Following a protracted process since Lehman Brothers’ liquidation in 2008, the members of its pension scheme have received the positive news that they will receive the full amount of their pension. Last month the administrators agreed a bulk annuity deal with insurance company Rothesay Life, meaning that £675 million-worth of pension liabilities will be transferred over to Rothesay. As a result, Rothesay will take responsibility for paying approximately 2,500 members’ pensions.
Lehman Brothers offered members a generous defined benefit scheme, however since its demise nearly seven years ago, members’ benefits have been in jeopardy. The trustees of the scheme have been working to ensure that members get the best result possible. Despite this, pensioner members have only been receiving limited payments while the scheme is assessed by The Pension Protection Fund (the PPF). Now that Rothesay are committed to paying these liabilities, members can expect to receive their pensions in full, along with back payments, once the PPF assessment period closes in July 2015.
The Pensions Regulator assisted in agreeing a settlement with the administrators last August, which ensured that five companies within the banking group paid the £184 million funding gap. Without this cash injection the scheme would have had to rely on entry into the PPF, resulting in members receiving PPF compensatory benefits rather than their full pension entitlement. It was only once this funding deficit had been eliminated that the trustees could secure a bulk annuity and ensure that the scheme’s liabilities will always be met in future.
Following the financial crisis (which many economic commentators are of the view started with Lehman Brothers’ collapse), businesses have had to face the fact that no company is necessarily safe from the same fate. Removing a liability as large as a defined benefit pension scheme is an attractive option for employers, and will put the minds of the members at ease. Following on from high profile agreements such as this one, it is likely that the market for bulk annuities will remain a buoyant one.