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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors [2023] EWHC 1441 (Ch) (16 June 2023) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2023/1441.html Cite as: [2023] EWHC 1441 (Ch), [2023] Pens LR 12 |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
Fetter Lane London, EC4A 1NL |
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B e f o r e :
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VIRGIN MEDIA LIMITED |
Claimant |
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- and - |
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(1) NTL PENSION TRUSTEES II LIMITED (2) ROSS RUSSELL LIMITED (3) JOHN JARDINE |
Defendants |
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Jennifer Seaman (instructed by Eversheds Sutherland (International) LLP) for the First and Second Defendants
Andrew Short KC and Patrick Tomison (instructed by Squire Patton Boggs (UK) LLP) for the Third Defendant
Hearing dates: 23 May 2023
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Crown Copyright ©
MRS JUSTICE BACON:
Introduction
Factual and procedural background
Legislative framework
Requirements for a contracted-out scheme
"The pensions to be provided for such persons under a scheme are to be treated as broadly equivalent to or better than the pensions which would be provided for such persons under a reference scheme if and only if an actuary (who, except in prescribed circumstances, must be the actuary appointed for the scheme in pursuance of section 47 of the Pensions Act 1995) so certifies."
Alteration of a contracted-out salary-related scheme
"37. Alteration of rules of contracted-out schemes
(1) Subject to subsection (2), where a contracting-out certificate has been issued, no alteration of the rules of the relevant scheme shall be made so as to affect any of the matters dealt with in this Part or Chapter III of Part IV or Chapter II of Part V without the consent of the Board.
(2) Subsection (1) does not apply
(b) to an alteration of a prescribed description.
(3) Subject to subsection (4), any alteration to which subsection (1) applies shall be void if it is made without the consent of the Board.
(4) A consent given by the Board for the purposes of this section shall, if and to the extent that the Board so direct, operate so as to validate with retrospective effect any alteration of the rules which would otherwise be void under this section."
"37. Alteration of rules of contracted-out schemes
(1) Except in prescribed circumstances, the rules of a contracted-out scheme cannot be altered unless the alteration is of a prescribed description.
(2) Regulations made by virtue of subsection (1) may operate so as to validate with retrospective effect any alteration of the rules which would otherwise be void under this section.
(3) References in this section to a contracted-out scheme include a scheme which has ceased to be contracted-out so long as any person is entitled to receive, or has accrued rights to, any benefits under the scheme attributable to a period when the scheme was contracted-out."
"42. Alteration of rules of contracted-out schemes
(1) For the purposes of section 37(1) of the 1993 Act (prohibition on alteration of rules of contracted-out scheme unless the alteration is of a prescribed description), the alterations which are prescribed are any alterations which are not prohibited by paragraph (2), (2A) or (2B).
(2) The rules of a salary-related contracted-out scheme cannot be altered in relation to any section 9(2B) rights under the scheme unless
(a) the trustees of the scheme have informed the actuary in writing of the proposed alteration,
(b) the actuary has considered the proposed alteration and has confirmed to the trustees in writing that he is satisfied that the scheme would continue to satisfy the statutory standard in accordance with section 12A of the 1993 Act if the alteration were made (a 'Section 37 Confirmation'), and
(c) the alteration does not otherwise prevent the scheme from satisfying the conditions of section 9(2B) of that Act.
(2A) The rules of a scheme contracted-out under section 9(3) of that Act (a money purchase contracted-out scheme) cannot be altered in relation to protected rights if the alteration would
(a) affect any of the matters dealt with in Part III of that Act or any regulations made under that Part which relate to protected rights in a manner which would or might adversely affect any entitlement or accrued rights of any member of the scheme acquired before the alteration takes effect, or
(b) otherwise prevent the scheme from satisfying the conditions of that section.
