26 July 2023
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Failure to obtain section 37 certificate rendered pension scheme amendments void

To The Point
(2 min read)

The High Court's judgment in the case of Virgin Media Limited v NTL Pension Trustees II Limited has raised concerns that many pension scheme amendments made years ago might be void because no "section 37 certificate" was obtained from the scheme actuary before making the amendment.  The requirement for a section 37 certificate applied from 6 April 1997.  Although it became common practice to narrate the fact that Trustees had obtained the necessary confirmation from the actuary and often to attach an actuarial certificate, that practice did not become widespread until the late 1990s meaning that it may now be difficult to confirm whether or not a section 37 certificate was obtained before the amendment was made.    We understand the judgment is going to be appealed.

In Virgin Media Limited v NTL Pension Trustees II Limited, the High Court has held that failure to obtain a "section 37 certificate" where there is a statutory requirement to do so will render the amendment void.

The issues raised in the case concerned the contracting-out regime as it applied to pension schemes from 6 April 1997 until the abolition of contracting-out on 6 April 2016.  Section 37 of the Pension Schemes Act 1993 provided that the rules of a contracted-out scheme could not be amended unless the amendment was of a type specifically permitted by regulations.  The wording of the relevant regulations was convoluted, but they essentially provided that to make amendments in relation to defined benefit pension rights in respect of post-6 April 1997 service: (a) the trustees had to inform the actuary in writing of the proposed alteration, and (b) the actuary had to confirm to the trustees in writing that he was satisfied that the scheme would continue to meet the standards for contracting-out if the alteration were made.  This written confirmation from the actuary is frequently referred to as a "section 37 certificate".

The judge held that failure to obtain a section 37 certificate in circumstances where the requirement applied would mean that the amendment would be void even where the amendment did not adversely affect the relevant rights of scheme members.

Our thoughts

This case has raised concerns in the pensions industry.  In some cases the parties may be agreed that there was no actuarial certificate in which case the amendments will be void.  In other cases, it will not be clear from the deed whether a section 37 certificate was obtained and it may be difficult now to establish whether or not one was obtained, leaving trustees with a dilemma as to whether to investigate further or proceed on the assumption that the relevant formalities were complied with.  The difficulty is that further investigations may be inconclusive, as files from the time may not have been retained or may be incomplete.

We understand that the judgment is going to be appealed, so for many trustee boards it may make sense to await the outcome of the appeal before deciding whether further action is required.

To the Point 

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