The actuarial deficit of the scheme as at 21 March 2009 was £1,227 million. This deficit has increased from £443 million in March 2006 primarily due to the valuation date coinciding with a low point in asset values.
Under the revised funding plan, Sainsbury's increased annual payments and entered a new property partnership with the pension scheme (the ‘Partnership'), which will address £600 million of the deficit.
Properties to a value of £750 million will be transferred to the Partnership, which will provide the pension scheme with increased security and an annual income of £35 million for 20 years. These will be released back to Sainsbury's in 2030 in return for a cash payment equal to the amount of any remaining deficit at that time, up to a maximum of £600 million, thereby allowing the company potentially to benefit from a reduction in the deficit over the funding plan.
It is hoped this will allow the organisation to benefit from lower annual cash contributions compared to conventional cash recovery plans and to avoid locking in higher annual cash payments based on depressed March 2009 asset values. The pension scheme benefits from an immediate injection of ring-fenced security comprising substantial property assets, which covers just under half the deficit, while the balance of the deficit is addressed over the next 10 years.
The agreement reached covers the J Sainsbury Pension and Death Benefit Scheme and the J Sainsbury Executive Pension Scheme, and as part of the new agreement these schemes will be merged into one single scheme.
Justin King, chief executive of Sainsbury's, said: "Today's announcement is a further positive step that balances our commitment to ensuring our pension scheme is funded appropriately with the need to continue investing in our business. Markets have already recovered significantly from the lows of last year when our deficit was struck, and the establishment of our new property partnership helps us to address the deficit in a manner that reflects this. The funding arrangements announced today are positive both for members of the pension scheme and Sainsbury's, and will allow us to benefit from further improvement in markets over time."