Pensions Insight: 22 July to 29 July 2024

In this insight we discuss the Court of Appeal’s decision in the Virgin Media case, provide updates from The Pensions Regulator, and consider the FRC’s update on the revised UK Stewardship Code.

Virgin Media case

The Court of Appeal has unanimously dismissed the employer’s appeal of one part of the High Court’s ‘impressive’ June 2023 judgment in the Virgin Media Ltd v NTL Pension Trustees II Ltd and others case on the effect of making rule alterations to a contracted-out defined benefit (DB) pension scheme without obtaining written actuarial confirmation required under section 37 of the Pension Schemes Act 1993.

On 16 June 2023, the High Court determined that rule alterations made in March 1999 to the revaluation of deferred benefits for future service were void and ineffective because of the apparent absence of section 37 confirmation (see here for our case summary).

The High Court also concluded that:

• the reference to post 6 April 1997 contracted-out benefits (known as section 9(2B) rights) in the legislation applying to rule alterations between 6 April 1997 to 5 April 2013 encompasses both past and future pension rights; and
• the voidness extends to all alterations to section 9(2B) rights, not just those changes that would or might adversely affect such rights.

The employer appealed that part of the High Court ruling that the applicable section 37 regime covered both past and future pension rights. The Court of Appeal’s dismissal means the impact of the judgment could be widespread because most rule alterations of member benefits relate to future service rights bringing many more amendments within scope of the section 37 requirements than would otherwise be the case.

In summary, the Court’s decision means that rule alterations made to members’ section 9(2B) rights between 6 April 1997 and 5 April 2016 without the necessary section 37 confirmation will be void. This voidness extends to both past and future service rights between 6 April 1997 and 5 April 2013 (future only between 6 April 2013 and 5 April 2016) and applies irrespective of whether the changes improved members’ section 9(2B) rights, were adverse or neutral. Trustees will need to consider the implications of the case for their schemes.

See our full case summary for more details about the case and its implications.

TPR round-up

Revised DB funding code of practice is laid before Parliament

The Pensions Regulator’s (TPR) revised DB funding code of practice was laid before Parliament on 29 July 2024. It needs to lie before Parliament for 40 days before coming into effect (subject to any Parliamentary resolution that the code should not be made). The code represents the final piece of the revised DB funding and investment framework that applies to actuarial valuations with effective dates on and after 22 September 2024.

On the same date, TPR published its response to the code consultation and its response to the Fast track and regulatory approach consultation.

We will provide a more detailed update in due course. In the meantime, you can read more about the relevant legislative provisions here and TPR’s statement of strategy consultation here.

ITV deal on Box Clever pension scheme

Background

TPR has reached a proposed settlement with ITV in respect of Box Clever pension scheme members following the long-standing Box Clever saga which dates back to the 2003 administration of the Box Clever failed joint venture between Granada and Thorn (TV rental companies) and the financial support direction (FSD) that TPR’s Determination Panel issued in 2011 against five ITV companies, the ITV group having acquired the Granada group.

There followed various court proceedings relating to TPR’s use of an FSD culminating in an Upper Tribunal decision in 2018 that TPR was reasonable to order ITV to provide financial support for the Box Clever scheme. Subsequently, in 2020 TPR issued FSDs to ITV and associated entities which failing agreement were followed by imposition of a contribution notice for the scheme’s full buy-out deficit (recently estimated as c.£76m).

The proposed settlement

Under the settlement, all 2,800 scheme members will transfer to the ITV Pension Scheme and those who have received Pension Protection Fund (PPF) levels of benefits will be provided with full scheme benefits and relevant back payments. Both the PPF and the Box Clever scheme trustees support the proposed agreement.

Next steps

The settlement was not, as at the date of TPR’s 25 July announcement, legally binding so will need to be formalised. Also, under the agreement, ITV can terminate if liabilities end up materially increasing as a result of a data cleanse – if this happens, TPR will be able to restart regulatory proceedings. Our insight pulls out some useful pointers from the Tribunal’s 2018 case that have wider relevance to employees and trustees of defined benefit schemes.

Superfunds guidance updated

On 26 July 2024, TPR announced updated DB superfunds guidance that, following industry liaison:

• sets out TPR’s position as regards the release of capital (which will be permitted up to twice a year upon meeting set triggers and protections); and
• confirms that the “standard capital adequacy requirements may now be relaxed where a pension scheme’s sponsoring employer becomes insolvent and the scheme is unable to afford the buyout of full benefits, or to enter a superfund or capital backed arrangement on full capital adequacy terms” where the transaction would be in the members’ best interests and benefits likely to be provided would be materially above PPF+ benefits on a buyout.

FRC provides update on the revised UK Stewardship Code

On 22 July 2024, the Financial Reporting Council confirmed “significant revisions” to the UK Stewardship Code application process, and provided an update on the new Code which is due to be introduced in 2026.

The application process amendments are designed to ease reporting burdens for signatories by allowing previous disclosures to be used where there have been no material changes. It is intended that these changes will apply for the next application window (31 October 2024). There will be a formal public consultation on the Code later in 2024.