Tesco’s pension deficit has more than doubled in the year to the end of February 2017, despite reporting its first sales growth in seven years.

The supermarket chain reported a pension deficit increase of £2.9bn to £5.5bn from £2.6bn the previous year. The rise has been attributed to falling interest rates and higher inflation.

Tesco’s triennial pension valuation is currently taking place, with an expected increase of scheme contributions.

The interest rate used to value the scheme has fallen from 3.8 per cent last year to 2.5 per cent in 2017, while the inflation assumption has risen from 2.9 per cent to 3.2 per cent. Both of these have led to an increase in scheme liabilities.

Furthermore, the net pension finance costs of £113m reduced in line with the reduction in the opening IAS 19 pension deficit at the start of the 2016/17 financial year. For 2017/18 the net pension finance cost is expected to rise to c.£165m.

Hargreaves Lansdown senior analyst Laith Khalaf commented: “Things are looking better at Tesco, but the supermarket’s profits have been diminished by the fines and compensation it has to fork out for mis-stating its profits in 2014. Operationally the company is staging a recovery but it’s not out of the woods just yet.

“The supermarket is facing the prospect of a rise in pension contributions because its scheme valuation is rather inconveniently taking place now, when interest rates are low and inflation is rising, both of which will serve to magnify the deficit.”

Share Story: