After six years of legal action and investigations, the Pensions Regulator (TPR) has agreed a £184 million settlement with PwC, administrators for the Lehman Brothers Group, which has secured members' benefits under the UK pension scheme.  It also means the scheme will not go into the Pension Protection Fund (PPF).

Following the insolvency of the Lehman group in 2008, TPR began regulatory action in 2010 seeking the issue of a Financial Support Direction (FSD) to certain UK group companies.  An FSD requires recipients to provide extra financial support to a scheme.

TPR's Determinations Panel decided it was reasonable to issue FSDs to six companies, but not to a further 38.  The six targets challenged this decision on the grounds that it was unreasonable and referred the matter to the Upper Tribunal.  

This referral was put on hold while the six targets made a number of legal challenges including these:

  • Is it possible to issue an FSD against a company in administration?  

    The Supreme Court held that an FSD is effective against an insolvent company and trustees are in the position of unsecured creditors when enforcing liabilities under it.

  • Is recovery limited to the maximum amount of the section 75 debt?

    The High Court agreed with the trustees and TPR that the amount demanded from multiple targets could, in aggregate, exceed the section 75 amount.  

The stay on proceedings was lifted in mid 2013 and action restarted in January 2014.  This prompted settlement discussions.  

On 14 August 2014 the parties agreed settlement terms.  The settlement of c. £184 million is expected to be sufficient to buy out members' benefits in full.  

Comment

The outcome is positive for members, and for sponsors of DB schemes generally (because the PPF is not being called on).

FSDs are rare, only four having been issued in the nine years TPR has existed.  This settlement is the largest sum TPR has achieved so far by anti-avoidance action.  

The case shows TPR is not afraid to flex its muscles to deliver its statutory objectives of, in this case, protecting members' benefits and minimising calls on the PPF.  

The legal challenges raised by the target companies established some important (if technical) points of law about TPR's powers in relation to FSDs.  But it is clear there is more to find out about them – which will require court action in future cases.