John Lewis’ pension expected to show a surplus

John Lewis staff pension fund drops by £2.8 BILLION 

Pension assets slump puts pressure on John Lewis

John Lewis Partnership defended the financial strength of its pension fund this weekend after it emerged that the market value of its pension assets had plunged by £2.8 billion last year.

The Times reports.

The fall in value from £7.23 billion to £4.42 billion, revealed in the retailer’s annual results, was driven largely by a fall in the value of liability-driven investments designed to hedge interest rate and inflation risks.

John Lewis,  blamed the hit on its pension scheme on fallout from Kwasi Kwarteng’s mini-budget last September.

To preserve suitable liquidity within the trust’s assets, the interest rate and inflation hedge was cut from 100 per cent to 75 per cent of assets, although the trustee is now in the process of raising this back towards the 100 per cent target within the next few months.

At the end of the year, the retailer swung from a pension surplus of £474 million to a deficit of £69 million, reflecting the gap between the market value of pension assets held by its defined-benefit scheme and the IAS 19 value of its pension liabilities.

Pension liabilities were £4.49 billion, down from £6.75 billion in January 2022, largely attributable to a rise in the discount rate as a result of increasing interest rates, partly offset by this year’s high inflation.

John Lewis said:

“The trustee continues to manage scheme risks carefully and appropriately and the pension scheme remains liquid and well-funded, despite the earlier market volatility.”

A spokeswoman for the retailer said its pension finances are ‘strong’, adding that the latest triennial valuation is expected to show a £120 million surplus using a different accounting method, compared to a £58 million shortfall in 2019.

Mixed messages?

To lose 39% of scheme assets in one year (and a part of the hedge) is appalling.

If assets fell by more than liabilities the scheme must have been over-hedged – the numbers suggest 124% not 100% hedging. The Trustees were betting on interest rates going down in 2022.

The trustees want to go back to that-  having cut and run earlier.

“How?” and “Why?”

The Mail reports..

 the size of the slump at John Lewis is among the largest revealed so far, leaving the firm paying £10 million a year into the fund to plug the gap.

Restoration looks rather more expensive to the sponsor than that. We have not broken inflation yet.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to John Lewis’ pension expected to show a surplus

  1. Arthur says:

    Where is enthusiasm for misselling claims like the BS?

    Who advised this toxic strategy?

    Where is the compensation coming from for this 40% drop in value?

    Who is being protected by the closing rank silence?

  2. jnamdoc says:

    It’s just bewildering economic suicide on a macro scale. And that’s before we factor in the drag deficit contributions have on growth (ref earlier Treasury study on this).

    No doubt those of us who challenge the dogmatic shortsightedess of leveraged LDI will again be labelled as “a few naesayers”, and they’ll conveniently continue to blame it on Kwarteng -,for not being aware of the limitations of the maths model they’d built their world (and our futures) around. The LDI debacle and gilt crash wasn’t caused by Kwarteng – whatever your political hue, Govts are allowed to promote political agenda’s including growth, and shouldn’t be hamstrung by a little understood maths model that’s suits the consultants, yet kills an economy.
    TPR fully complicit in this, yet totally asleep at the wheel. At lest the top two there have moved, but has TPR learned anything? Given a complete lack of hubris displayed and continual strive for more of this statist regulation, I doubt it.

  3. jnamdoc says:

    Henry – very interesting just reading back on one of the related articles – your 2013 blogg on the issues facing John Lewis and pension schemes. Well done and really quite prescient, you commented that:
    “His view was that the lasting pension legacy of Gordon Brown’s tenure as Chancellor was the announcement in his March 2003 budget of a move to guarantee pension rights which became enshrined in law in the Pension Act of 2004. The introduction of a Statutory Funding Requirement for pension schemes marked the point at which pensions stopped being an activity of mutual endeavour and became a corporate liability.

    How Steve Webb must wish that he could return to a world where the pension contract between member and employer was one of mutual respect and understanding and not based upon statutory obligations!

    The obligations that Gordon Brown visited on pensions are onerous enough to have collapsed defined benefit provision well beyond the declines illustrated in the chart above.

    If the next European Pensions Directive is enacted then the numbers of private sector workers accruing defined benefits will approximate to zero as we discover just what “guarantees” mean in a pan-European insured sense.”

    And I heard it back in 2004 from some close to the regulation design that the reason for the 2003 changes (and indeed the granting of superpowers to TPR) were to avoid any political embarrassment from scheme failure happening upon the then Chancellor as he waited his ascension to (albeit short lived) the top job. Whether this is true I do not know, but if it is it shows the is inevitable effect of what happens when politicians meddle, and move away from investment fundamentals.

  4. John Mather says:

    Who is responsible for the advice? Certainly, no one wants to talk about it here

  5. Various consultants advised trustee boards and corporates that in order to mitigate inflation and interest rate risks (which could adversely impact corporate accounting and pension costs) that it was probably prudent to hedge these risks via derivatives (bets with investment banks). However, as this effectively locked in funding levels (often a deficit position) it was possible to leverage the bets to maintain exposure to growth assets. This worked for some schemes and advisers looked clever – and taking off interest rate bets on their own was not advised due to asymmetrical risk. So whilst inflation bets paid dividends, interest rate bets lost big time.

    One has to ask whether common sense investing went out of the window due to concerns about accounting implications based on ‘group think’ on what was considered a sensible way to value pension liabilities, partly driven by regulation and professional advice. But you wouldn’t invest your own money that way would you?

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