Pension funds

Our award-winning defined-benefit pension scheme is an important part of our competitive benefits package, which helps Tesco recruit and retain the best people. The trustees manage and fund our scheme on an actuarial valuation basis and, at our triennial valuation dated 31 March 2008, the scheme had a small deficit of £275m.

Following the valuation, member and company contributions have increased and, to further improve the security of the scheme for members, the trustees will be granted contingent property assets worth £500m.

As at February 2010, under the IAS 19 methodology of pension liability valuation, the scheme had a deficit on a post-tax basis of £1.3bn (last year £1.1bn). This change has been driven mainly by falls in capital markets and other asset classes, although the deficit is similar to the level reported at our Interim results.  Note 28 of the 2010 Annual Report and Accounts provides more information on our pension arrangements.

Pension risks

The Group’s pension arrangements are an important part of our employees’ overall benefits package. We see them as a strong contributor to our ability to attract and retain good people. Since the implementation of IAS 19 there is a risk that the accounting valuation deficit (which is recorded as a liability on the Group Balance Sheet) could increase if returns on corporate bonds are higher than the investment return on the pension scheme’s assets. The Group has considered its pension risks and has taken action by reducing risk in its investment strategy.

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