SPS Sainsbury's 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 Sainsbury’s 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 Sainsbury’s 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 Sainsbury’s Section	£6,785 million	£10,020 million
Value of pensions promised: how much the Sainsbury’s Section needs now to pay out all the pensions in the future	£6,690 million	£9,789 million
Surplus or (shortfall): the gap between the assets and the cost of pensions promised	£95 million	£231 million
Funding level	101%	102%

A significant change in economic conditions has resulted in a large reduction in the value of the Sainsbury’s Section’s assets and the estimated amount of money needed to pay all pensions in the future. Despite these changes, the funding level remained relatively stable over the course of the year.

The Scheme was then affected by the economic uncertainty following the so-called ‘mini-Budget’ last autumn. The funding level reduced, which of course was disappointing, but this has now started to recover.

You may recall that, after the last valuation, the Trustee and Sainsbury’s set up an asset-backed contributions (ABC) arrangement to help remove the shortfall. This arrangement used rent from Sainsbury’s stores to make payments into the Scheme. As the Sainsbury’s Section now has a surplus, the Company is no longer required to pay these extra contributions into the Scheme. When the Argos Section of the Scheme reaches its funding target, some of the contributions that come from the ABC structure will instead be paid to the Sainsbury’s Section, which will help to further support the Scheme’s funding position.

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 Sainsbury’s 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 Sainsbury’s Section financially or became insolvent. At 30 September 2021, this showed the assets would cover 80% (2018: 75%) 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-sainsburys/climate-change-report. A hard copy is available on request.