Marks & Spencer today unveiled the deal which it hopes will plug £704m deficit in its defined benefit pension scheme.
The retailer, headed by Stuart Rose, will contribute £500m of value into the pension scheme via an interest in a property-backed partnership, with the rest of the deficit expected to be met by investment returns on the pension scheme’s assets.
To meet the £500m contribution M&S will is putting £1.1bn of property into a partnership of which the pension fund will effectively own £500m. These stores will be leased back to M&S and a fixed annual distribution to the pension scheme of £50m will be made out of partnership profits for a 15 year period.
M&S will retain control over the properties, including the flexibility to substitute alternative properties.
‘We know staff in our final salary scheme value this benefit very highly which is why we want to keep the scheme open,’ said finance director Ian Dyson. ‘By using our valuable property portfolio we have been able to put the scheme on a safer footing.’
Sainsbury’s also used its property to help close its pension fund black hole but in a different manner. Last year it raised just more than £2bn through a commercial-backed mortgage securitisation based on 127, or almost half, of its supermarkets. It used £350m of the money raised to reduce its pension deficit, which at the time stood at £582m.