UK Consultant Blasts Sainsbury Pension Asset Allocation

October 18, 2004 ( - Britain's third largest supermarket chain has increased its pension fund risk in order to shrink its deficit and lower its contribution, according to a leading pension consultant.

John Ralfe, the former head of corporate finance at retailer Boots, leveled the charges against UK supermarket giant J. Sainsbury, ahead of the company’s strategic review that is expected to create 3,000 jobs and cut 700 head office posts, according to the Financial Times (FT).

The charges pertain to Sainsbury’s pension asset allocation. Ralfe, who was at retailer Boots when the company famously switched their pension scheme to 100% bonds (See Boots Walks Away From UK Equities ), asserts that between 2000 and 2003 Sainsbury kept its investment allocation at 58% equities and 42% bonds, despite a previous assertion that it would change it. By doing so, the company has lowered its deficit and contribution levels, while increasing risk. Equities are generally considered riskier investments than bonds.

“Without this riskier investment strategy, Sainsbury’s actuarial deficit would be 451 million pounds, not 161 million pounds — the annual deficit contribution would be 53 million pounds, not 20 million pounds,” Ralfe stated, according to the FT. He also stated that Sainsbury had indicated that they would move its pension fund further into low-risk bonds to ensure pension payouts for their future retirees.

Ralfe, commenting on the asset allocation, asserted that more money should be set aside to ensure Sainsbury has a cushion against holding riskier equities that might fall short of matching pension fund liabilities.