The deficit of Tesco’s UK defined benefit (DB) pension schemes has been cut by nearly two thirds, falling from £3,085m in 2019/20 to £1,222m in 2020/21, primarily thanks to a £2.5bn deficit reduction contribution made by the supermarket group.
The group’s financial accounts confirmed that DB assets had increased to £20,082m as of 27 February 2021, compared to £17,425m in 2019/20, although liabilities also increased, up from £20,510m to £21,304m.
It also confirmed that net retirement in the UK represents 86 per cent of the group’s wider total net retirement obligation, down from 92 per cent in 2020.
This is in part due to agreement that the group reached with pension trustees last year, which saw the supermarket chain make a one-off £2.5bn contribution to reduce its funding deficit, following the sale of its businesses in Thailand and Malaysia.
This in turn saw the funding position enter a surplus of £570m, with the market value of the scheme’s assets reaching £18,492m, representing 103 per cent of the benefits that had accrued to members, after allowing for expected increases in pensions in payment.
As such, the group emphasised that the one-off contribution has "significantly reduced" the prospect of having to make further pension deficit contributions in the future, clarifying however, that it will continue to pay £25m per annum to meet expenses of the scheme, including the Pension Protection Fund levy.
The contribution has also benefited the net pension finance costs for the group, falling £28m year-on-year to £43m, and net pension finance costs expected to fall further in the current year, with estimations that this will be in the region of £23m.
In addition to the one-off payment, the accounts confirmed that the group has made further contributions of £351m during the past year, resulting in total contributions to the scheme of £2.851bn.
The group has also recognised a one-off £7m exceptional past service cost in relation to guaranteed minimum pension (GMP) equalisation, in light of the High Court ruling made on this issue last year.
Contributions paid for defined contribution (DC) schemes in continuing operations of £347m were recognised in the group income statement, including £132m of salaries paid as pension contributions.
Commenting on the group's results, Tesco chief executive, Ken Murphy, stated: "Tesco has shown incredible strength and agility throughout the pandemic. By putting our customers and colleagues first we have built a stronger business.
"I'd like to say a huge thank you to the entire team for rising so selflessly to every challenge they've faced. Their efforts have been truly heroic.
"While the pandemic is not yet over, we're well-placed to build on the momentum in our business. We have strengthened our brand, increased customer satisfaction and improved value perception.
"Our decision to protect and hold the dividend flat for this financial year demonstrates our commitment to shareholders.
"We believe we can create significant further value for them and every stakeholder in our business by continuing to focus on value, loyalty and convenience for customers, underpinned by strong capital discipline."