Summary Funding Statement 2023
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.
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, if any are due, 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 estimates 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 in the tank.
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. This is done every three years when any changes over that time are considered.
2023 funding update
Below are the results of the last full valuation, as at 30th September 2021, and the latest funding checks at 30th September 2023 and 30th September 2022.
| Funding check at 30th September 2023 | Funding check at 30th September 2022 | Funding valuation check at 30th September 2021 | |
| Assets: how much money is in the Argos Section | £896 million | £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 | £922 million | £1,106 million | £1,606 million |
| Shortfall: the gap between the assets and the cost of pensions promised | £26 million | £89 million | £101 million |
| Funding level | 97% | 92% | 94% |
In the full valuation, we also take account of Additional Voluntary Contributions (sometimes called AVCs) held by members in the Scheme (2021: £3m) and the accounting value of the asset-backed contributions structure (2021: £140m). This is not the same as the value of the properties held in the asset-backed contributions structure for the Argos Section.
The check-up in 2023 showed that the shortfall had reduced significantly over the year, which is good news, and the funding level had improved to 97%. Both the value of the investments and the cost of paying pensions have fallen in value significantly since 2021 because of changes to interest rates, but as investments fell less than the cost of pensions, overall the funding level has improved. In this context the funding level has remained broadly stable over the period to 30th September 2023.
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 contributions (ABC) arrangement using Sainsbury’s stores as security for the Scheme. The payments and the security are still in place. The Argos Section is currently receiving £44 million a year. Of this, £20 million is paid until 2030 and £24 million until 2038. Both will stop when 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 property security of up to £200 million of Sainsbury’s supermarkets 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 30th September 2024. It takes a long time to complete, so we will share the outcome with you next year.
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 30th September 2021, this showed the assets would cover 78% (2018: 68%) of the promised pensions. Since 2021, this position has improved, and we would also be able to access the property in the asset-backed contributions arrangement which would fill the gap.
The reason this is lower than the 2021 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 here. A hard copy is available on request.
