Last summer, a Court of Appeal judgment on the effectiveness of historic amendments to contracted-out DB pension schemes raised thorny problems for many trustees and sponsoring employers.
Now, the Government has confirmed plans to assist.
The legal background
Under section 37 of the Pension Schemes Act 1993, the rules of a salary-related contracted-out scheme could only be altered in relation to “section 9(2B) rights” if the trustees informed the scheme actuary of the proposed changes and the actuary confirmed in writing that the scheme would continue to satisfy the statutory standard under that section, based on rights under a notional reference scheme. Section 9(2B) rights were defined for these purposes as rights to payment of pensions, and accrued rights to pensions, attributable to contracted-out service from 6 April 1997.
The view of the Courts
As well as giving the legislation a broader scope than many had anticipated, both the High Court and Court of Appeal ruled that where the required actuarial confirmation had not been supplied, section 37 rendered the relevant amendment void. See our previous Law-Now here.
The ruling threatened considerable turmoil in the pensions industry, with wide-ranging implications for benefit specification reviews, trustee and employer accounting and transactions. Many trustees and employers have already taken steps to investigate the potential effects of the decision, such as reviewing past deeds of amendment for the relevant actuarial certifications.
The Government’s response
In a brief statement, the Government acknowledges increased uncertainty in the pensions industry and that schemes and sponsoring employers require clarity around scheme liabilities and member benefit levels. It will therefore “introduce legislation to give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historic benefit changes met the necessary standards.”
At this stage, there is no further detail as to when and how this legislation will be introduced - although it is widely expected the Government will look to utilise an existing regulation-making power to validate amendments which might otherwise be treated as void under the section.
What now?
This is clearly good news in principle for trustees, employers and advisers. Actuaries, auditors and lawyers may be particularly keen to establish the detail. However, until we learn more about the precise scope and timing of this intervention, schemes can have no definitive answer as to next steps.
For further information, please get in touch with your usual CMS contact.
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