Sainsbury's Pension Plan Given £500 Million Boost After Turmoil

J Sainsbury Plc was forced to provide its pension fund with a £500 million ($564 million) overdraft to protect it from any further volatility following September’s market tumult. This move was taken to safeguard the pension fund from any further instability in the wake of the turbulence seen in the markets last month.

The supermarket said it was reconsidering its investment strategy in light of the fallout from the pandemic.

Sainsbury's pension fund has a liability-driven investment (LDI) structure, which hedges its exposure to interest rates. Many funds with LDI strategies rushed to sell government bonds (gilts) after the UK government sent the market into a tailspin with a series of unfunded tax cuts.

Sainsbury's said in financial results published Thursday that the loan facility was put in place on Oct. 18. The pension fund has not drawn upon it yet.

Sainsbury's Chief Financial Officer Kevin O'Byrne has explained that the company's credit arrangement is designed to avoid putting its customers in a difficult position.‍

"We didn't want them to have to do anything irrational," said O'Byrne. "Particularly selling assets at the wrong time in the cycle."

O'Byrne said that the company and the fund's trustees are currently considering the LDI structure.
Despite this, he believes that the strategy still has a lot of potential, especially if it is well-funded and hedged. He said that they will be considering this in the coming months and making the appropriate decisions based on their findings.

On September 23, former Chancellor of the Exchequer Kwasi Kwarteng unveiled a series of sweeping tax cuts that sent gilts tumbling.

During this time of upheaval, many pension funds that were using LDI strategies were forced to sell assets in order to meet collateral requirements on their hedges. This caused the Bank of England to intervene in order to prevent prices from spiraling further out of control.

BT Group Plc said last month that the value of its pension fund's assets had dropped by around £11 billion as a result of the market turmoil.

After the new Prime Minister Rishi Sunak and Chancellor Jeremy Hunt reversed tax cuts and pledged to put the public finances on a stable footing, gilts have regained ground and the BOE has stopped its purchases.