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.