The Pensions Regulator has cut a deal with former BHS owner Sir Philip Green that will see him pay £363m into a new pension scheme for former employees of the failed business.
The new scheme will pay members the same starting pension that they were originally promised by BHS, with higher ongoing benefits than they would have received from the Pension Protection Fund.
Members will be given the option of moving into the new scheme or remaining in the PPF and accepting the mandatory 10 per cent cut to benefits imposed by the lifeboat fund.
Those with small pots of up to £18,000 will also have the option of taking a cash lump sum.
The deal received the backing of the scheme's trustees.
In a statement today (28 February), The Pensions Regulator said the deal would "bring certainty to the 19,000 members" of the BHS scheme.
The agreement brings TPR's enforcement action against Sir Philip to a close.
TPR chief executive Lesley Titcomb said: "The agreement we have reached with Sir Philip Green represents a strong outcome for the members of the BHS pension schemes. It takes account of the interests of both pensioners and the PPF, and brings a welcome level of certainty to present and future pensioners.
"Throughout our discussions with Sir Philip and his team, we have always been clear that we were determined to achieve the right outcome for members of the schemes both in terms of the amount and the structure of the settlement."
The regulator stated that the £363m paid by Sir Philip was being held in segregated bank accounts, including £343m in an escrow account to fund the new scheme, and up to £20m in other accounts to "cover expenses and the costs of implementing the member options and the new scheme".
As well as avoiding the 10 per cent benefit cut enforced on new retirees by the PPF, members of the new scheme will also receive death benefits at a higher rate than the PPF offers; members will no longer be subject to the PPF compensation cap; and pensions earned before April 1997 will increase in payment.
The scheme will also be eligible to fall into the PPF.
Chris Martin, chair of the BHS Pension Trustees said he was "delighted" by the deal.
"I am equally delighted we are now in a position to confirm that members will be offered benefit improvements, enhanced flexibility, and just as importantly, long term sustainability for their benefits."
“The injection of cash from Sir Philip puts the new scheme on a stable footing. The Trustees have carefully considered all aspects of the deal and we are confident that this is a robust scheme that delivers improved and sustainable benefits," he said.
"We are now focused on communicating with members to initially outline the options that will be made available so that they are aware of the next steps and are able to make informed decisions at the appropriate time."