A Solution to the Virgin Media Issue?

Last year, the Court of Appeal held in the Virgin Media case that an amendment affecting reference scheme test ("RST") benefits would be void and of no effect, if no written actuarial confirmation had been obtained by the trustees of the scheme prior to the amendment. The case impacts all pension schemes which were formerly contracted out of the State Second Pension on an RST basis. The reference scheme test was a relatively low level of benefits which was designed to equate to the value of the State Second Pension on a scheme-wide basis. The written confirmation for amendments was designed to ensure that schemes continued to meet the RST after the relevant amendment.

That "Virgin Media" principle meant that defined benefit ("DB") schemes were potentially exposed to the risk that previous scheme rule amendments to benefits for service between 1997 and 2016 would be invalid and ineffective. That risk is particularly significant in relation to amendments which purported to reduce benefits. If those amendments were ineffective under the Virgin Media principle, the benefit reduction would be ineffective and the scheme benefits and liabilities would be greater than had previously been understood. This could turn a scheme surplus into a deficit or reduce the amount of scheme surplus. This could prevent, and in some cases has prevented, a buy-in and buyout of a scheme from taking place.

In some instances, pension trustees have been taking legal advice as to the validity and effectiveness of past scheme amendments and seeking to locate written actuarial confirmations given prior to and in relation to previous scheme deeds of amendment. Some have looked at proceedings to obtain compensation from previous legal and actuarial advisers involved in amendments.

The Government subsequently announced, on 5 June 2025, that it would be seeking to resolve this issue by permitting pension trustees now to obtain retrospective written actuarial confirmations in relation to past scheme amendments. The effect of such confirmations will be that those amendments did not prevent the scheme from continuing to satisfy the RST.

On 1 September 2025, the Government issued draft amendments to the Pension Schemes Bill 2025, setting out their solution to the Virgin Media issue. Those draft statutory amendments provide a potential solution, to the extent that actuaries are prepared to provide the required retrospective written actuarial confirmations.

The draft statutory amendments provide for the potential solution to apply broadly, where the scheme actuary is able to confirm in writing to the pension trustees that in the actuary's opinion now, "it is reasonable to conclude" that the amendment, if valid, would not have prevented the scheme from continuing to satisfy the RST. The statutory amendments specifically permit the scheme actuary to take "any professional approach" that is open to the actuary, and to act on the basis of the information now available to the actuary, provided that the actuary considers that information to be sufficient to form an opinion on the matter. Action can be taken before the legislation is finalised and will still count (provided the legislation is not amended) so helping schemes on a buy-in to buy-out journey.

The draft statutory amendments would benefit those pension trustees who have held back from declaring scheme amendments to be invalid and from acting on the basis that scheme amendments are invalid. On the other hand, the retrospective written confirmation and validation procedure does not apply to scheme amendments where the pension trustees have taken "positive action" on the basis that the amendments are invalid because of the Virgin Media principle.

Such "positive action" by the pension trustees would involve the pension trustees having either:

(1)  notified any scheme members in writing that the amendment is void by reason of the Virgin Media principle (for lack of a written actuarial confirmation before the time of the scheme amendment); or

(2)  altered any benefit payments under the scheme as a result of the Virgin Media principle.

Separately the new powers cannot be used if the trustees have been party to any Court proceedings, which are in progress or have been settled or concluded, relating to the potential or actual application of the Virgin Media principle to the amendment.

If a DB pension scheme has been wound up or transferred to the Pension Protection Fund without the pension trustees having taken such "positive action", the amendments made to that scheme relating to RST benefits would under the draft statutory amendments be automatically deemed to be valid and effective (i.e. would be deemed to have received written actuarial confirmations at the time of those scheme amendments), without requiring any retrospective actuarial confirmations.

It remains to note that the Secretary of State is to have the power under the draft statutory amendments to make regulations to exclude scheme amendments of a specified description from the possibility of retrospective actuarial confirmation and validation. There are also powers to make supplemental or incidental changes by regulations. It is not clear in what, if any, circumstances the Government would wish to use these powers.

The draft statutory amendments have only just been issued. It remains to be seen what changes will be made to those draft provisions in Parliament. However, the draft statutory amendments do provide a potential solution to the Virgin Media conundrum, which might:

(a)  obviate the need to track down historic actuarial confirmations; and

(b)  allow buy-ins and buyouts of DB schemes to proceed which are currently being frustrated; and

(c)  release DB scheme surplus to be distributed which is currently trapped.