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DEFINED BENEFIT

Tesco sees U.K. pension deficit soar 111% in past year

Tesco PLC, Cheshunt, England, recorded a 111.5% increase in the deficit of its U.K. defined benefit fund for the year ended Feb. 25 to £5.5 billion ($6.9 billion).

However, the deficit fell 6% over the six months ended Feb. 25.

The retailer said in its preliminary 2016-'17 results, it recorded group DB asset growth of 28.1% to £13.2 billion, which was more than offset by a 47% rise in liabilities to £19.8 billion, for a 67% funding ratio.

“The pension valuation is dependent on market conditions and assumptions made,” said the results document. Risk relates to three key assumptions, it said: discount rate, inflation expectations and life expectancy assumptions.

“The setting of these assumptions is complex and requires the exercise of significant management judgment with the support of third-party actuaries.”

The discount rate for 2017 was 2.5%, compared with 3.8% for Tesco's 2015/16 fiscal year.

The retailer sponsors a number of defined benefit plans and defined contribution plans. The U.K. pension deficit represents 98% of the group deficit, as of Feb. 25, compared with 94% a year previous. The principal fund within the group is the Tesco PLC Pension Scheme, London, which was frozen in November 2015. In its place, a new DC plan, the Tesco Retirement Savings Plan, was opened to all Tesco employees in the U.K.

The next triennial valuation of the fund is effective as of March 31, “and work is already underway,” said the results document. “The trustee is aiming to conclude the valuation as soon as is reasonably possible.”