Tesco PLC, Cheshunt, England, saw its pension fund deficit grow 13.75% in the six months ended Feb. 24 to £2.73 billion ($3.8 billion), but fell 50.4% for the 12-month period.
The retailer said in its full-year results Wednesday that the improvement over the year was partly driven by an increase in corporate bond yields, and partly by its decision — reported alongside its interim results in August — that it had updated its discount rate model following actuarial advice.
"In the group's view, it now more appropriately reflects expected yields on corporate bonds over the life of the scheme's liabilities," the results statement said. "At the same time, the application of latest industry life expectancy tables and favorable actual scheme experience have also contributed to the reduction." The discount rate used for the 2018 financial results was 2.9%, compared with 2.5% for 2017.
Tesco sponsors a number of defined benefit and defined contribution plans. The most significant is its frozen U.K. pension plan, the £13.2 billion Tesco PLC Pension Scheme, London. The deficit of this pension fund represented 96% of the total Tesco plans deficit, the same as figures as of Aug. 26, and down from 98% as of Feb. 25, 2017.
Starting this month, Tesco will increase its annual contributions to the pension fund to £285 million, up from £270 million. These contributions will be paid for 10 years and assessed at its next triennial review in 2020.
The funding level of Tesco's U.K. pension fund was 80.1% as at Feb. 24, compared with 66.6% as at Feb. 25, 2017.