Sainsbury's scheme surges into surplus after PIE and mortality assumption update

As of 9 March, the supermarket giant's scheme, which has two sections, recorded a total post-tax accounting surplus of £743m and a funding level of 108%, according to the retailer's annual report, published today (5 June).

The figure includes £34m of liabilities for unfunded obligations, and comprises a £844m surplus in the Sainsbury's section and a £101m deficit in the Argos section.

The position has improved markedly since last year when the schemes had a combined deficit of £261m, and includes a £31m gain from the PIE exercise conducted for the Sainsbury's section, which took effect in April 2018.

Further gains were recognised after the adoption of updated mortality tables, and then updating these to reflect the latest experience in the scheme. Liabilities across the two sections fell by £1.2bn, based on the use of the Self-Administered Pension Scheme (SAPS) S2 tables as base assumptions and the Continuous Mortality Investigation's 2018 projections for future mortality improvements.

This was partly offset by the cost of equalising guaranteed minimum pensions (GMPs), which was calculated as £98m for the Sainsbury's section, and £3m for the Argos section, roughly 1.1% of total liabilities.

In total, the scheme had £8.9bn of liabilities and £10bn of assets before minimum funding requirements, unfunded obligations and deferred income tax were accounted for.

According to the annual report, the scheme has also de-risked some of its assets, reducing its equity exposure from £1.7bn to £1.3bn, while increasing its bond allocation from £5.4bn to £6bn.

The scheme is in the process of agreeing its 2018 triennial valuation, which has led to some of the gains the company has recognised in its reporting.

The supermarket expects to continue paying benefits for members in the Sainsbury's section for a further 19 years and, for the Argos section, 21 years.