M&S closes gap in its pension scheme with £400m injection

Marks & Spencer yesterday said it would plug a hole in its pension scheme by selling £400m of bonds.

The retailer has had to take the action after a £585m shortfall was discovered between the pension fund's assets and its liabilities. At present, the scheme is only 82 per cent funded, but after the £400m injection the scheme's assets will only be 6 per cent short of liabilities.

"By taking this action, we are providing reassurance to the scheme members," Alison Reed, the finance director, said. "This is an opportune time to raise the funds, taking into account current interest rates and demand in the corporate bond markets."

M&S closed its defined benefit scheme to new members of staff in April last year and an actuarial valuation of the scheme has been going on for the past few months. A number of companies with similar deficit problems, including Sainsbury and BAE Systems, have asked their staff to increase their own contributions to help share the burden of increased costs. Jardine Lloyd Thomson, the insurance broker, recently pledged £500m to its pension fund, but staff contribution levels look likely to be affected. M&S, however, said the £400m injection should be enough to safeguard its pension promises without having to ask employees to chip in.

Shares in Marks & Spencer rose 6p to 299p as the City welcomed M&S's decisive action to tackle its pension problem in a cost-effective manner. Many pension schemes have been struggling to combat the effects of longer life expectancy and increased costs on the funding of their schemes, which outweigh stock market improvements.

Under new accounting rules, known as FRS 17, which require the company to value its assets and liabilities of its pension fund every year, M&S still has a deficit in its pension scheme of about £1bn. "This is a non-cash item - it is just an accounting item and is not a deficit that needs to be plugged. The real deficit that needs action is the £585m, which we are now addressing with the bond issue," a spokesman for Marks & Spencer said.

Adopting the new accounting standard will actually benefit the company, cutting pension costs by £30m a year after taxation.

HSBC and Morgan Stanley have been appointed to manage the bond sale. M&S is likely to incur an interest charge of about £14m on the bonds.

In a separate move, the company declined to comment on news that it had tried to poach a key executive from Next to run its clothing division. Next confirmed that its product director Christos Angelides had been approached by M&S, but had turned down the prospect of such a move. Analysts are keen to see a heavyweight figure take on the position at M&S, whose clothing division has been struggling.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before