Lehman pension shortfall is a foreshadowing

| 23 September 2008 12:48

Apparently Lehman not only failed, it left a gaping hole its accounts. The UK pension scheme is missing £100 million. UK regulators certainly need o investigate whether the shortfalls are the result of criminal activity.

However, pensions are certainly something lurking in the background that I have failed to discuss. As the stock market falls and credit writedowns increase, pension and mutual fund investment portfolios will suffer.

This is yet another hidden cost of the credit crisis which has yet to make an impression. Expect to hear more about this after the initial shock of the crisis recedes.

Lehman Brothers in Britain collapsed with a mammoth £100 million black hole in its staff pension fund, it emerged last night. The deficit means that many former staff in Britain may not have their retirement promises met in full. Trustees of the fund wrote to the Pension Protection Fund (PPF), the industry lifeboat, last week seeking assistance, as The Times revealed on Saturday.

The size of the shortfall surprised experts. The £100 million deficit, confirmed last night by Pricewaterhouse-Coopers, the administrator, compares with one unconfirmed figure for total assets in the fund of only £180 million.

There could be only 50p or less in the pot for every £1 of pension promised.

The PPF is financed by all 7,800 final-salary pension schemes in Britain. The failure of Lehman to keep the pension scheme topped up means 12.5 million Britons may have to pay a higher PPF levy in future.

Under the PPF, pensions up to £28,000 are paid in full. John Ralfe, a pensions consultant, said: “One way or another, the members of Lehman’s UK pension scheme will lose out.”

Members of the scheme include 1,500 Lehman employees in London until last week, as well as 2,400 “deferred members”, former employees, who left the bank but continued to entrust the scheme with their benefits.

Source
Lehman Brothers reveal £100m pensions hole – Times Online

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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