Lehman Brothers Pensions Settlement

Lehman Brothers Pensions Settlement

£675m bulk annuity deal between Rothesay Life and Lehman Brothers Pension Scheme Trustees

Transaction highlights:

  • Rothesay Life assumes pension liabilities for all defined benefit pension scheme members of the Lehman Brothers Pension Scheme (“the 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

PwC, as adviser to LBIE, led the transaction which 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.

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 in July 2015, these restrictions will be lifted and benefits will be paid in full (including back-payments).

PwC led the process with the Trustees and their advisers to ensure the transaction was secured promptly following a rigorous competitive tender exercise.  Travers Smith advised the Trustees throughout, including in relation to the negotiations with Rothesay Life who were advised by Wragge Lawrence Graham & Co. Aon Hewitt also advised the Trustees.

Peter Gamester, Chairman of Trustees of the Lehman Brothers Pension Scheme, said: “Since the bankruptcy of Lehman Brothers in 2008, the Trustees have been striving to secure the pension benefits promised to members of the 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 advisers and Rothesay Life for their support and assistance in achieving this extremely successful outcome.”

Rothesay Life Chairman, Keith Satchell, said:  “Our previous experience of full buy-outs meant we were well-placed to help LBIE and the Trustees secure full member benefits. Since Rothesay was established it has provided insurance for six of the top ten full buy-outs, underlining our position as a leader in the buy-out market. This is our sixth such transaction in under twelve months and we expect this trend to continue throughout 2015 as companies look to settle pension liabilities in full while pricing conditions remain favourable. Our pipeline of quote requests clearly reflects the shift towards full buy-outs from partial, pensioner-only transactions.”

Paul Kitson, partner and risk transaction team leader at PwC, said: “We are delighted to have advised LBIE in securing members’ benefits in full for this landmark transaction.  Certainty of cost was an important objective for LBIE and the use of technology throughout the process was integral to that objective being met. We used Skyval, PwC’s pensions analytics software, to obtain accurate insurer pricing and then to track these prices through a period of volatile market conditions, all the way through to the efficient completion of the bulk annuity at competitive pricing.  This real-time analysis was also the basis for a very successful asset hedging strategy meaning that the deal stayed firmly on track during a period when falls in interest rates impacted buy-out affordability for most UK pension schemes.”

The Travers Smith team for the bulk annuity transaction was led by pensions partner Susie Daykin who 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. That has now been achieved.  It is an excellent outcome for the Scheme and its members.”

Tags: Annuities

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