Pensions  

M&S DB scheme closure costs retailer £127m

 M&S DB scheme closure costs retailer £127m

Marks & Spencer's decision to close its defined benefit scheme has cost it £127m, largely in pensionable salary increases, the retailer has announced.

It reported the cost in a half-year update, in which it also revealed it would be closing down 30 stores across the UK.

"During the period, the Group completed a consultation with respect to our pay and pensions arrangements," the statement read.

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"We will be closing our UK defined benefit (DB) pension scheme to future accrual effective from 2 April 2017. This has resulted in a one-off income statement charge of £127.0m." 

It said this charge was "largely because" when current active members of the scheme become deferred members, the annual increase in their pensionable salary is linked to the consumer price index, as opposed to being capped at 1 per cent.

The retailer reported that, as of 1 October, the DB scheme had a £571.2m surplus.

AJ Bell senior analyst Tom Selby said Marks & Spencer's decision to close DB scheme was further evidence of the "slow death of DB".

"A lethal combination of rising life expectancy and persistently low gilt yields – which are used to price pension liabilities on company balance sheets – has been the driving force behind this shift," he said.

“The case of M&S is striking because, unlike most firms to close DB schemes in recent years, it has a healthy £571.2m surplus.

"However, the surplus was £824.1m at the end of 2015, and given how quickly BHS moved from surplus to deficit you can hardly blame the company for closing to new accruals while its funding position is strong."

He said the requirement to link pensionable salaries of deferred members to CPI rather a 1 per cent cap showed "the huge costs associated with DB pensions, even when a company moves to ditch their responsibilities”.

james.fernyhough@ft.com