Marks & Spencer (M&S) has announced that it is in discussions with the trustees of its UK defined benefit (DB) pension scheme, after its 2024 valuation indicated that the scheme continues to be well funded.

The group's half year report revealed that the M&S UK Pension Scheme surplus fell by £25.6m since the start of the 2024/25 financial year, largely driven by an increase in gilt yields.

According to the update, as at 28 September 2024, the IAS 19 net retirement benefit surplus was £51.6m, down from £77.2m at the end of the 2023/24 financial year.

Whilst the group confirmed that the pension scheme is fully hedged for movements in gilt yields, it acknowledged that, on an IAS 19 basis, there is an inherent basis risk to the scheme valuation, with the pension assets moving with underlying movements in rates and scheme liabilities exposed to the movement in corporate bond yields.

It also admitted that while this "always results in some dislocation between movements in the scheme assets and liabilities", the increase in gilt yields in the year led to a larger dislocation.

Despite this, M&S confirmed that there has been no "material worsening" of the scheme's overall funding position and the scheme remains fully funded on a technical provisions basis.

It also revealed that it is currently reviewing the results of the 2024 actuarial valuation, which again indicated that the scheme continues to be well funded on a technical provisions basis.

Given the strength of the valuation, the company is in discussions with the trustees regarding the phasing of the current contributions.

The group is also in discussions to reschedule contributions under the existing M&S Scottish Limited Partnership arrangements.

Marks and Spencer Plc is a general partner of the Marks and Spencer Scottish Limited Partnership, with the UK DB pension scheme being a limited partner.

The partnership holds £1.3bn of properties at book value that have been leased to M&S.

As part of the distribtions from the partnership, M&S previously committed to contributing around £200m to the pension scheme in 2023/24 and 2024/25.

The first limited partnership interest (held by the M&S UK Pension Scheme), previously entitled the pension scheme to receive £89.7m in June 2024 as at 30 March 2024.

However, the group and the scheme trustees agreed to amend the distribution dates so that the pension scheme received £40m in June 2024, with the remainder of the balance to be paid this month (November 2024).

The second partnership interest (also held by the M&S UK Pension Scheme), previously entitled the scheme to receive a further annual distribution of £36.4m from June 2017 until June 2031.

The group and the scheme trustees again agreed to amend the distribution dates for June 2023 and June 2024 though, meaning that the scheme is entitled to £77.3m in November 2024 and then an annual distribution of £36.4m from June 2025 to June 2031.

The group is currently in discussions with the trustees to reschedule the remaining £120m as part of a plan to ensure that the scheme is fully funded over time.

If the ongoing discussions are successfully concluded, the profile of contributions to the scheme would be revised so that distributions in the year would "substantially" reduce.

However, the group said it would commit to extending the distribution profile, if required, to ensure that the scheme was fully funded.

Whilst the first limited partnership interest held by the scheme is included as a financial liability in the financial statements, as it is a transferable financial instrument, the second partnership interest held by the scheme is not a transferable financial instrument, and the associated liability is therefore not included on the Group's statement of financial position.

Instead, the the annual distribution is recognised as a contribution to the scheme each year.

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