After a long running court battle the Lehman Brothers pension scheme has finally secured all its members benefits. Laura MacPhee explains what this means for trustees
What has happened?
The Lehman Brothers UK Pension Scheme has agreed a £675m buy-in with Rothesay Life, meaning that all members will receive their pensions in full. This deal ends a six and a half year battle to make sure the trustees could honour their commitment to the scheme’s 2,500 members after their employer went bust.
This transaction was made possible after the trustees reached a £184m settlement with Lehman Brothers’ administrators in August 2014. The settlement concluded the six year court case in which the trustees argued that the bank should be forced to fund the scheme according to the Financial Support Direction the Pensions Regulator had issued.
From July onwards, scheme members will receive their full benefits”
The scheme was going through the Pension Protection Fund assessment process at the time, meaning that members were only receiving the lower benefits which the PPF offers. The trustees were able to use the settlement money to fund its deficit and pull the scheme back out of the PPF.
From July onwards, scheme members will receive their full benefits, and these will be backdated to cover the shortfall from the time the scheme spent during the PPF assessment.
This was an all risk deal, which means that Rothesay Life is responsible for any errors caused by incorrect data. The scheme will continue to pay out members’ benefits until it is wound up, at which point members will receive individual policies with the insurer.
What does this mean for trustees?
Other schemes with bankrupt parents could take comfort from what the Lehman Brothers scheme has achieved. Settlements do not create precedent in the way that court decisions do, but they can be used to form persuasive arguments in court.
Other schemes with bankrupt parents could take comfort from what the Lehman Brothers scheme has achieved”
If a company tries to challenge a financial support direction from The Pensions Regulator the trustees would be able to call upon the Lehman Brothers settlement to support an argument that they should receive a lump sum, which they could theoretically use to help them escape the PPF.
That would, of course, depend on the size of the individual scheme’s deficit and settlement.