Sir Philip Green has agreed a £363m cash settlement with the Pensions Regulator to plug the gap in the BHS pension scheme.
Workers will get the same starting pension that they were originally promised.
It brings to a close a long-running negotiation over benefits for former workers of the collapsed retailer.
The regulator had launched enforcement action against Sir Philip and other former owners of BHS.
Sir Philip said: “I have today made a voluntary contribution of up to £363m to enable the trustees of the BHS Pension schemes to achieve a significantly better outcome than the schemes entering the Pension Protection Fund (PPF), which was the goal from the outset.
“The settlement follows lengthy, complex discussions with the Pensions Regulator and the PPF, both of which are satisfied with the solution that has been offered.
“To achieve a significantly better outcome than entering the PPF, the contribution required to achieve this long-term solution was arrived at by the actuaries for both The Regulator and the trustees.
“All relevant notices, including legal matters and claims from the regulator, have been withdrawn bringing this matter to a conclusion.”
What the deal means for BHS pensioners
There was a huge deficit in the BHS pension scheme – a fact that was key in the retailer’s collapse.
The negotiations centred on getting members of the scheme a pension that was closer to the one they were originally promised. Usually, failed pension schemes are rescued by the Pension Protection Fund which pays out a reduced amount.
Had the PPF taken on the scheme, members aged under 60 would have seen a 10% reduction in their starting pension. Following Sir Philip’s cash injection, they will now be transferred to a new scheme with the same starting pension that they had originally been promised.
Subsequent payments may not be as generous as they had originally thought, but are better than what they would have received under the PPF.
Benefits payable in retirement and built up prior to April 1997 will increase at 1.8% per year.
Members can opt to take a lump sum if they have a pension pot of up to £18,000.
There will be no cap on pension payouts, which would have been the case under the PPF and would have hit those with bigger pensions.
Current pensioners will also receive a lump sum to make up for any underpaid pension benefits since March 2016, when the scheme, in effect, was under PPF rules.
Sir Philip initially offered £250m, but the regulator had sought at least £350m.
The Pensions Regulator 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.”
There was an estimated £571m hole – or deficit – in the BHS pension. The potential of taking on such a burden was seen as one of the reasons that BHS failed to find backers or buyers for the business at a whole.
Frank Field, who chairs the Work and Pensions Select Committee, said: “I very much welcome this out-of-court settlement which is an important milestone in gaining the justice for BHS pensioners and former workers that we have been pushing for since beginning our inquiry into the downfall of BHS.”