SPS Argos Section

Every three years, the Scheme actuary completes a detailed funding valuation of the Scheme to check there is enough money to pay all the pensions that have been promised to members. Then, in-between these full valuations, the actuary also carries out less detailed annual funding checks. This table shows the details from the last funding check, as at 30 September 2022, compared with the 2021 valuation results.

How is it done?

Imagine the Argos Section as a big tank full of money. We need to make sure there’s likely to be enough money in the tank to pay all the future pensions.

There’s a tap with money coming in (contributions paid in by Sainsbury’s, as well as the money we make from our investments). There’s also a tap with money going out to pay pensions and the costs of running the Scheme.

We get an actuary to check the tank and make sure there’s enough in there – not just to pay pensions now but also in 40, 50 or even 60 years’ time. But they don’t have a crystal ball, so how much is ‘enough’?

The actuary makes lots of estimates about the future, like future inflation, investment returns and on average how long people will live. These assumptions about the future are then discussed between the Trustee and Sainsbury’s. When they have been agreed, the actuary completes the calculation of the amount estimated to be needed.

The actuary then looks at how much money, made up of all the assets and investments, is in the Argos Section at the date of the valuation. They then compare it to how much is needed now to pay all the benefits in the future.

The result tells us, the Trustee, if there’s a shortfall. If so, the Trustee and Sainsbury’s have to agree how to fill the shortfall.

2022 funding update

Below are the results of the last full valuation, as at 30 September 2021, and the latest funding check at 30 September 2022.

	Funding check at 30th September 2022	Funding valuation check at 30th September 2021
Assets: how much money is in the Argos Section	£1,017 million	£1,505 million
Value of pensions promised: how much the Argos Section needs now to pay out all the pensions in the future	£1,106 million	£1,606 million
Shortfall: the gap between the assets and the cost of pensions promised	£89 million	£101 million
Funding level	92%	94%

In the formal valuation, we also take account of AVCs held by members in the Scheme (2021: £3m) and the value of the asset-backed contribution structure (2021: £140m).

A significant change in economic conditions has resulted in a large reduction in the value of the Argos Section’s assets and the estimated amount of money needed to pay all pensions in the future. As a result, the latest check showed that the funding level has reduced slightly from 94% to 92%, but the shortfall had also reduced.

You may have read about the economic uncertainty following the so-called ‘mini-Budget’ and how it affected some pension schemes. We’re pleased to say that there was no significant impact on the Argos Section and that we remain focused on keeping everyone’s benefits safe for the future.

What happens now?

In the 2018 valuation, the Trustee agreed with Sainsbury’s how much the Company would pay into the Scheme over the coming years and put in place an asset-backed contribution (ABC) arrangement using Sainsbury’s stores as security for the Scheme. The payments and the security are still in place.

The Argos Section will receive £44 million a year. Of this, £20 million is paid until 2030 and £24 million until 2038, or until the Argos Section is fully funded on the basis agreed as part of the ABC arrangement, if before these dates. In the unlikely event that Sainsbury’s is unable to support the Scheme, the ABC arrangement will provide a guarantee of up to £200 million to the Argos Section. This will reduce as the funding position of the Section improves.

When will the next funding valuation be carried out?

The actuary will start to carry out the next full funding valuation check as at 30 September 2024.

What happens if Sainsbury’s goes out of business?

At each funding valuation, the actuary also estimates whether the Argos Section would have enough assets to pay for all the promised pensions in the unlikely event that Sainsbury’s either wasn’t able to support the Argos Section financially or became insolvent. At 30 September 2021, this showed the assets would cover 78% (2018: 68%) of the promised pensions.

The reason this is lower than the funding level shown above is because we would have to run the pension scheme differently – like an insurance company (which makes pensions more expensive to pay). The law says that we need to give you this information and we want to be completely open with you, which is why we’re telling you this, but please be assured that Sainsbury’s remains committed to supporting the Scheme as a whole and is a successful business. In the very unlikely event that Sainsbury’s was unable to support the Scheme, the Pension Protection Fund (PPF), set up by the Government, would protect your pension. You can find out more about the level of protection provided by the PPF at: www.ppf.co.uk

Payments to Sainsbury’s

By law, the Trustee must tell you whether there have been any surplus payments to Sainsbury’s out of the Scheme in the last 12 months. No surplus payments have been made in recent years.

The Pensions Regulator

The Trustee also needs to tell you if the Pensions Regulator has used its powers in relation to the Scheme over the last year, for example, by changing the way future benefits build up, or the way the funding target is worked out, or amending the employer contribution rate. The Regulator hasn’t used its powers in relation to the Scheme.

Climate change

The Trustee is required to produce a report assessing the impact of climate change on the Scheme. Our climate report can be viewed at www.jspensions.co.uk/SPS-argos/climate-change-report. A hard copy is available on request.