(2B) The rules of a contracted-out scheme cannot be altered in relation to any guaranteed minimum pensions under the scheme if the alteration would
(a) affect any of the matters dealt with in Part III of that Act or any regulations made under that Part which relate to guaranteed minimum pensions in a manner which would or might adversely affect any entitlement or accrued rights of any member of the scheme acquired before the alteration takes effect,
(b) affect any of the matters dealt with in sections 87 to 92 and 109 and 110 of that Act or in any regulations made under those provisions which relate to guaranteed minimum pensions, or
(c) otherwise prevent the scheme from satisfying
(i) In the case of a salary-related contracted-out scheme, section 9(2) of that Act, "
" 'section 9(2B) rights' are
(a) rights to the payment of pensions and accrued rights to pensions (other than rights attributable to voluntary contributions) under a scheme contracted-out by virtue of section 9(2B) of the 1993 Act, so far as attributable to an earner's service in contracted-out employment on or after the principal appointed day; and
(b) where a transfer payment has been made to such a scheme, any rights arising under the scheme as a consequence of that payment which are derived directly or indirectly from
(i) such rights as are referred to in sub-paragraph (a) under another scheme contracted-out by virtue of section 9(2B) of that Act; or
(ii) protected rights under another occupational pension scheme or under a personal pension scheme attributable to payments or contributions in respect of contracted-out employment on or after the principal appointed day".
"any rights which are to accrue under the scheme in so far as such rights are attributable to an earner's service in contracted-out employment on or after the date on which the alteration to the rules takes effect (other than rights attributable to the payment of voluntary contributions)".
"The rules of a contracted-out salary-related scheme cannot be altered in relation to any section 9(2B) rights under the scheme unless
(a) following the alteration, the scheme provides benefits which are at least equal to the benefits that would be provided by a reference scheme (within the meaning of section 12B(2) of the 1993 Act "
Supervision by the Secretary of State
The issues
i) Issue 1: did s. 37 of the 1993 Act render an amendment made in the absence of the written actuarial confirmation contemplated by Regulation 42(2)(b) void to any extent? If so, issues 2 and 3 then arise.
ii) Issue 2: did the words "section 9(2B) rights" as used in Regulation 42(2) mean that s. 37 only had such effect in relation to rights attributable to service prior to the execution of the 1999 Deed & Rules (i.e. 8 March 1999), or did s. 37 also have such an effect in relation to rights attributable to service after that date?
iii) Issue 3: did s. 37 have such an effect only in relation to adverse alterations to s. 9(2B) rights, or in relation to all alterations to such rights?
Issue 1: consequences of failure to provide actuarial confirmation in respect of a scheme alteration
"led to the adoption of a more flexible approach of focusing intensely on the consequences of non-compliance, and posing the question, taking into account those consequences, whether Parliament intended the outcome to be total invalidity."
"5.1 Whenever the actuary is informed of any significant changes to the membership, including remuneration patterns, or to the terms of the scheme, consideration should be given as to whether such changes would adversely affect the ability of the scheme to pass the tests of equivalence. In such circumstances the actuary should be satisfied that it would have been possible to certify that the scheme satisfied the tests of equivalence immediately following the relevant change and, if not the Contributions Agency, the employer and the trustees should be notified, unless the situation has been rectified before notification takes place.
5.2 Before a proposed change in the rules of the scheme can be made, Regulation 42 requires the actuary to notify the trustees in writing that the scheme will continue to satisfy the statutory standard after the alteration is made."
"A contracting-out certificate may be cancelled where the actuary considers a proposed alteration of the scheme rules under [s. 37] and [Regulation 42] and where he/she finds that as a consequence the scheme no longer satisfies the scheme-based contracting out test, or the conditions of [s. 9(2B)]."
Issue 2: whether "section 9(2B) rights" included rights attributable to future service
"rights (other than rights attributable to voluntary contributions within the meaning of section 111 of the 1993 Act) which are attributable to an earner's service on or after the principal appointed day in employment which is contracted out in accordance with section 9(2B) of the 1993 Act".
