Sainsbury’s to reveal how much its pension scheme has grown over the last six months

Sainsbury's pension scheme deficit is expected to have ballooned by up to £900m over the last six months when the company releases its interim results on Wednesday.

The supermarket's pension hole stood at £390m in March but analysts are predicting that a chasm will have developed.

Market expectations are that the deficit will be between £900m and £1.3bn.

Companies value pension liabilities by reference for bond yields for accounting purposes. The higher the bond yield, the greater the reduction factor applied to the valuation of liabilities it must pay out to members, the opposite is true as yields fall.

As bond yields have collapsed, since the Brexit vote in particular, pension liabilities have sky-rocketed.

Although pension assets have increased, they have not done so at the same pace. This has led to UK corporate pension scheme deficits widening at a mind-boggling rate – for example they grew by £100bn during the month August according to PwC.

Sainsbury's is also expected on Wednesday to release the results of what is arguably a more important report in terms of pension deficits: its triennial valuation.

The three-year valuation is a vital tool that pension scheme trustees and the company use to negotiate how the company intends to make good any pension scheme deficit. It is calculated differently to the accounting deficit and has a greater impact on the cash a business must commit on a day-to-day basis to fulfilling its pension scheme responsibilities.

Sainsbury's triennial valuation was undertaken in March 2015 by Willis Towers Watson.

Despite the valuation methodology differing to the accounting calculation, both do make reference to bond yields. And because yields were considerably higher 18 months ago, the gap between assets and liabilities may not be as marked as it could have been the case if the scheme had been valued using current bond yields.