Grocer seeks to plug pension gap with property

Despite reporting better-than-expected profits yesterday, J Sainsbury admitted that the hole in its pension fund has grown to £1.2bn.

The group said that the latest actuarial assessment of its two defined benefits schemes had increased by £443m from when they were last assessed in 2007.

Sainsbury's said yesterday that it intends to transfer property assets worth £750m into the two schemes, which will now be merged, generating extra income of £35m a year.

Additionally, Sainsbury's will increase other contributions from £38m a year to £49m.

John Adshead, chairman of group's pension trustees, said: "We are pleased to have reached agreement with the company on the funding valuation and the recovery package, which provides substantially increased security to the scheme while also supporting the continued growth in the covenant strength of its sponsor."

Sainsbury's announcement follows that by Marks & Spencer, which this week also said that it was planning to take action to plug the £800m deficit in its pension scheme. The retailer, which has recently appointed Marc Bolland as its chief executive, plans to inject £36m a year into its retirement fund for the next three years, and then £60m a year until 2018. The remainder will be raised by transferring assets, including an increased share of its property portfolio, to the scheme.

Both Sainsbury's and Marks & Spencer are also banking on a recovery in markets, including the property sector, to help bridge the gap in their pension funds.