UK – European manufacturer Invensys will be allowed to sell its rail business to Germany’s Siemens for £1.7bn (€2.1bn), severing one of its subsidiary’s ties to the underfunded occupational scheme, following sign-off from the Pensions Regulator.

The transaction, first announced at the end of November, envisaged the sale of Invensys Rail to Siemens, with £400m of the income used to settle the current pension deficit within its UK pension scheme and a further £225m placed into trust to address any future shortfall.

In a statement to the London Stock Exchange, Invensys said the company had received clearance for the sale from the regulator.

It noted that the regulator had now also confirmed that the disposal of the rail unit and severing the ties between the Invensys Pension Scheme and Westinghouse Brake and Signal Holdings – the entity responsible for paying £400m – would not result “in any contribution notice or financial support direction being imposed under the Pensions Act 2004 on any person”.

In usual circumstances, the departure of a company as a participating employer would result in the company, under Section 75 of the Pensions Act, being liable to pay the entirety of the outstanding deficit relating to its employees.

According to the most recent financial figures from the end of September, the UK fund had an IAS19 deficit of £181m, but a deficit of £570m when based on unspecified technical provisions.

The £400m payment will put an end to existing deficit reduction arrangements, which would have seen £40m-47m paid into the scheme each year until 2017.

At the time the initial deal was announced, company chief executive Wayne Edmunds said that – in combination with the £400m payment and the £225m held in trust to address any deficit from 2018 onwards – he anticipated that no further contributions to the scheme would be necessary.

At the same time, the company said it remained “committed to its obligations” within the scheme.

It added: “The directors believe that the arrangements under the Pension Agreements benefit all relevant stakeholders, with enhanced security for members of the UK Pension Plan, as well as providing the company with greater certainty and financial flexibility to execute on its strategic development.”

It added that the Reservoir Trust – responsible for the £225m paid by Invensys – could be used as a contingent asset in any future scheme valuations and that, after 2018, its assets could be used to pay deficit reduction payments on behalf of the sponsor.