UK – The 2.8 billion-pound (4.2 billion-euro) pension scheme of retailer Boots, which made a high-profile shift into a 100% bond portfolio in 2002, is to cut its allocation to bonds in a bid to match liabilities.

“The pension fund remains strong, but to better match long-term liabilities, the pension fund trustees have decided to switch a small proportion, around 15%, of the fund's assets into asset classes other than bonds,” Boots said in its 2003 earnings release.

John Ralfe, Boots’ former head of corporate finance who led the shift to bonds, told IPE: "The trustee decision has increased risk for the 70,000 scheme members that their pensions will not be paid. Where is the expected extra return for members to compensate for this higher risk?"

Ratings agency Standard & Poor's today downgraded Boots after it said it would increase its share repurchases over the next two years. Ralfe said the company should be focusing its efforts not on the pension fund but on maintaining its “clean credit rating”.

Boots spokespeople were not immediately available for comment.

Boots said the cost of the fund is expected to increase by 40 million pounds in 2004/05. “This is principally as a result of the roll-off of the amortisation of previous surpluses, and the movement in real bond yields in the three years since the last actuarial valuation.”

The company said it would continue to account for pensions using the SSAP24 measure. Pension costs for the scheme under SSAP24 fell to 28 million pounds from 31 million pounds.

The scheme surplus under SSAP24 at the last valuation in 2001 was 300 million pounds. Boots said the triennial actuarial valuation “is in progress”.

Under FRS17, it said it has a pre-tax deficit of 58 million pounds, down from 154 million pounds last year.

In March the company said a decline in bond yields was partly responsible for the rise in pension charges.