Supermarket chain Tesco has confirmed plans to make a one-off £2.5bn (€2.8bn) pension contribution to its main defined benefit scheme in the second half of this year.

The company is already due to make a £300m pension deficit contribution in the 2020/21 financial year.

This and the proposed £2.5bn contribution were expected to plug the scheme’s funding deficit “and significantly reduce the prospect of having to make further deficit contributions in the future, releasing circa £260m of annual free cash flow”, Tesco said this morning in a preliminary results announcement for its financial year ending 29 February 2020.

The one-off £2.5bn contribution is planned as part of the use of proceeds from an agreed sale of Tesco’s businesses in Thailand and Malaysia, announced in March.

The company also plans to pay a special dividend of around £5bn to shareholders.

Tesco said the disposal was expected to be completed in the second half of this year, conditional upon shareholder and regulatory approval.

As a group Tesco has a combined defined benefit pension deficit of £3.1bn, its results announcement revealed. The principal plan is the Tesco PLC Pension Scheme.

Under the last triennial scheme valuation, as at 31 March 2017, the funding position of the scheme was a deficit of around £3bn.

Tesco said it had also agreed with the pension fund trustees the key principles of the next triennial scheme valuation, which would be calculated as at 31 December 2019.

Tesco said the trustees “will aim to conclude the valuation as soon as is reasonably possible”.

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