Lehman Brothers' UK pension scheme agreed at £675 million

The UK pension scheme of defunct US bank Lehman Brothers has agreed to a £675 million ($1 billion) "bulk annuity" deal to transfer the risk of the scheme to pensions insurer Rothesay Life, both parties said yesterday.

The growing bulk annuity market in UK allows insurers to take on the risk of company defined benefit, or final salary, pension schemes.

Many of these schemes are running in deficit due to weak investment returns thanks to low interest rates, and most do not allow new members.

The Lehman Brothers collapsed in 2008, triggering along with other factors, the global financial crisis.

"Since the bankruptcy of Lehman Brothers ... the trustees have been striving to secure the pension benefits promised to members of the scheme," Peter Gamester, chairman of the trustees of the scheme, said in a statement.

"The agreement with Rothesay Life achieves this goal, as it enables members' defined benefit entitlements to be paid in full."

The scheme had been subject to an "assessment period" following the bank's insolvency, according to the statement of the scheme's trustees and Rothesay Life. Payments to current pensioners had been restricted.

The assessment period would close, July 2015, when benefits would be fully paid, including back payments, they added.

The scheme had 2,250 members according advisers PwC.

Rothesay, co-owned by Goldman Sachs, Blackstone and Singapore's sovereign wealth fund GIC, had taken on £675 million worth of assets owned by the plan and would pay the pensions of about 2,300 ex-Lehman employees.

Lehman pensions were paid by the UK's pension lifeboat fund, the Pension Protection Fund (PPF), in the years following the collapse of the company but future payments are capped at just over £36,000 a year.

The restrictions would be lifted from July and benefits paid in full including back payments.

According to Gamester, since the bankruptcy of Lehman Brothers in 2008, the trustees had been striving to secure the pension benefits promised to members of the scheme, cityam.com reported.

The agreement with Rothesay Life achieved this goal as it enabled members' defined benefit entitlements to be paid in full.

The deal was brokered by PwC with legal advice from Travers Smith.