UK high street chain Marks & Spencer (M&S) has completed a £1.4bn (€1.6bn) pension scheme buy-in with Pension Insurance Corporation (PIC) and Phoenix Life.

PIC insured £900m of the defined benefit (DB) scheme’s liabilities, making it the largest single buy-in contract completed so far this year. Phoenix insured £460m of liabilities, covering 5,000 pensioners.

The transaction comes a year after a similar sized deal involving Aviva and Phoenix Life, which insured £925m and £470m, respectively, of M&S’s pensioner liabilities in May 2018.

In its annual results statement for the 12 months to the end of March 2019, M&S said the two insurance policies reduced its exposure to “changes in longevity, interest rates, inflation and other factors”.

The company said the scheme had now insured “approximately two thirds” of pensioner liabilities.

Myles Pink, partner at LCP, which advised the trustees on the transaction and the 2018 deal, said: “The cost of longevity risk removal remains attractive to many pension schemes. The M&S Pension Scheme has been able to take another step to remove this and other risks, benefiting from the thorough preparatory work carried out for its initial buy-in transactions.

“We expect 2019 to be a record year for bulk annuities and the M&S Pension Scheme has demonstrated how well-prepared pension schemes can jump to the front of the queue.”

The four buy-in deals were all completed as part of an “umbrella master agreement”, according to LCP, enabling the scheme trustees to “move quickly to purchase additional buy-ins” when opportunities arose.

Graham Oakley, chair of the Marks & Spencer Pension Trust, said the latest transactions provided “an important contribution to the trustees’ ongoing objective of reducing the longevity risk in the scheme to increase the security of all members’ pensions”.

He added: “A collaborative approach with the company together with efficient and effective advice continues to deliver well-executed and well-priced transactions.”

The M&S scheme reported a surplus of £923m as of 31 March, based on assets of just over £10.2bn and liabilities of £9.3bn.

Elsewhere in its results statement, the company reported a one-off cost of £20.5m relating to the equalisation of guaranteed minimum pension payments for men and women – roughly equal to a 0.2% increase in liabilities.

Meanwhile, PIC said it had a “strong pipeline” of pension insurance deals lined up for this year, worth more than £40bn in total. It has written £2.5bn worth of new business deals so far in 2019 and completed £3.1bn worth of longevity reinsurance.

How UK high street companies are coping with their DB schemes

CompanyAssets (£m)Liabilities (£m)Surplus/
(Deficit) (£m)
Funding ratioDate
Marks & Spencer 10,224.7 9,301.3 923.4 110% 31/03/2019
John Lewis 5,614.9 6,083.0 (468.1) 92% 26/01/2019
Kingfisher 3,162.0 2,842.0 320.0 111% 31/01/2019
Whitbread 2,523.6 2,643.2 (119.6) 95% 28/02/2019
Dixons Carphone 1,114.0 1,584.0 (470.0) 70% 28/04/2018
Debenhams 1,093.4 934.0 159.4 117% 30/09/2018
Next 893.7 768.7 125.0 116% 26/01/2019
Mothercare 351.5 389.2 (37.7) 90% 24/03/2018
Hammerson (REIT) 69.8 117.6 (47.8) 59% 31/12/2018
Carpetright 30.2 29.4 0.8 103% 28/04/2018

Source: Company reports, CapitalIQ

Further reading

UK retailers: Tough times
High rents, online competition and lower consumer spending are all squeezing retailers – with implications for pensions