Amendments to contracted-out schemes: a solution in sight

The Government has this week tabled clauses to go into the Pension Schemes Bill which are intended to enable a ‘fix’ to the issues relating to historic amendments to contracted-out pension schemes. This follows the uncertainty created by last year’s Court of Appeal judgment in the Virgin Media case which held that amendments would be invalid if actuarial confirmation required by legislation had not been obtained.

In broad terms, the draft legislation provides that an amendment is treated as having always been valid if the trustees obtain actuarial confirmation that the amendment would not have prevented the scheme from continuing to satisfy the reference scheme test.

The key changes relevant to schemes with pensions attributable to contracted-out service from 6 April 1997 are:

• The introduction of a definition of “potentially remediable alterations” which means an amendment to a defined benefit contracted-out scheme where:
  • there is no “section 37 certificate” (actuarial confirmation that the scheme would continue to meet the reference scheme test after the amendment);
  • the amendment has in practice been treated as valid by the trustees in the period since the amendment was made;
  • no action has been taken by the trustees (such as notifying members or changing administration) on the basis the trustees consider the amendment to be void; and
  • no legal proceedings were in progress or determined before 5 June 2025 (the date the Government confirmed it would introduce legislation on the matter) relating to the failure to obtain the required actuarial confirmation.
• Potentially remediable alterations can be validated if an actuary confirms it is reasonable to conclude the scheme would have continued to satisfy the reference scheme test.
• For schemes which have wound up, or are in the PPF or FAS by the time the section comes into force, all potentially remediable alterations will be treated as valid, with no actuarial confirmation needed.

The Public Bill Committee has already started to debate the changes to the Bill. It is expected to report to the House by Thursday 23 October 2025.

Affected trustees who have not yet done so should consider carrying out investigations into whether there have been any potentially invalid amendments under their scheme. Where trustees believe they may have any such amendments they may wish to discuss the possibility of confirmation with the scheme actuary. The draft legislation specifies that the condition for validation can be met by actuarial confirmation before the section comes into force.

In addition, we still await the Court decision in the case of Verity Trustees v Wood, which considers some questions left unanswered about the scope of this issue and may help define what amendments require fixing under the new legislation. We expect a judgment by autumn which, alongside the Government’s proposed legislation, should be factored into trustees’ next steps on this issue.