15 Pensions

As discussed in Note 1, the group operates two defined benefit pension plans, one in the UK and one in the US. Both plans are valued under IAS 19 by WXY Partnership using the projected unit credit method.

Development of pensions deficit during the year

Under IAS 19, the pensions cost is calculated based on assumptions made at the start of the year. If experience over the year is in line with assumptions made at the start of the year, the pension deficit would grow by any excess of the profit and loss charge over the cash contributions paid. Actuarial gains and losses due to differences between actual experience and the assumptions made are recognised immediately outside the profit and loss account in the SORIE.

Development of pensions deficit during the year graph

We have split this note into the following sections for ease of access:

Assumptions

Principal actuarial assumptions at balance sheet dates

 
  31 December 2007 31 December 2006 31 December 2005
  UK US   UK US   UK US
Inflation rate 2.8% 3.5%   2.8% 3.5%   2.8% 3.5%
Expected rate of salary increases 4.6% 4.5%   4.5% 4.5%   4.5% 4.5%
Expected rate of pension increases 2.8% 0.0%   2.8% 0.0%   2.8% 0.0%
Discount rate 4.8% 6.0%   5.4% 6.1%   4.8% 6.1%
Number of years a current pensioner is expected
to live beyond age 65:
– Men 21.2 17.7   19.2 17.7   19.2 17.7
– Women 24.0 20.6   22.0 20.6   22.0 20.6
Number of years future pensioners currently aged 45
are expected to live beyond age 65:
– Men 22.4 19.8   19.9 17.7   19.9 17.7
– Women 25.1 22.0   22.8 20.6   22.8 20.6
Expected return on plan assets 6.3% 7.3%   6.5% 7.5%   6.7% 7.0%
Analysed as:
Equities 7.5% 8.6%   8.0% 8.8%   8.3% 8.9%
Bonds 4.6% 5.3%   5.2% 5.5%   5.6% 5.5%
Property and other* 6.0% 6.6%   6.5% 6.8%   6.8% 6.9%
* 2006 and 2007 data: Assumptions used to calculate 2006 and 2007 present value of plan liabilities.
2005 and 2006 data: Assumptions used to calculate 2006 and 2007 charge to the profit and loss account with respect to defined benefit plans.

The expected return on plan assets assumption was determined by considering the expected returns available on the assets underlying the current investment policy, namely:

The expected return on plan assets is stated gross of administration expenses and the levy payable to the Pensions Protection Fund in the UK and the Pension Benefit Guaranty Corporation in the US.

Expected return on plan assets assumption

Demographics assumptions

 
  UK US
Basic mortality table used PA 92 UP-94
Based upon mortality experience of: UK insured pensioner mortality between 1991-1994 US uninsured pensioner mortality between 1988-1994
Year the mortality table was published 1999 1985
Allowance for future improvements in longevity Year of birth projections, with medium cohort improvements with adjustments to reflect expected scheme experience Projection scale AA projected to 2008 for pensioners and 2026 for non-pensioners
Allowance made for members to take a cash lump sum on retirement All members are assumed to take 25% of their benefit in the form of cash N/A
 

As this is the first year we have disclosed information relating to the assumptions regarding the longevity of pensioners, we have provided an expanded discussion on mortality tables, focusing in the UK plan as it has the highest deficit, in the pension deficit section of the report.

Membership details as at 31 December 2007

 
  UK US
Active workers 700 175
Total pensionable salary roll £14.7m £4m
Average age 40 42
Average service in plan 11 years 12 years
Number of deferred members 400 121
Total deferred benefits (at date of leaving scheme) £1.5m £0.4m
Average age 38 34
Number of pensioners 200 43
Total pensions in payment £1.6m £0.5m
 

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Sensitivities

Sensitivity assumption

Sensitivity of 2007 pension liabilities and cost to changes in assumptions are as follows:

