The Pensions Regulator had previously resisted attempts by the company to transfer its substantial pension scheme liabilities to the PPF as part of a previous restructuring exercise. However, these arrangements became unsustainable after a fire forced the closure of UK Coal's Daw Hill deep mine in March.
Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement was "sad news".
"The Daw Mill fire has scuppered hopes that the innovative restructuring implemented in January 2013 might prevent any schemes transferring to the PPF," he said. "Now that they will transfer to the PPF, benefits will be cut back - at least for members under normal pension age."
However, Tyler said that although restructuring solutions "aren't always going to work", they continued to be "worth exploring".
In December, UK Coal was split into separate mining and property companies. The mining division remained a sponsoring employer of the pension schemes while the schemes invested £30 million in, and gave up any claim on, the property division in return for a 75% share of the business. However the closure of Daw Mill, which accounted for around a third of UK Coal's revenue, sent the business into administration.
Two remaining deep mines and six surface mines will now transfer to a new company as part of a pre-pack arrangement, according to the administrators. Daw Mill will ultimately be 'disclaimed', with its remaining coal deposits transferring back to the Coal Authority. The arrangement secures 2,000 jobs under the same terms and conditions; however there have been 350 redundancies as a result of the closure of Daw Mill.
Under the terms of the agreement, the PPF will receive regular payments from the new company which are expected, over time, to be "materially higher" than any sum it would have received if the company had become insolvent. In return, it will administer the post-privatisation pensions of 7,000 members of the Industry Wide defined benefit pension scheme.
Martin Clarke, the PPF's Executive Director for Financial Risk, said that there was "no question" about the ability of the PPF to pay compensation to UK Coal scheme members. The PPF, which is funded by a levy on participating defined benefit pension schemes, was a "mature and significant financial institution" with assets of £20 billion, he said.
"We are very pleased to have been able to work with the company to put together this innovative plan," he said. "It means that pensions have been protected, the company can continue trading as a going concern and that 2,000 jobs have been saved from an uncertain future."
"By taking on the scheme, we will now protect the pensions of its 7,000 members and they will receive PPF compensation, either now or in the future, to provide them security in retirement. The agreement also means that we will receive regular payments from the company which we expect to produce a higher return in the long run than if the company had simply been allowed to collapse into insolvency. This is good news both for our members and our levy payers," he said.
Restructuring expert Alastair Lomax of Pinsent Masons said that it was good to see an "unfairly-maligned" pre-pack administration used to rescue the viable parts of the UK Coal business and associated jobs.
"It is also worth paying attention to how the ownership approach adopted by the Pensions Regulator and the PPF in this case will influence future restructurings," he said.