Marks & Spencer close their staff pension scheme and lose £131 million

M&S pension surplus falls £131.3m due to DB future accrual closure

Written by Talya Misiri

24/05/17

Marks and Spencer has revealed that its pension surplus fell by £131.3m in the year to April 2017 due to the closure of its defined benefit scheme to future accrual.

In its full year results, published today 24 May 2017, the UK retailer stated that at 1 April 2017 the IAS 19 net retirement benefit surplus was £692.8m from £824.1m the previous year.

M&S explained that its reduced surplus was largely a result of the closure of the UK DB scheme to future accrual, which lead to a one-off curtailment charge of £127m. The scheme closed to new members on April 2017.

The report noted that as all remaining active members of the scheme transition to a deferred status, all future pensionable increases are to be in line with inflation, CPI, rather than to the lower one per cent salary cap applied to the active members.

Additional costs of £5.4m that is directly associated with the closure, primarily in relation to third party advisory costs have been incurred.

Pension funding rose year on year from £118.4m in April 2016 to £135.3m in April 2017. Pension costs charged against operating profit fell slightly to £100.3m this year, from £102m in 2016.

Partnership liability to the Marks & Spencer UK Pension Scheme remained at £71.9m year-on-year.

“The first limited partnership interest (held by the Marks and Spencer UK Pension Scheme), entitles the Pension Scheme to receive an annual distribution of £71.9m until 2022 from the Partnership. The second partnership interest (also held by the Marks and Spencer UK Pension Scheme), entitles the Pension Scheme to receive a further £36.4m annually from 2017 until 2031,” the report outlined".

WTF? Why are Marks and Spencer robbing their staff of a decent pension scheme when their fund is in surplus and it costs them £131 million to do so?

No wonder so many people voted for Brexit and why we need a Labour Government to tackle corporate greed and stupidity.

Hat tip "Pension Age". 

True Price of Cheap Fashion: 120 burnt or jumped to death at Bangladesh Texile Factory Fire

Check out TUC Owen Tudor post at Stronger Unions on the latest fire massacre at a Bangladesh textile factory.

It is estimated that 120 workers are dead, many of them young women who died behind locked fire escapes while some even jumped to their deaths to avoid being burnt alive.

Owen is completely right that the best way to protect these vulnerable and exploited workers are strong and independent trade unions.

But this does not let British, European and USA companies which invest in such factories or source cheap clothes in Bangladesh to sell in the West off the hook. Nor pension or insurance companies who make money from these companies or to be frank the consumers who buy products without knowing the conditions that the human beings who sweated to make them endure. Have we all got blood on our hands?

Tazreen Fashions who owns the factory apparently makes goods for "H&M, Walmart, Denim, Marks and Spencer, Carrefour, IKEA and others". It is alleged that it was widely known that this factory was unsafe but nothing was done.

Next week there is a meeting of the UNISON London Pension network and I will be asking members to bring up this up with their fund managers. What are they doing to make sure that the companies we invest in make sure that such things cannot happen again? This is an investment as well as an ethical issue. Not only should pension funds (and pensioners) not want to prosper from investing in companies that kills its workers but there is now overwhelming evidence that companies that act responsibly produce superior long term financial returns. 

We need to make sure at a minimum that all the companies in the supply line we invest in recognise and support trade unions (Please note this also applies to all those UK organisations who disgracefully refuse to recognise and bargain with independent trade unions at home. What message are they sending?) but also that they make sure that act at all times responsibly.  

On Wednesday evening at the LAPFF conference I spoke to a Governance adviser for a leading fund manager, who told me that due to rising wages in China, mass textile production is moving to cheaper zones such as Bangladesh. So the problem is likely to get even worse. 

On Thursday evening at the LAPFF conference hotel there was a false fire alarm at 4am. While I am not for a moment comparing things with that at Tazeen Fashions, it did make me think at the time what I would do if I was trapped by raging fires and locked safety doors in my 3rd floor room. 

Unless we all do our bit as consumers and investors to demand effective change I have no doubt that I will be reporting on something equally horrific sometime soon.  

Good News for Newham

Yesterday I went for the first time on the new Docklands Light Railway line from Canning Town to Stratford International Station.  It opened last week and is a great step forward for the whole area.  The 6km £211 million route has 4 brand new fully accessible stations which also connect five London 2012 Olympic and Paralympic venues.  In is particularly good news for West Ham ward since two of the stations are right next to the ward boundaries.  From Stratford International you can be in St Pancras in under 10 minutes. Eventually (fingers crossed) you will be able to pick up the Eurostar from Stratford.