"They mean, at the time the amendment was introduced, the rights which had accrued to a Member as a result of past service. The word 'rights' does not, in my view, naturally cover benefits which might in the future be obtained as a result of future service with the employer. I also bear in mind that it is important to avoid unduly fettering a power to amend the provisions of the scheme as it is important for the parties to be able to make changes which might be required by the exigencies of commercial life. A power of amendment which prevented the employer from curtailing the right of existing members to continue to accrue benefits in circumstances where the employer was in financial difficulties and finding it difficult to fund the Plan makes far less sense than a construction which protects rights which members have gained through past employment but enables the employer to stop those benefits accruing in the future."
i) The July 2012 public consultation paper which preceded the 2013 amendments noted (at §5) that the intention of Regulation 42(2) was to ensure that any benefits to be accrued would still meet the reference scheme test following a prospective rule change, and that benefits already accrued would still meet the test following any retrospective rule change. The existing wording was, however, thought to be unworkable, because of the prospective nature of the certification process by scheme actuaries under Regulation 23 and Schedule 3 §13(2) of the Regulations. The proposal was therefore to "clarify" Regulation 42, by amending the wording to reflect the prospective nature of the reference scheme test, and by providing specific further provisions for accrued section 9(2B) rights.
ii) The government response to that consultation stated that the definition of s. 9(2B) rights within the Regulations "refers to accrued rights", and explained that the proposed change to Regulation 42(2) would avoid confusion by referring to "rights which are to accrue" under the scheme.
iii) The Explanatory Memorandum to the 2013 amending Regulations noted that there was confusion about how Regulation 42 should be applied when a scheme had ceased to contract out and wished to change its rules, and that:
"7.5 The intention of the existing legislation is to protect accrued rights where schemes wish to alter their rules, so that those rights, accrued whilst the scheme met the standards set out in legislation, are not reduced. Those representatives were of the view that the legislation did not meet the policy intention and could not work in practice as the required test could not be applied to accrued rights, only to prospective rights.
7.6 The amended regulation 42 will enable the actuary to undertake suitable tests of the effect of any proposed rule changes to those contracted-out rights that have already accrued and contracted-out rights that are to accrue in the future. In relation to changes to benefits to accrue in the future under a contracted-out scheme, the test remains the 'reference scheme test' (RST) as set out in s. 12A of the Pension Schemes Act 1993. In relation to retrospective scheme rule changes made by schemes to contracted-out rights that have already accrued, the RST is not appropriate. "
iv) The Explanatory Note to the 2013 amending Regulations then stated:
"Regulation 3 amends regulation 42 of the Contracting-out Regulations, to provide a new set of requirements that apply to the amendment of scheme rules in relation to accrued contracted-out rights (section 9(2B) rights). Regulation 42(2) is amended so that the conditions in that regulation now only apply to the alteration of rules in relation to accrued contracted-out rights that are to accrue in the future under the contracted-out scheme. New regulation 42(2ZA) and (2ZB) set out new restrictions on the amendment of rules in relation to accrued contracted-out rights. Amendments to such rights are not allowed unless the benefits provided to members and survivors are at least as good as those provided by a reference scheme ..."
v) The changes referred to in the Explanatory Memorandum and Explanatory Note are as set out at §§2425 above.
Issue 3: whether voidness under s. 37 applied only to adverse alterations or to all alterations
Conclusions
i) Issue 1: s. 37 of the 1993 Act rendered void an amendment to the rules of a contracted-out scheme which related to s. 9(2B) rights, in so far as the amendment was introduced without the actuarial confirmation required by Regulation 42(2)(b).
ii) Issue 2: the words "section 9(2B) rights" as used in Regulation 42(2) included both past service rights and future service rights.
iii) Issue 3: voidness under s. 37 applied to all alterations to s. 9(2B) rights and not merely to alterations that would or might adversely affect such rights.