UK - City analysts have accused retail giant J. Sainsbury of short-changing its pension scheme members.
They claim actuarial assumptions were manipulated to maintain a surplus. And they say members of the £2bn J. Sainsbury Pension and Death Benefits Scheme were short-changed because the firm reduced employer contributions while there was a £386m FRS17 deficit.
J. Sainsbury has historically a set contribution rate of 18%, but for the 2001-03 period reduced this to 8.5% after its March 2000 valuation showed a £248m surplus.
But a City analyst pointed out that while Sainsbury discounted pensioner liabilities at 2% in 2000, it changed this to 4% in 2001. The analyst estimated that this change reduced liabilities by between 5-10%.
The analyst said: “The company weakened the actuarial assumptions from 2000 to 2001 to increase the size of its surplus. Basically, it says that the value of the liabilities has miraculously been reduced.”
Schroder Salomon Smith Barney analyst David McCarthy also questioned Sainsbury’s accounting practices and said that the way it accounted for surpluses – built up during the bull market years – could have hidden the true state of the fund.
In its 2002 annual report, Sainsbury’s revealed a £19m amortisation of its pension fund surplus. However, under FRS17, the surplus has evaporated due to plummeting equity markets.
McCarthy said that while Sainsbury was technically entitled to do so, it was inconsistent with its true funding position.
Sainsbury’s pension manager Geof Pearson dismissed the accusations as nonsense.
He said: “We cannot change our funding schedule every five minutes every time the markets go up and down.”
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