Pension payments secured for members of Lehman Brothers pension scheme

Eight years after the collapse of the US Investment Bank Lehman Brothers, the Pensions Regulator has secured pension payments for members of the Lehman Brothers Pension Scheme from certain companies in the Lehman Brothers group, ending a six year legal battle.


In September 2010, the Pensions Regulator issued a Warning Notice against six Lehman Brothers Group companies indicating it intended to issue a Financial Support Direction (FSD). It also determined it did not intend to issue a FSD against a further thirty-eight companies in the group.

A FSD is an order issued by the Regulator where the employer under certain pension schemes is a service company or is “insufficiently resourced”. FSDs can be imposed on the employer and/or persons associated or connected to the employer. The recipient of a FSD is required to put in place financial support for the scheme, which must remain in place while the scheme is in existence. It does not necessarily require an immediate cash injection into the scheme.

There then followed a series of legal challenges by the various companies in the group and the trustees of the Scheme, who argued the FSD should be issued against the other thirty-eight companies. The challenges culminated in a Supreme Court decision on 24 July 2013 which held that a FSD could be issued against an insolvent company and that liabilities under it rank as a provable debt.

Settlement terms

In August 2014 the Regulator issued a report under Section 89 of the Pensions Act 2004 confirming that it had reached successful compromise in relation to the FSDs.

Under the terms of the settlement agreement, certain Lehman Brothers Companies have agreed to pay an amount to the Scheme which should be sufficient to buy-out member benefits in full with an insurance company (known as the ”buy-out cost”). 

The parties also agreed to discontinue the Storm Funding appeal (one of the series of legal challenges mentioned above which was being appealed from the High Court to the Court of Appeal).

The Scheme’s deficit on a buy-out basis as at 30 June 2014 was estimated to be £184 million. This is understood to be the largest payment to a pension scheme as a result of the intervention of the Regulator.


The outcome is good news for the members of the Lehman Brothers Pension Scheme and the Pensions Regulator as the Scheme will not enter the Pension Protection Fund (the “PPF”) (the government sponsored compensation scheme which provides compensation for members of eligible defined benefit pension schemes whose employers are insolvent). The Regulator has stressed “we will not hesitate to pursue regulatory action to protect members’ benefits and PPF levy-payers where we believe it is appropriate.”

A FSD is just one of a range of anti-avoidance powers which the Regulator can utilise against solvent employers who seek to manipulate their affairs in such a way that pension schemes are left without adequate funds, in the knowledge that these liabilities will be borne by the PPF. Parties to a corporate transaction may apply for clearance against the risk that the Regulator will use its anti-avoidance powers. Other anti-avoidance powers include a Contribution Notice (effectively a demand for a specified sum of money to be paid to the relevant scheme within a specified period of time) and a Restoration Order (where there has been a transaction at an undervalue involving scheme assets).

The Lehman Brothers case demonstrates the Regulator’s commitment to pursuing regulatory action over an extended period and at all judicial levels in order to protect members’ benefits and minimise calls on the PPF. The proceedings have also resulted in a number of judgements establishing precedents clarifying the scope of the Regulator’s powers. However, one issue which was not resolved by the case is the extent of the Regulator’s enforcement powers overseas.

If you have any questions or would like more information, please contact Katie Kerr.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Katie Kerr

Senior Associate

I am a Senior Associate in DWF's Scottish pensions team and have extensive experience in advising on all aspects of pensions law.