Marks & Spencer Final Salary Pension Scheme - PRAG

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i Read this if... you would like an overview of the scheme’s funding position. Summary Funding Statement 2008 By law, every company in the UK that provides a final salary pension scheme must produce an annual Summary Funding Statement. The purpose of the statement is to summarise the scheme’s funding position at the most recent actuarial valuation and explain changes to the position since the last valuation. The statement also has to explain how members’ benefits would be covered if the scheme were ever to wind up (ie come to an end immediately). This statement applies to the whole of The Marks and Spencer Pension Scheme, but all of the information relates to the Final Salary pension scheme, for which assets are held in a common fund. The Trustee also maintains accounts for each member of the Retirement Plan and for members who have Money Purchase AVCs. However, because these funds are invested separately, they are not included when calculating the scheme’s overall funding position. What do we mean by the scheme’s funding position? The scheme’s funding position is the difference between the scheme’s total assets (ie what the scheme is worth) and the scheme’s total liabilities (ie the benefits due to be paid). If the assets are greater than the liabilities, the scheme is said to be in surplus. If the liabilities are greater than the assets, the scheme is said to be in deficit. This calculation is performed by the actuary at least every three years at the scheme’s actuarial valuation. The results of the valuation form the basis for decisions about the level of future contributions the scheme’s sponsoring employer should make. How well funded is the M&S scheme? The last actuarial valuation of The Marks and Spencer Pension Scheme was as at 31 March 2006. This showed that the scheme’s funding position on an ongoing basis (ie if the scheme continues as it is now into the future) was as follows: Scheme’s assets: £4,574 million Scheme’s liabilities: £5,278 million Scheme’s funding deficit: £704 million Scheme’s funding level: 87% As the scheme’s assets at 31 March 2006 were less than the scheme’s liabilities, the Company and Trustee agreed a new schedule of contributions and put in place a plan to eliminate the scheme’s deficit. The Company agreed to provide £500m of additional funding into the scheme through an interest in a property-backed partnership. The remainder of the deficit was expected to be met by investment returns over 10 years to 31 March 2016 (although this will be reviewed at the 2009 valuation). In addition, following the actuarial valuation, the Company increased its regular contributions to the Final Salary pension scheme. The Company’s contributions increased from 15.8% of active members’ pensionable salaries to 27% from 1 April 2006. The Company’s contributions reduced slightly to 24.3% from 1 October 2007 and to 23.7% from 1 October 2008. This pattern reflects the effect of the benefit changes to the scheme implemented last year, including the gradual introduction of contributions paid by some members. 6
The Company also contributes to the Retirement Plan members’ individual pension funds. For every £1 a member puts into their fund, M&S puts in another £2, up to a maximum of 12% of the member’s pensionable salary (and depending on circumstances, up to 24% in the first year of eligibility for membership). These contributions have not been taken into account in the figures in this statement. What is the latest position of the scheme? Although the funding position has improved since the last valuation as at 31 March 2006, it has deteriorated slightly since 31 March 2007, mainly because investment markets have not performed well. At 31 March 2008, the scheme was approximately 92% funded, compared to 97% funded at 31 March 2007 and 87% funded at 31 March 2006. This assessment is not a formal valuation, but an estimate of the position of the scheme measured consistently with the method used for the 2006 valuation, taking into account the effect of changes in investment conditions and scheme membership since 31 March 2006. Have there been any orders made by the Pensions Regulator or any payments to the Company from the scheme? The Pensions Regulator can in certain circumstances make orders regarding the benefit provisions or funding of a pension scheme. The Trustee can confirm that the Pensions Regulator has not made any orders in relation to The Marks and Spencer Pension Scheme. As part of this statement, the Trustee also needs to let you know of any payments made to the Company from the scheme during the year. The Trustee can confirm that there have not been any payments to the Company out of scheme funds in the last 12 months. How well funded is the scheme on a buy-out basis? As part of the Summary Funding Statement, all schemes need to let their members know about what may happen if the supporting employer’s circumstances were to change and the scheme had to be wound up. This section is for information only and does not imply that M&S or the Trustee are thinking about winding up the scheme. In fact, the circumstances that would lead to winding up a scheme are considered very unlikely in the near future, given the size and relative financial stability of the M&S business and the Company’s ongoing commitment to the scheme. If a pension scheme had to be wound up, it might be necessary to ‘buy out’ its members’ benefits from an insurance company. A ‘buy-out’ valuation for a scheme tells you how much of the scheme’s benefits it could afford to buy out from an insurance company if these circumstances occurred (assuming no extra money was available from the supporting employer). If the M&S scheme had wound up on 31 March 2006, ie the date of the last actuarial valuation, the estimated buy-out cover for the Final Salary pension scheme’s benefits would have been in the region of 61%. As at 31 March 2008, this had dropped to 58%, again because investment markets have not performed well. This level of cover may seem low, but it’s not unusual amongst UK schemes. This is because buying out a scheme’s benefits is much more expensive than providing pensions directly from the scheme. What would happen if a pension scheme started to wind up? As explained above, if a scheme had to be wound up, the supporting employer would be required to secure the members’ benefits by paying enough into the scheme to enable the Trustee to buy out the benefits with an insurance company. If the employer could not pay this full amount because it was insolvent, the Pension Protection Fund (PPF) might be able to take over the scheme and pay compensation to members of final salary pension schemes. The compensation paid by the PPF would not be the same as the M&S scheme benefits (as explained in previous issues of Pensions Update). You can get further information about the PPF at: www.pensionprotectionfund.org.uk or by calling their helpline on 0845 600 2541. Where can I get further information? If you have any questions about this statement or you require more information or documentation about the scheme, please contact the M&S Pensions Administration team in Salford Quays (see back page for contact details). 7
Page 1 and 2: Pensions Update Issue 7, November 2
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Marks & Spencer Final Salary Pension Scheme - PRAG

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