Tesco PLC, Cheshunt, England, saw its pension fund deficit fall 33% to £2.6 billion ($3.6 billion) over the year ended Feb. 27, due in part to a recalculation of the deficit following a move to freeze its U.K. defined benefit fund.
The £8.4 billion pension fund also benefited from a 30-basis-point increase in real corporate bond yields, which the parent group said in its 2015-2016 preliminary annual report led to “a corresponding increase in the discount rate used to measure our long-term liabilities.”
Further, Tesco injected a £249 million cash contribution into the pension fund, in accordance with a long-term deficit funding agreement with the trustee that has been in place since April 2015.
In November, Tesco froze its DB fund and replaced it with a defined contribution plan. The new plan includes a 7.5% employer match for contributions, an increase from the previous DC plan.
In its annual report, Tesco said a £538 million non-cash actuarial credit was recognized on the pension fund, “as all accrued deferred pension benefits now increase in line with the consumer price index.”
“Following the significant reduction in future pension risk, by closing the defined benefit scheme, the trustee is now working with its advisers and the company to reduce risk further by beginning to implement an asset derisking strategy,” the report said.
A spokesman was not available to comment by press time.