 
Assumption Assumption change Impact on: Estimated increase/(decrease) (%) Estimated increase/(decrease) impact (£’000)
Pensions
Discount rate Increase by 0.5% Pension liabilities (9%) (11,000)
  Pension cost (35%) (800)
Expected rate
of salary increases Increase by 0.5% Pension liabilities 3% 4,000
  Pension cost 17% 400
Expected rate
of pension increases Increase by 0.5% Pension liabilities 3% 4,000
  Pension cost 17% 400
Life expectancy Increase by one year Pension liabilities 4% 5,000
  Pension cost 17% 400
 

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Strategy and funding

Investment strategy

The Trustees of the UK plan are responsible for setting the investment strategy for the UK plan after consultation with the sponsoring company and professional advisers. The company sets the investment strategy of the US plan. The following investment approach is being taken in each territory:

 
  UK US
Equity/bond/property split 50/40/10 60/30/10
Within equities:
Home/overseas split 80/20 70/30
Within bonds
Index-linked/fixed income split 30/70 20/80
 

The plan assets do not include any of the group’s financial instruments, nor any property occupied by, or other assets used by, the group. The property holding includes a small holding of cash.

The actual return on plan assets during the year was £8.5m (2006: £7.7m).

Cash funding

Accounting costs do not impact on the incidence or amount of cash contributions for defined benefit plans. Future cash contributions are determined based upon periodic actuarial valuations and local regulatory requirements.

 
  UK US
Date of last formal funding valuation 1 July 2007 1 June 2007
Surplus/(deficit) (£3m) £2m
Funding approach Assumes that plan assets will outperform government bonds by 2.0% per annum pre-retirement and 0.5% post-retirement Assumes that plan assets will outperform government bonds by 3.5% per annum
Contribution rate agreed to meet the cost of benefits accruing, plus related expenses 14% of pensionable salary 12% of pensionable salary
Lump sum contributions per annum to remove the deficit £1.1m per annum £200,000 per annum
Period over which the deficit is expected to be removed 1 January 2008 to
1 January 2011		 N/A
Expected contributions during 2008 £3.2m £0.5m
Expected 2008 levy £50,000* Negligible
Payable to Pension Protection Fund Pension Benefit
Guaranty Corporation
*The Dun & Bradstreet failure score underlying the levy is 96 out of 100.

The graphs below set out source of the changes during the year in both plan liabilities and assets.

Total cash contributions to pension funds

For more information about contributions to pension funds, view the related panel beneath the cash flow statement.

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Detail

Pensions deficit included in the balance sheet

 
  31 December 2007   31 December 2006
  UK
£’000		 US
£’000		 Total
£’000		   UK
£’000		 US
£’000		 Total
£’000
Market value of plan assets:  
Equities 46,000 12,400 58,400   34,400 10,600 45,000
Bonds 32,600 6,800 39,400   41,400 5,800 47,200
Property and other 8,300 2,700 11,000   6,600 2,400 9,000
  86,900 21,900 108,800   82,400 18,800 101,200
Present value of plan liabilities (98,000) (25,600) (123,600)   (90,500) (22,100) (112,600)
Pension deficit in the balance sheet (11,100) (3,700) (14,800)   (8,100) (3,300) (11,400)
 

Amounts charged to the profit and loss account with respect to defined benefit pensions

 
  Year ended
31 December 2007		   Year ended
31 December 2006
  UK
£’000		 US
£’000		 Total
£’000		   UK
£’000		 US
£’000		 Total
£’000
 
Current service cost 1,600 700 2,300   1,300 500 1,800
Past service cost 200 100 300   100 – 100
Charged to operating profit 1,800 800 2,600   1,400 500 1,900
Interest cost 4,700 1,500 6,200   4,700 1,400 6,100
Expected return on plan assets (5,000) (1,500) (6,500)   (4,800) (1,500) (6,300)
Charged/(credited) to finance expense (300) – (300)   (100) (100) (200)
Total 1,500 800 2,300   1,300 400 1,700
 

