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Settlement reached in Lehman Brothers Financial Support Direction case

Ref: PN14-29
Tuesday 19 August 2014

A settlement agreement signed after nearly six years of investigation and legal proceedings will allow the Lehman Brothers pension scheme to pay full retirement benefits to members and avoid the scheme’s entry into the Pension Protection Fund (PPF).

Action taken by The Pensions Regulator and the scheme trustees during the Lehman Brothers Financial Support Direction (FSD) case has now resulted in companies within the Lehman Brothers group agreeing to buy out member benefits in full. As at 30 June 2014 the estimated buy-out figure was £184 million.

Details of the case and the settlement are published today in a report by the regulator in section 89 reports.

Interim chief executive Stephen Soper said:

“The estimated £184 million settlement payment will be the largest sum paid to a scheme as a result of our actions so far.

“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 members’ benefits and PPF levy payers where we believe it is appropriate.

“The regulator has increasingly been required to engage its anti-avoidance powers to secure the retirement benefits of members and protect the PPF. This case demonstrates that the regulator’s anti-avoidance powers can be used effectively, even in highly complex international insolvency situations.”

Following the insolvency of numerous member companies of the Lehman Brothers group in September 2008, the regulator’s Determinations Panel issued a determination in September 2010 that companies within the Lehman Brothers group should provide financial support to the Lehman Brothers pension scheme.

The regulator and scheme trustees then defended a number of legal challenges arising from the FSD proceedings including in the Supreme Court, which confirmed in July 2013 that FSDs were effective against insolvent targets, in addition to the case of Storm Funding which was heard in the High Court in October 2013 and which ruled that the regulator was not limited to the s75 debt when requiring multiple targets of regulatory action to provide support to a scheme.

Editor's notes

  1. Lehman Brothers Holdings Inc filed for bankruptcy in September 2008, triggering insolvency for the majority of the group. The sponsoring employer of the Lehman Brothers pension scheme ('the Scheme') is Lehman Brothers Limited (LBL), a service company. The Scheme was supported up to this point with a viable recovery plan, under the scheme-specific funding regime. The insolvency of the main UK Lehman Brothers entities left LBL without the means of providing on-going support for the scheme. Subsequently, a case for the imposition of an FSD was investigated and presented to the Determinations Panel.
  2. The Pensions Regulator is the regulator of work-based pension schemes in the UK. We have objectives to: protect members’ benefits; reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).

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