7 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (the ‘Plan’) was established on 31 May 1995 and operates on defined contribution principles for employees of the Group. The assets of the Plan are held separately from those of the Group in funds under the control of the Trustees of the Plan. The total cost charged to income of £0.3m (2007: £0.5m) represents contributions payable to the defined contribution section of the Plan by the Company at rates specified in the Plan rules. As at 31 December 2008, contributions £0.1m (2007: £0.1m) were due in respect of December 2008’s contribution which had not been paid over to the Plan. The Company, with the consent of the Trustees, can decide how to use monies held in a defined contribution general account. During the year, the Company made contributions of £0.7m (2007: £0.2m) in respect of the Plan.
Defined benefits plan
The Plan includes some defined benefit liabilities and transfers of funds representing the accrued benefit rights of former active and deferred members and pensioners of pension plans of companies which are now part of the Group. These include final salary related benefits for members in respect of benefits accrued before 31 May 1995 (and benefits transferred in from The Snape Group Limited Retirement Benefits Scheme include accruals up to 1 August 1997). No further defined benefit membership rights can accrue after that date.
Under the Plan, employees are entitled to retirement benefits at a retirement age of 65. No other retirement benefits are provided. The Plan is currently being funded by the Company.
The last triennial valuation of the Plan was undertaken on 5 April 2007 and was prepared using assumptions of a rate of investment return of 6.0% per annum, a rate of earnings escalation of 4.5% per annum and rate of inflation of 3.5% per annum. The ongoing liabilities of the Plan were assessed using the projected unit method whereas the assets were taken at realisable market value. The actuarial valuation referred to showed that the defined benefit liabilities were partly funded and, on an ongoing basis, the value of the assets of £4.7m represented 59% of the value of these liabilities. The actuarial valuation also showed that the realisable market value of the Plan’s assets was 81% of its minimum liabilities when assessed on the Minimum Funding Requirement basis (as defined in the Pensions Act 1995). The next triennial valuation will be carried out as at 5 April 2010 when the funding position will be re-appraised.
The most recent valuation of the Plan assets and the present value of the defined benefit liabilities was as at 31 December 2008. The present value of the defined benefit liabilities, the related current service cost and past service cost were measured using the projected unit method.
| Key assumptions used: | ||||
|---|---|---|---|---|
| Notes | 2008 % |
2007 % |
2006 % |
|
| Discount rate | 6.1 | 6.0 | 5.3 | |
| Expected rate of salary increases | 4.0 | 4.5 | 4.1 | |
| Inflation per annum | 3.0 | 3.5 | 3.1 | |
| Future pension increases | ||||
| – members who left before 1 June 1995 | a | 3.5 | 3.5 | 3.5 |
| Future pension increases | ||||
| – members who left after 31 May 1995 | 3.0 | 3.0 | 3.0 | |
| Future pension increases | ||||
| – non-guaranteed deferred pensions | 3.5 | 3.5 | 3.1 |
The amount included in the balance sheet arising from the Company’s liabilities in respect of the Plan is as follows:
| Notes | 2008 £m |
2007 £m |
2006 £m |
|
|---|---|---|---|---|
| Present value of the Plan liabilities | b | (8.0) | (8.0) | (7.3) |
| Fair value of the Plan assets | b | 5.0 | 4.7 | 4.8 |
| Deficit in the Plan | (3.0) | (3.3) | (2.5) | |
| Related deferred taxation at 28% (2007: 28% and 2006: 30%) | 0.8 | 0.9 | 0.8 | |
| Liability recognised in the balance sheet | (2.2) | (2.4) | (1.7) |
The total pension costs of the Company in respect of:
| Notes | 2008 £m |
2007 £m |
2006 £m |
|
|---|---|---|---|---|
| Defined benefit section of the Plan | c | 0.2 | 0.2 | 0.2 |
| Defined contribution section of the Plan | c | 0.3 | 0.3 | 0.3 |
There are no amounts to be included within the operating profit for current or past service costs in 2008, 2007 or 2006.
Notes:
a: Any pension which accrues in respect of service after 6 April 1997 will increase in line with inflation, subject to a maximum of 5% per annum.
b: Represents the ongoing value of assets invested in managed funds operated by Scottish Equitable at the valuation date. The assets and liabilities relating to defined contribution members are in addition to these figures.
c: In view of the funding position of the defined benefit section of the Plan there is a requirement for an employer’s contribution in 2009 of £0.7m and the position will be reviewed following the next triennial valuation as at 5 April 2010. Employer’s contributions for defined contribution benefits remain unchanged at agreed standard rates.
Amounts recognised in administrative expenses in respect of the Plan:
| Notes | 2008 £m |
2007 £m |
2006 £m |
|
|---|---|---|---|---|
| Interest cost | (0.5) | (0.4) | (0.4) | |
| Expected return on the Plan assets | 0.3 | 0.3 | 0.3 | |
| Net periodic cost | (0.2) | (0.1) | (0.1) | |
Analysis of the movement in the Plan deficit during the year:
| 2008 £m |
2007 £m |
2006 £m |
|
|---|---|---|---|
| Deficit at 1 January | (3.3) | (2.5) | (3.3) |
| Interest cost | (0.5) | (0.4) | (0.4) |
| Actuarial (losses)/gains | (0.2) | (0.9) | 0.7 |
| Expected return on the Plan assets | 0.3 | 0.3 | 0.3 |
| Contributions from sponsoring company | 0.7 | 0.2 | 0.2 |
| Deficit at 31 December | (3.0) | (3.3) | (2.5) |
The Plan assets and the expected rate of return at the balance sheet date were as follows:
| Fair value of assets | Expected return | |||||
|---|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2006 £m |
2008 % |
2007 % |
2006 % |
|
| Equity instruments | - | 0.5 | 2.0 | n/a | 7.4 | 7.7 |
| Fixed interest gilts | 2.8 | 2.4 | 1.1 | 3.8 | 4.4 | 4.7 |
| Corporate bonds | 2.2 | 1.8 | 1.4 | 6.1 | 6.0 | 5.3 |
| Other assets | - | - | 0.3 | 2.0 | 5.5 | 5.0 |
| 5.0 | 4.7 | 4.8 | ||||
History of experience adjustments is as follows:
| 2008 £m |
% asset or liability value |
2007 £m |
% asset or liability value |
2006 £m |
% asset or liability value |
2005 £m |
% asset or liability value |
2004 £m |
%asset or liability value |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Difference between | ||||||||||
| the expected and | ||||||||||
| actual return on the | ||||||||||
| Plan assets | (0.3) | (6.6) | (0.5) | (11.0) | - | 0.4 | 0.2 | 3.8 | (0.2) | (4.5) |
| Experience gain/(loss) | ||||||||||
| arising on the | ||||||||||
| Plan liabilities | 0.2 | 1.9 | (0.4) | (4.4) | 0.7 | 9.2 | (1.5) | (18.6) | (1.3) | (21.4) |
| Total actuarial | ||||||||||
| (loss)/gain | (0.2) | (0.9) | 0.7 | (1.3) | (1.5) |