The bank scrapped the £104bn contract when Standard Life and Aberdeen merged saying it had created a conflict of interest with its Scottish Widows arm.
A tribunal in March though ruled that Lloyds was not entitled to cancel the arrangement.
As well as the financial payment, terms of the settlement will see Standard Life manage £35bn of Lloyds funds until April 2022.
The remaining two-thirds of the assets will be transferred to other managers over the next nine months.
Keith Skeoch, Standard Life’s chief executive, said the settlement represented a fair and positive outcome for both parties.
“The retention of assets in our passive strategies as well as active real estate portfolios positions us to benefit from scale and growth."