UK - The UK Pensions Regulator has defended its decision to allow the scheme of former Lufthansa subsidiary British Midland Airways to enter the Pension Protection Fund (PPF) via a little-used mechanism, which normally allows a sponsoring company to continue trading.

The Pensions Regulator said it agreed to a proposal for a controlled entry of the British Midland Airways Limited Pension and Life Assurance Scheme - the BMI pension scheme - to the PPF via a Regulated Apportionment Arrangement (RAA).

In its report on the argreement, confirmed in April,  the regulator noted the scheme - and therefore the PPF - received £16m (€18m). The sum is much more than would have come from the insolvency of British Midland Airways Limited (BMAL), which is the scheme's statutory employer.

Stephen Soper, executive director for defined benefit regulation at the Pensions Regulator, said: "Members of the scheme are understandably disappointed that they will not receive their expected pensions in full."

But in the absence of an employer to stand behind the scheme to fund any shortfall, he said the body felt it could not agree to proposals exposing PPF levy payers and younger scheme members to all of the downside risk.

"All parties continued with constructive discussions to reach what the regulator believes was the best possible outcome for members and PPF levy payers in the circumstances," he said.

The BMI scheme has around 3,700 members and a funding deficit of approximately £450m (€562m) on a buy-out basis, the regulator said. On the PPF's section 179 measure, the deficit is £230m, it added.

BMAL has made big losses over the last four years. The German airline group Lufthansa became the sole shareholder of the BMI Group - of which BMAL is a part - three years ago after a previous major shareholder exercised a put option.

Since that time, Lufthansa has provided significant financial support to the BMI Group, the regulator said, adding that Lufthansa did not have any statutory obligation to fund the scheme.

Late last year, Lufthansa agreed to sell the subsidiary to the International Airlines Group, created by the merger of British Airways and Iberia.

But the arrangement put forward for the BMI pension scheme was subsequently rejected by the Pensions Regulator.

Lufthansa is to provide a further voluntary contribution of £84m to top up members' benefits outside the PPF.

"Whilst the regulator was aware of the proposed voluntary payment, it did not form part of the regulator's consideration as to whether approval of the RAA was appropriate," the Pensions Regulator said.

In its decision, the regulator said it considered the fact that BMAL had benefited from significant funding from Lufthansa, which had allowed it continue as a going concern and pay contributions to the scheme.