UK - Marks & Spencer has revealed the value of its defined benefit (DB) pension scheme dropped by over £1bn (€1.12bn) to £3.98bn over the last year.

Final year results from the retailer for the 12 months ending 29 March 2009 revealed the net debt of the firm reduced from £3.1bn to £2.5bn, partly because of the restructuring of the terms of its property partnership with the pension fund. (See earlier IPE article: M&S to 'pre-fund' scheme with more property)

M&S said the new structure, agreed on 25 March 2009, provides the firm with "discretion around the annual payments from the partnership to the fund" as the changes allow the payments to be at the discretion of the Group in relation to the financial years 2010/11 onwards, although this discretion is "only exercisable if the Group does not pay a dividend or make any other form of return to its shareholders".

While the net debt position of the company improved, M&S revealed a 33.1% reduction in the final dividend for 2008/09 and the interim dividend for 2009/10 as it admitted it was a "tough but necessary decision, which will further underpin our financial position and flexibility".

The final results also showed a significant decline in the value of the DB scheme, on an IAS19 accounting basis, as the total market value of the fund's assets fell from £5.045bn to £3.977bn between March 2008 and 2009.

The funding position of the scheme has therefore declined from a surplus of £483.5m to a deficit of £152.2m a year later, which M&S attributed primarily to "the impact of the economic downturn on the market value of the pension asset portfolio, partly offset by a decrease in inflation" and the exceptional pension credit of £231.3m resulting from changes to the DB scheme announced in January. (See earlier IPE article: M&S says trustees back pension curbs)

The retailer revealed the main financial assumptions used to assess the liabilities of the scheme "have been updated by independent qualified actuaries", leading to a slightly lower discount rate of 6.75% against 6.8% in 2008 and an inflation rate of 2.9% compared with 3.5%.

M&S said the changes to the assumptions will affect the level of the deficit because, for example, should the discount rate increase/decrease by 0.1% then the IAS19 deficit would increase/decrease by around £75m.

The confirmation of the assumptions used in the calculations follows concerns raised by Credit Suisse in March that the results of the company's triennial review will reveal higher than anticipated liabilities because of the "substantially higher" discount rate used by M&S. (See earlier IPE article: Credit Suisse challenges M&S's pensions calculations)

In the final year results, M&S confirmed the triennial review, as of 31 March 2009, is currently underway with the results "expected by the end of the calendar year" at which point they will "form the basis of funding discussions with the pension trustee".

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