Lehman Brothers UK employees to receive "full retirement benefits" following £184m pensions settlement

The agreement (4-page / 43KB PDF) comes after nearly six years of investigation and legal proceedings, including last year’s Supreme Court decision confirming the treatment of sums claimed by the regulator under financial support directions (FSDs) in cases involving insolvent companies.

"This will be the largest sum paid to a scheme as a result of our actions so far," said Stephen Soper, interim chief executive of the Pensions Regulator.

"This is a pleasing and appropriate settlement for the 2,466 members in the Lehman Brothers pension scheme and shows we will not hesitate to pursue regulatory action to protect schemes and Pension Protection Fund levy payers where we believe it is appropriate. It demonstrates that our powers against employers can be used effectively, even in highly complex international insolvency situations," he said.

Since 2004, the Pensions Regulator has had wide powers to seek financial contributions or support to meet a pension scheme deficit from companies connected to or associated with the pension scheme employer through FSDs and contribution notices. These powers are intended to prevent the 'moral hazard' that solvent companies in the same corporate group could leave the scheme without adequate funds knowing that the Pension Protection Fund (PPF), which guarantees the pensions of members of defined benefit (DB) pension schemes in the event of employer insolvency, would cover the deficit.

A number of companies within the Lehman Brothers group became insolvent in September 2008. In September 2010, the Pensions Regulators' Determinations Panel issued an FSD against the other companies within the group. The regulator and scheme trustees then defended a number of legal challenges arising from the FSD proceedings, including the Supreme Court's decision in July 2013 that FSDs could be enforced against insolvent companies as a 'provable debt' which would rank alongside other unsecured debts.

In a statement, the Pensions Regulator said that companies within the Lehman Brothers group had agreed to "buy out" member benefits in full, at an estimated cost of £184m as of 30 June 2014. A buy-out effectively relieves a company of the investment and longevity risks associated with historical DB schemes by transferring these to an insurer. PwC, in its role as joint administrator of Lehman Brothers International (Europe), said that it expected that the benefits would be secured under a bulk annuity policy with an insurance company "in due course".

Iona Whitaker, of the pensions regulator engagement team (REACT) at Pinsent Masons, the law firm behind Out-Law.com, said that it was unusual for an FSD case to take as long as this one had to reach a conclusion.

"In this case, a number of complex ancillary issues had to be settled before the FSD could be finalised," she said.

"Trustees of other schemes seeking financial support will often find the case is more straightforward and the parties can reach agreement in a much shorter timeframe – and there are ways in which you can reduce the time and cost in preparing for an FSD case," she said.