UPDATE 1-M&S cuts pension deficit by over 1 bln pounds

Wed Nov 28, 2012 11:12am EST

By Sarah Mortimer

LONDON Nov 28 (Reuters) - UK retailer Marks and Spencer has cut its pension scheme deficit by more than 1 billion pounds ($1.6 billion) and agreed a cheaper funding plan that will keep reducing the shortfall.

The news from M&S contrasts with a trend of increasing deficits in workplace schemes, exacerbated by the weak economic growth that has lowered returns on UK government bonds, a staple investment for pension funds.

Rising life expectancy has made it more onerous for companies to continue funding defined benefit schemes, which promise staff a pension based on their salaries.

M&S shares rose 2.2 pct to 387 pence, against a 0.15 percent fall in the FTSE 100 index by 1608 GMT, after it said earlier in the day the deficit on its UK defined benefit scheme shrank to 290 million pounds in March 2012.

That compared with 1.3 billion pounds in March 2009.

The pension scheme is being funded by income from a portion of the company's property portfolio. In 2007, M&S contributed a number of properties to its pension pot, leasing them back to provide an annual income to the pension scheme.

British companies offering defined benefit schemes have been struggling to plug deficits, with some having to dip into their own coffers or consider more risky investments than bonds to fund them, PricewaterhouseCoopers said on Monday.

Recent figures from the Pension Protection Fund showed the total deficit of British final-salary pension schemes had more than doubled to 231 billion pounds ($369.8 billion) in the space of a year.

M&S said it would release 28 million pounds a year to its pension pot until 2017. This has been brought down from the 60 million pounds the retailer agreed in 2009.

M&S closed its defined benefit scheme to new members in 2002. The scheme has 56,000 deferred members, 51,000 pensioners and 14,000 active members.