Pensions in Dispute - August 2023

Welcome to our quarterly pensions litigation briefing, designed to help pensions managers identify key risks in scheme administration and trustees update their knowledge and understanding. This briefing highlights recent cases that have practical implications for schemes.

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Actuarial confirmation necessary for valid contracted-out scheme amendments

The most significant case this quarter was Virgin Media Ltd v NTL Pension Trustees II Ltd and Others, which has a potentially wide-reaching impact for many schemes. 

This decision is relevant to schemes that were contracted-out on a reference scheme test (RST) basis between 6 April 1997 and 5 April 2016. The High Court ruled that where such a scheme failed to obtain an actuarial confirmation before making rule amendments (as required under legislation), those rule amendments were invalid. This applies to all amendments (not just adverse ones) to relevant rights already accrued at the time of the amendment and future service rights accrued afterwards.

The parties in the case agreed to proceed on the basis that no actuarial confirmation had been given, so the judgment gives no guidance on the evidence required to demonstrate whether or not this was the case, which could be an area of debate in future litigation.

What does this ruling mean for schemes?

In some circumstances, schemes that were contracted-out on the RST basis may want to consider reviewing evidence of the necessary confirmation for past changes. However, leave to appeal has been granted, so most schemes may prefer to await future developments.

No duty to inform members of tax implications of decisions

The Pensions Ombudsman (TPO) recently gave reassuring guidance to employers and scheme administrators on the limits of what they are expected to inform members about when explaining options: CAS-44123-K4V8.

In this case, Mr Y was awarded voluntary redundancy. After discussions with his employer on his options, he decided to pay part of his redundancy payment into his pension scheme and take it as an uncrystallised funds pension lump sum (UFPLS). He complained that his employer and the scheme administrator didn’t warn him that taking the UFPLS would mean that he would be subject to the money purchase annual allowance (MPAA), meaning his future tax-efficient pension savings would be restricted.

TPO found that neither the employer nor the administrator were under a duty to warn Mr Y about the MPAA: this relates to an individual’s tax considerations and operates outside of the scheme rules and an administrator’s duties.

What does this ruling mean for schemes?

This is a reassuring confirmation that, while schemes should give members the information they need to understand their options, they are not required to warn members about the tax implications of their decisions, or other extraneous matters that might impact them. 

Specialist reports relevant to decision-making should be referred to advisers 

TPO recently held that an IDRP decision-maker made a mistake because they didn’t refer a specialist medical report to the independent medical adviser opining on the member’s case: CAS-52488R2F3. This case gives guidance to all decision-makers on when they need to take specialist advice.

The case related to whether the member was entitled to an ill-health early retirement pension. An opinion on his condition had been sought from an independent medical adviser, as required under the scheme rules (although the final decision on eligibility lay with the employer). She advised that the member did not satisfy the relevant conditions and the application was denied. During the IDRP process the member obtained a report from a specialist which he believed contradicted this conclusion. This report was considered by the IDRP decision-maker but was not referred to the medical adviser.

TPO held that this amounted to a flaw in the decision-making process. Although it was for the IDRP decision-maker to decide how much weight to attribute to evidence and ultimately to make the decision on the complaint, the specialist’s report was detailed and the decision-maker could not know, reviewing it from a lay perspective, that it was not relevant. The report should have been referred to the medical adviser.

What does this ruling mean for schemes?

While decision-makers are entitled to decide how much weight to afford evidence, they should be careful to seek professional advice where specialist evidence is submitted, to ensure they award it appropriate consideration.

Helpfully for trustees, the decision also noted that an independent medical adviser did not need to be a specialist in the particular health condition in question where this was not a requirement under the scheme rules.

TPO service update

Certain services at TPO, including the ability to submit complaints, have been suspended recently due to a cyber incident. TPO is now receiving new complaints and is processing the backlog of cases caused by the incident. The website warns that there may be delays and notes that, wherever possible, TPO will use its discretion to expand the time limits for new applicants affected by the situation if it has not allowed them to apply within the legislative limits. 

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Jason is a Counsel in the Pensions Litigation group. He specialises in all aspects of pensions disputes, including advising clients in relation to internal disputes and disputes before the Pensions Ombudsman, the Financial Ombudsman Service, the Pensions Regulator, the PPF Ombudsman and the courts. The Chambers & Partners Directory ranks Jason as a ‘Star Associate’ and quotes clients as saying that Jason ‘handles litigation very efficiently. He's practical, he is able to relate to what a client needs and wants, and he can explain issues clearly’

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This content was originally published by Allen & Overy before the A&O Shearman merger