High street retail chain Marks and Spencer will be closing its UK defined benefit pension scheme to future accrual despite recording a £571.2m surplus.

In its half year results published today, M&S noted that it will face a £127m pension bill or curtailment charge as pensionable salary increases for deferred members are linked to Consumer Prices Index rather than a 1 per cent cap.

While the retailer recorded a £571.2m surplus at 1 October, this fell by £252.9m from £824.1m at the end of its last full year. The decrease is largely a result of an increase in the present value of UK DB liabilities.

M&S also recorded an increase of £8.8m in its pension funding from £43.4m on 26 September 2015 to £52.2m on 1 October 2016.

Despite this, M&S will close the DB scheme to future accrual from 2 April 2017.

AJ Bell senior analyst Tom Selby said: “M&S is just the latest in a long list of companies to call time on their generous defined benefit pension arrangements. A lethal combination of rising life expectancy and persistently low gilt yields – which are used to price pension liabilities on company balance sheets – has been the driving force behind this shift. You only have to look at the crisis engulfing the scheme of failed retailer BHS and its former owner, Sir Philip Green, to see the damage that has been wrought by this economic storm.

“The case of M&S is striking because, unlike most firms to close DB schemes in recent years, it has a healthy £571.2m surplus. However, the surplus was £824.1m at the end of 2015, and given how quickly BHS moved from surplus to deficit you can hardly blame the company for closing to new accruals while its funding position is strong.

“But even in closing the scheme there was a sting in the tail for M&S. As all DB members now become deferred, as opposed to active, the annual increase in their pensionable salary is linked to CPI, rather than being capped at 1 per cent. This just goes to show the huge costs associated with DB pensions, even when a company moves to ditch their responsibilities.”

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