Transaction highlights:
- Rothesay Life assumes pension liabilities for all defined benefit pension scheme members of the Lehman Brothers Pension Scheme, including pensioners in payment and deferred members
- Full member benefits have been secured with financial support from Lehman Brothers International (Europe) (in Administration) (“LBIE”)
- Benefits that have been restricted are now set to be paid in full
- The terms of the bulk annuity include a facility for full risk transfer
The transaction is the largest bulk annuity deal announced to date in 2015. Under the terms of the bulk annuity policy, Rothesay Life will assume liability for the full benefits payable to all Scheme members who have defined benefit entitlements.
LBIE provided financial support to facilitate the transaction, reflecting the settlement agreement between the Scheme Trustees and LBIE’s Joint Administrators announced in August 2014. That settlement followed a series of landmark court decisions about the Pension Regulator's powers to require group companies to provide financial support for a scheme. These included the 2013 decisions of the Supreme Court in Nortel and the High Court in Lehman Brothers (Storm Funding).
The pension payments will be made via the Scheme initially, and in due course Rothesay Life will take over responsibility for paying benefits to members directly when the bulk annuity converts to a full buy-out.
Since the insolvency of Lehman Brothers in 2008, the Scheme has been subject to an “assessment period” under the Pensions Act 2004. As a result, the benefits payable to current pensioners have had to be restricted. When the assessment period ends later this year, these restrictions will be lifted and benefits will be paid in full (including back-payments).
Travers Smith advised the Trustees throughout, including in relation to the negotiations with Rothesay Life. The Travers Smith team for the transaction was led by pensions partner Susie Daykin. Other members of the team included Sarah Boon (consultant, pensions) Karen Sahota (associate, pensions) and Joe Wren (associate, finance).
PwC, representing LBIE, led a competitive tender exercise in conjunction with the Trustees and their advisers to select the insurer.
Susie Daykin, Travers Smith partner, said
“The insolvency of Lehman Brothers left the Scheme with a significant funding deficit. The ultimate goal for the Trustees has been to secure all members' benefits through a full buy-out. That has now been achieved. It is an excellent outcome of the Scheme and its members".
Peter Gamester, chairman of Trustees said:
"Since the bankruptcy of Lehman Brothers in 2008 the Trustees have been striving to secure the pension benefits promised to members of the UK pension scheme. The agreement with Rothesay Life achieves this goal as it enables members’ defined benefit entitlements to be paid in full. On behalf of the Trustees, I would like to thank the Trustees’ advisers together with LBIE and their advisors for their support and assistance in achieving this extremely successful outcome."