Amounts recognised in the SORIE

 
  Year ended
31 December 2007		   Year ened
31 December 2006
  UK
£’000		 US
£’000		 Total
£’000		   UK
£’000		 US
£’000		 Total
£’000
Experience adjustments on plan assets 1,600 400 2,000   2,000 600 2,600
Changes in assumptions on plan liabilities (7,000) (1,000) (8,000)   – – –
Experience adjustments on plan liabilities 1,100 700 1,800   (1,800) (200) (2,000)
Total (4,300) 100 (4,200)   200 400 600
 

Change in the pension plan liabilities

Change in the pension plan liabilities graph

Change in market value of pension plan assets

Change in market value of pension plan assets graph

Analysis of the movement in the pension deficit

 
2007   2006
  UK
£’000		 US
£’000		 Total
£’000		   UK
£’000		 US
£’000		 Total
£’000
At beginning of year (8,100) (3,300) (11,400)   (9,200) (3,900) (13,100)
Total expense (1,500) (800) (2,300)   (1,300) (400) (1,700)
Contributions 2,800 1,100 3,900   2,200 900 3,100
Exchange differences – (800) (800)   – (300) (300)
Actuarial gain/(loss) (4,300) 100 (4,200)   200 400 600
At end of year (11,100) (3,700) (14,800)   (8,100) (3,300) (11,400)
 

Analysis of the movement in net debt

For more information about changes in financing net debt and operating net debt, view Note 22.

Analysis of expected repayments of net debt

For more information about the expected repayments of net debt, view Note 23

Analysis of the movements in the present value of the plan liabilities

 
2007   2006
  UK
£’000		 US
£’000		 Total
£’000		   UK
£’000		 US
£’000		 Total
£’000
At beginning of year 90,500 22,100 112,600   87,200 22,800 110,000
Current service cost 1,600 700 2,300   1,300 500 1,800
Past service cost 200 100 300   100 – 100
Interest cost 4,700 1,500 6,200   4,700 1,400 6,100
Actuarial loss/(gain) 5,900 300 6,200   1,800 (1,000) 800
Contribution paid by employees 100 – 100   100 – 100
Benefits paid (5,000) (1,600) (6,600)   (4,700) (1,500) (6,200)
Exchange differences – 2,500 2,500   – (100) (100)
At end of year 98,000 25,600 123,600   90,500 22,100 112,600
 

Analysis of the movements in the market value of plan assets

 
2007   2006
  UK
£’000		 US
£’000		 Total
£’000		   UK
£’000		 US
£’000		 Total
£’000
At beginning of year 82,400 18,800 101,200   78,000 18,900 96,900
Expected return on assets 5,000 1,500 6,500   4,800 1,500 6,300
Actuarial gain/(loss) 1,600 400 2,000   2,000 (600) 1,400
Contributions paid by employer 2,800 1,100 3,900   2,200 900 3,100
Contributions paid by employees 100 – 100   100 – 100
Benefits paid (5,000) (1,600) (6,600)   (4,700) (1,500) (6,200)
Exchange differences – 1,700 1,700   – (400) (400)
At end of year 86,900 21,900 108,800   82,400 18,800 101,200
 

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History

Cumulative actuarial gains and losses recognised in equity

Cumulative actuarial gains and losses recognised in equity graph

History of experience gains and losses

All experience adjustments are recognised directly in equity, net of related tax.

 
History of experience gains and losses 2005 2004 2003
Experience adjustments arising on plan assets:
Amount (£000) 1,200 2,000 2,300
% of plan assets 1% 2% 3%
Changes in assumptions arising on present value of plan liabilities:
Amount (£000) 2,000 – –
% of present value of plan liabilities 2% – –
Experience adjustments arising on present value of plan liabilities:
Amount (£000) (3,300) (2,000) 1,100
% of present value of plan liabilities (3%) (2%) 1%
Present value of plan liabilities (110,000) (105,700) (97,200)
Market value of plan assets 96,900 93,000 88,000
(Deficit) (13,100) (12,700) (9,200)
 
WARNING! We have not included all notes

Generico is not a real company.
This is not a complete report.

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Pensions.xls
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