Sainsbury's £368m black hole

A £368m black hole has opened up in Sainsbury's pension fund. The deficit has come to light under new accounting rules and follows the supermarket chain's decision this year to close its final salary pension scheme.

Though the deficit narrows to £257m once tax credits are taken into account, the scale of the shortfall on a pension fund valued at about £2.5bn will reawaken concerns about the funding of big corporate schemes.

Sainsbury's is still considering legal action against fund management giant Merrill Lynch for failing to achieve an agreed level of investment performance on the fund. The Co-operative Group has dropped Merrill as an investment manager and is considering legal action, as is pharmaceuticals group AstraZeneca.

The dilemma of the Sainsbury's pension fund is in marked contrast to the similarsized scheme run by Boots, which shifted £2.5bn of assets into bonds in an attempt to match assets with liabilities.

Boots said last week it was showing a £200m surplus under the FRS17 rules - which require firms to make clear any deficits in their pension funds - and has pegged its contributions to no more than £50m a year.

Though Sainsbury's has revealed the shortfall before the new accounting regulations come into force, the company believes FRS17 could create 'large year-on-year' fluctuations. Sainsbury's said it had no intention to introduce FRS17 reporting until next year. 'Whatever numbers are reported under FRS17, the board believes funding for the group's schemes should be based on valuations every three years,' it said.