Supermarket group Sainsbury has increased the risk in its pension fund in a move allowing it to lower contributions, it was reported today.
In a research note for RBC Capital Markets, independent pension consultant John Ralfe said the fund had abandoned plans to match the liabilities of the growing number of current retirees’ payments with investment in bonds.
Without the riskier investment strategy, he said the Sainsbury’s actuarial deficit would be £451m (€651.8m), and not £161m (€232.7m). It is thought the move would save more than £30m (€43.3m) a year in pension contributions.
The report by the former head of corporate finance at retail group Boots emerged as Sainsbury’s chief executive Justin King prepares to announce the details of a review designed at reviving the retailer.
The change in the risk profile of the pension fund comes as the level of lower-risk bonds held rises as more scheme members retire. However, the trustees have decided to retain the scheme’s 60% equity to 40% bond split going forward, Mr Ralfe said.
Sainsbury’s said: “Pensions assets are invested in the ratio of equities to bonds which enables us to keep the contributions at an acceptable level for trustees and the company while safeguarding the scheme in the long term.”
As part of tomorrow’s review, Sainsbury’s is likely to identify the need for 3,000 extra shopfloor staff to keep shelves stocked. It is also likely to announce a new pricing structure and a halving of its dividend.
Mr King will use the catchline Getting the Basics Right to promote the changes and is expected to say that it will take three years to turn around the group.
In particular, he will look to address the product availability problems which have remained despite a £3bn (€4.3bn), three-year overhaul of the company’s distribution and IT system by previous boss Sir Peter Davis.
Sainsbury’s has already warned on profits three times this year and indicated last week that first-half profits would be down by nearly two-thirds.
Some analysts expect Sainsbury’s to make pre-tax profits of little more than £200m (€289m) this year, a tenth of the £2bn (€2.9bn) forecast for rival Tesco.