ability for the current scheme actuary to retrospectively confirm the amendment, based on available data and such assumptions as they consider appropriate, is a neat solution. The “fix” is expected to come into force towards the middle or end of 2026.

Some questions do still, however, remain:

(i) The Virgin Media litigation did not consider in any detail what type of benefit amendments actually triggered the requirement to seek prior actuarial confirmation. A particularly significant question is whether an actuarial confirmation was required for an amendment which closed a scheme to future accrual. These issues were raised in the separate Verity Trustees litigation, and it is to be hoped that further clarity will be provided when that judgment is delivered – currently expected to be this Autumn.

(ii) The proposed “fix” provides the current scheme actuary with latitude as to the assumptions they may make and the data they require to form a view.

(iii) Whilst this latitude is positive, it could throw up difficult questions for actuaries being asked to give a confirmation: what information is sufficient to form their assessment, what assumptions might be reasonable to make and when is it “reasonable” to conclude the historical amendment did not prevent the scheme providing statutory minimum benefits?

(iiii) We expect that scheme actuaries would find it helpful to have professional guidance from the Institute and Faculty of Actuaries and indeed regulatory guidance from the Department of Work and Pensions and/or the Pensions Regulator when considering these issues. Legal advice may also be required on the ambit of this latitude.

We expect that many trustees whose schemes are potentially affected by these Virgin Media issues may therefore choose to maintain a “holding pattern” until the proposed “fix” is enacted, the Verity Trustees litigation is resolved and further professional and regulatory guidance on the ambit of the actuary’s discretion is available.

Trustees should also be mindful that taking “positive action” now to address a potentially defective amendment might render them ineligible for the “fix” when it becomes available.