The managed closure of UK Coal, supported by the UK government, will not create additional liabilities for the Pension Protection Fund (PPF), the lifeboat fund has said.

Business minister Michael Fallon yesterday announced that the government would loan UK Coal £10m to help the company wind down two of its mines over the next 18 months, as they currently employ around 1,300 people.

The alternative – an immediate insolvency of the company – would have resulted in “significant losses and liabilities” for British taxpayers, Fallon said in a written statement to Parliament.

UK Coal was placed into administration last July, largely because of a fire which led to the closure of one of its mines.

At the same time, the company agreed a restructuring of its business, allowing its two underfunded defined benefit (DB) schemes to enter the PPF.

The UK Coal sections of the Industry Wide Coal Staff Superannuation Scheme and the Industry Wide Mineworkers Pension Scheme have around 7,000 members and are among the biggest funds the PPF has taken on to date.

Since last July, however, the company’s commercial outlook has deteriorated further, largely because strengthening sterling has hit exports.

A PPF spokesman said: “We expect to make a recovery from this arrangement such that we would be no worse off than if UK Coal had passed into immediate liquidation last July.”

He added that the cost of the claim was disclosed in its most recent annual report, which cited a £500m impact from the transfer of the scheme.

As at end-March 2013, the PPF was 109.6% funded. The £500m liability assumed since then has reduced its funding position to 107.1%.

The PPF said: “Our priority all along has been to protect the interests of the pension schemes that fund the PPF through their levies and of the nearly 200,000 people whose pension benefits we have secured.

“This includes those of current and former UK Coal employees, who will receive PPF compensation, either now or in the future, to provide them with security in retirement.”