Paying Defined Benefit surpluses to employers and addressing Virgin Media section 37 issues

Key points

• The Pension Schemes Bill will allow defined benefit (DB) schemes to be amended to facilitate surplus being paid to employers.
• The Government will legislate to address the effect of the Virgin Media section 37 decision.

Pensions Schemes Bill 2025 – releasing DB surplus

As we mentioned in a previous update, DB surpluses can currently only be paid to an employer in an ongoing scheme where the scheme rules permit this and a certain type of resolution was passed before April 2016.

This is going to change under the Pension Schemes Bill, with plans for trustees to be given an overriding statutory amendment power to modify their scheme rules to either insert a power to make a payment to the employer out of surplus, or, where there already is a power, to remove or relax any restrictions on that power.

It is intended that regulations will give important detail about the threshold at which surplus can be paid to employers. These Regulations will be consulted upon but its previous consultation response (when it consulted on options for DB surpluses) indicates that the Government is minded “… to amend the threshold at which trustees are entitled to share surplus with the sponsoring employer from the current buyout threshold to a threshold set at full funding on the low dependency funding basis”.

Virgin Media – retrospective actuarial confirmation to be permitted

The pensions industry drew a collective sigh of relief as the Government confirmed it intends to legislate to deal with problems arising from the long-running Virgin Media v NTL Pension Trustees saga.

To recap briefly, two court decisions relating to the Virgin Media scheme held that certain historic amendments to the rules of contracted-out pension schemes would be void if there was no evidence of a contemporaneous actuarial confirmation that benefits would continue to meet the required contracting-out standards.

These decisions have caused difficulties given that industry practice on obtaining actuarial confirmations on historic amendments was patchy, and if an amendment was void because of the Virgin Media rulings then there was no obvious cure. Industry bodies such as the Society of Pensions Professionals had been lobbying the Government to legislate to provide a “fix”, and the Government has now duly answered these calls.

The proposed legislation will allow affected schemes to retrospectively obtain written actuarial confirmation that historic changes did not reduce benefits below the minimum contracting-out standard. The move will provide trustees and employers with much-needed certainty about their scheme's liabilities and should remove what had increasingly become an obstacle to completing de-risking projects such as bulk annuity transactions.

We now await the details, which are expected to be set out in regulations.