Virgin Media – a potential pensions bombshell?

Last time, we talked about opportunities that the current economic climate can offer offloading historic pension liabilities. The good news is that this opportunity is still there.

But, as usual, not everything is rosy in the pensions garden. This time, we want to talk about what is now a fairly famous (notorious?) case, Virgin Media vs NTL Pension Trustees. 

For some employers and pension schemes, there may be little or nothing to worry about. For others, there may be concerns. In some cases, you may need to consider the issues in detail straight away.  For others, it’s a good time to carry out some initial work, to get a better idea of whether there actually is a problem.

This article looks at the reasons for the concern, what you can do about it, and what might happen next.

What is the Virgin Media case?

In Virgin Media, the High Court ruled that a historic amendment to the NTL Pension Plan made in 1999 was invalid. This crucially included the switch from Retail Price Index (RPI) to Consumer Price Index (CPI) for calculating increases to certain pension benefits. CPI is normally a lower figure than RPI, so this change would normally reduce member benefits, as increases would be lower. The scheme trustees did not hold the necessary actuarial certification, as required by section 37 of the Pension Schemes Act 1993 (and the associated contracting-out regulations).

Why does it matter to employers?

The NTL Plan, along with very many employment-related pension schemes, was contracted out of the State Second Pension (S2P), an additional state arrangement that provided extra pension above the basic state pension level. Schemes which contracted out guaranteed to provide at least the same level of benefits to their members, in exchange for lower National Insurance contributions for both employers and members. Members had no rights to S2P benefits while they were members of a contracted-out pension scheme and making lower NI contributions as a result.

For contracted-out schemes, certain amendments that affected or could affect pension rights had to be certified by the scheme actuary to ensure that the scheme would continue to meet statutory requirements for these schemes after the amendment was made.

Virgin Media also made clear that this requirement covered both past and future rights. It was commonly understood that a certificate was only needed in respect of past rights.

Although scheme trustees and advisors had usually obtained certificates in these cases, they did not always cover future rights as well as past rights.

The problem is that without proper actuarial certification, amendments that needed it, sometimes going back decades, have never in fact taken effect.

Schemes may as a result have been run, and benefits paid, using the wrong rules. 

The fallout: a funding time bomb?

Scheme trustees have a very high level of duty to the members of the scheme. Fundamentally, they are required to ensure members receive the correct benefits. If some historic amendments are void, members’ benefits may be wrong. Often they may be too low.

If the overall position is not clarified, employers and trustees may feel they have to investigate historical amendments and decide if they should have provided members with different, perhaps more generous, benefits.

If so, schemes’ funding positions of the pension schemes may be overstated.

And here’s where the real risk lies for employers: if past amendments are invalid, schemes may need additional funding from their employers, or to use surplus that you may have been considering working towards receiving as part of a scheme winding-up.  

In some cases, the funding requirements could be significant, especially if the scheme is already underfunded.

What should employers do now?

At the moment, the pensions industry is hoping that further judicial decisions or DWP regulation will resolve this problem. And it doesn’t apply to all pension schemes anyway. If your scheme was never contracted out of the old state second pension then it’s not an issue at all. And for some schemes, it’s proved fairly straightforward to show that appropriate actuarial certification was in place. For others, the costs of any problems aren’t in the end material.

The Pensions Minister, Torsten Bell, said in March 2025 that the Government was ‘actively considering’ its next steps in relation to Virgin Media, but we don’t know what it may do, or when. Equally, we can’t predict what help, if any, future legal decisions might offer, or when they will come.

Given the position isn’t clear, if you have concerns you should speak to your trustees and work with your and their legal and financial advisors to determine whether there may be an issue.

That may bring peace of mind. Your scheme may not have any issues, or if there are some, the costs may not be material. And if there are possible problems, or potentially significant costs, at least you know that you may need to take further action. Forewarned is forearmed.

However, if you are thinking about:

• winding up part or all of a pension scheme
• buying in a policy from an insurer to cover some or all of its liabilities; or 
• buying out scheme benefits by transferring them to an insurance provider

and the scheme was previously contracted out of the state second pension, this could become a live issue very quickly.

Knowing what benefits the scheme has provided, and whether the rules it used were valid, then becomes crucial. 

An insurance provider will need to be clear about what benefits it is pricing for before it agrees to take on liabilities. At the moment, most insurance providers appear to be working on a business-as-usual basis. That said, they always require the trustees of a pension scheme to confirm that the benefits set out in the tender document are correct before they will accept a transfer of liabilities or issue an insurance policy. 

This approach may change. And, depending on what, if anything, develops around the Virgin Media decision, there also may be a wider requirement for potentially affected pension schemes to assess whether they need to make changes. While scheme trustees may well lead this work, it clearly could affect you as an employer of such a scheme. 

It may be worth asking your trustees how they are reacting to the issue if they have not already approached you.

They may of course already be working through these issues independently.