Struggling retailer Sainsbury’s is risking a pensions shortfall if it adopts a new pensions strategy, according to leading pensions consultant John Ralfe.
Ralfe, an independent pensions consultant and former manager of Boots’ pension fund, says that Sainsbury’s fund now invests 60% of its assets in shares and 40% in bonds. This marks a change in a policy which previously matched fund liabilities to investment in bonds, thus ensuring liabilities to retired workers were covered.
Higher returns available on the stock market enable the supermarket chain to reduce its estimated deficit and lower contributions. But, says Ralfe, in a research note for RBC Capital Markets, though the switch will save Sainsbury’s £30m each year in contribution, it carries inherent risks, replacing the certain cash flows of bonds with the uncertain cash flows of equities.
Ralfe’s claim to fame is that he switched Boots’ pension into bonds shortly before the crash of equity markets in 2000-2001.
Tomorrow Sainsbury’s is to reveal a new strategy aimed at bringing it up to speed with its competitors. In the run up to tomorrow’s review of its business practices, Sainsbury’s chief executive Justin King has already announced a number of new measures, including dividend cuts, and cutting up to 700 managerial jobs to help pay for 3000 more shop-floor workers. Forays into non-food sales are also believed to be being considered.