Sainsburys’ defined benefit (DB) pension surplus has risen by 16 per cent due to the impact of Covid-19 on financial markets and the global economy.

At 7 March 2020, the net DB surplus under IAS19 was £1,119m, although this had increased to £1,340m by 31 March.

The supermarket firm selected 31 March as it “aligns with the scheme's quarter-end date and captures movements following the Covid-19 lockdown”.

Sainsbury’s revealed that its exposure to falling asset values had fallen due to the reduction in equities held in recent years.

Although the scheme saw a fall in asset values between the valuations, the reduction was “more than offset by the increase in yields on AA corporate bonds (mainly due to a widening of credit spreads) over the same period and a reduction in inflation expectations over the long-term".

The firm noted that, since the 31 March valuation, equity prices had recovered some of the losses, bond prices were slightly higher and there was a slight decrease to the discount rate applied to the expected liability cash flows.

This suggests that the overall pension surplus would have decreased since 31 March, but Sainsbury’s said that it did not believe the movement would be “significant relative to the size of the assets, liabilities or surplus”.

Sainsburys’ 30 September triennial valuation of its DB scheme found that its actuarial deficit had fallen from £1,055m to £538m since 2015.

Following the triennial valuation, Sainsbury’s agreed with the trustee of the scheme to establish a new asset backed contribution structure on 17 July 2019.

Under the agreement, properties with a value of £1,350m were transferred into a newly formed property holding company, a wholly owned subsidiary of Sainsbury’s, and leased to other entities. Rental receipts facilitate payments of interest and capital on loan notes issued to a Scottish Limited Partnership, in which the scheme holds an interest.

The scheme’s interest in the partnership entitles it to annual distributions over up to 20 years, including payment of around £15m a year to the Sainsbury’s section, payments of around £20m per year to the Argos section, and a switching payment, paid either to the Sainsbury’s or Argos section, of approximately £23m a year, increasing to £33m by 2038.

Further cash contributions of £40m have been agreed for 2020/21 and £10m in 2021/22.

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