Also, last week I went on another tour of  Westfield Stratford City.  Only a few weeks ago it was a building site and we had to wear safety helmets and boots.  Now the shops are being fitted out and you could walk around in normal clothing.  The new shopping centre (the biggest in Europe with 300 stores) opens this Tuesday.  Today, by coincidence, I had to go to Ilford to visit the nearest Marks and Sparks.  The Shopping centre in Ilford is a fairly pleasant enough location and I wish it well, but I really pleased that Newham will now have a world class shopping and leisure facility which will also provide thousands of jobs and careers for local people. Double click photos to bring up detail.

(Oh yes, isn't there is some sort of sporting event going on in Stratford next year as well? :)

Myners Report: 10 Years On

Last week the Financial Times ran a number of articles on the anniversary of the Myners Report which was published in March 2001. This report was written by Paul Myners, former fund manager, Chair of Marks & Spencer and of course, a Labour finance minister in the last government.

In 2000 Myner was asked to review institutional investments and whether investors were acting in the best interests of beneficiaries.  The poacher turned gamekeeper concluded they did not and made a number of recommendations.

I was quoted here in the article here about the role of auditors and my view that there had been despite Myners a "spectacular failure" by asset owners to stop the Banking crisis.  This was due (in part) to scheme fiduciaries not acting as owners of capital. 

While Myner’s report helped turn me from being a trade union observer on my pension scheme investment panel in 1996 (with no formal speaking rights -I did of course speak, no rights to attend all meetings, to question or to receive information) to being a full voting member of an investment committee. However, this is nowhere near enough.

The banking crisis showed that there is still grossly insufficient governance. Owners of capital (pension and insurance funds) failed to take their responsibilities of ownership seriously and allowed their money to be squandered and even stolen by the managers they paid to be “on watch” and look after their assets. How ridiculous that we continue to allow this? Not only did we lose big chunks of our savings but as taxpayers we then had to bail the banks out and are now suffering huge cuts in basic public services to pay for it.

The dangers of ownerless assets is well known, even Adam Smith warned about this over 200 years ago.  Part of the solution is that trustees and representatives should undertake an in depth management and scrutiny role with our funds.  I compared the role of pension trustees with that of scrutiny panels in local councils, who meet monthly, go on visits, have specialist staff tasked to support them, co-op experts to assist and can call witnesses to be questioned about their performance.

I also gave a plug in the interview to the  Association of Member Nominated Trustees (AMNT) which I think will play an important role in better governance.

The FT concluded with a quote from Paul “You don’t wash or service a rented car because you expect to give it back. I still get the impression that shareholders treat their holdings like a rented car. For the efficient use of capital, that attitude has to change.”

M&S Owners are Revolting

Some of my earliest memories are of being really bored to tears while out shopping with my Mum and sisters in “Markies”. They would it seemed to me at the time spend hours and hours deciding what to buy, queue to try stuff on, then queue at the tills. Then the following week come back and queue to return the same clothes as unsuitable and start the whole long laborious process all over again.

I now depend on MS for their black socks and lovely pre-cooked grub.
So I have a sort of “love-hate” relationship with “Marks and Spencers”.

Today I was at a meeting of the Local Authority Pension Fund Forum (LAPFF). My Pension scheme is a relatively new member of the Forum.

According to its mission statement “LAPFF exists to promote the investment interests of local authority pension funds, and to maximise their influence as shareholders whilst promoting corporate social responsibility and high standards of corporate governance amongst the companies in which they invest.

Formed in 1990, the LAPFF Forum brings together a diverse range of local authority pension funds with combined assets of over £75 billion”.

Later that day LAPFF Representatives were going to move and vote on their resolution at the M&S shareholders AGM about splitting the role of its Chairperson and CEO, Sir Stuart Rose, who currently holds both positions in the company.

This combined role of the two most powerful positions in a company is a complete nonsense and goes against all good modern day governance advice. Not because Sir Stuart is doing that bad a job but it is very poor practice for a modern day top public company to have a management structure that you are more likely to find in an overseas company run by the Russian mafia than our dear old M&S.

In the long run, such poor governance is bad for the company, bad for the shareholders, bad for pension funds and therefore bad for my members. By definition Pension investments should be in for the long term.

The LAPFF resolution was very successful. They never expected to win but they received nearly 40% of the vote which is unheard of in such an AGM. The BBC reported here that the vote was twice as high as any other shareholder resolution in a top FTSE 100 company.

I expect M&S to "take on board" this message.

LAPFF members only hold less than 2% of the total shares of M&S so this is a great result for them and for better governance of our investments.

It is only a pity that they were not in the past able to challenge the rubbish governance of the risk management and remuneration committees of our Banks and other Financial institutions. If they had we would not be in the mess we are in and many pension schemes would not be under threat.

Check out Tom P at Labour and Capital for some great analysis here, here and here