Financial statements
NOTES TO THE FINANCIAL STATEMENTS
27. Retirement benefit obligations
The following amounts refer only to the Group. The Company has no employees.
The Parent and ultimate holding company, Pennon Group Plc, operates a number of pension schemes including a defined contribution section within the main scheme.
The Group also participates in defined benefit schemes operated by its wholly owned subsidiaries, Viridor Waste (Somerset) Limited and Viridor Waste (Greater Manchester) Limited. The latter Company, which was acquired during the year, operates two schemes, with the amounts acquired shown in the analysis of the fair value of schemes' assets and the present value of the schemes' defined benefit obligations below.
The assets of the pension schemes are held in separate trustee administered funds. The trustees of the funds are required to act in the best interest of the funds' beneficiaries. The appointment of schemes' trustees is determined by the schemes' trust documentation. Pennon Group Plc policy is that one-half of all trustees, other than the Chairman, are nominated by members of the schemes, including pensioners.
Defined contribution schemes
Pension costs for defined contribution schemes were £2.4m (2009 £1.9m) of which £0.2m was accrued at 31 March 2010 (2009 £0.2m).
Defined benefit schemes
Assumptions
The principal actuarial assumptions at 31 March were:
|
2010 |
2009 |
|
|
Expected return on scheme assets |
7.3 |
7.0 |
|
Rate of increase in pensionable pay |
4.1 |
3.75 |
|
Rate of increase for current and future pensions |
3.6 |
2.75 |
|
Rate used to discount schemes' liabilities |
5.5 |
6.5 |
|
Inflation |
3.6 |
2.75 |
Mortality
Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience. The mortality assumption uses a scheme-specific 'medium cohort' basis.
The average life expectancy in years of a pensioner retiring at age 62 on the balance sheet date is projected at:
|
2010 |
2009 |
|
|
Male |
22.0 |
21.9 |
|
Female |
25.4 |
25.4 |
The average life expectancy in years of a pensioner retiring at age 62, 20 years after the balance sheet date is projected at:
|
2010 |
2009 |
|
|
Male |
23.4 |
23.3 |
|
Female |
26.6 |
26.4 |
The sensitivities regarding the principal assumptions used to measure the schemes' liabilities are:
|
Change in |
Impact on |
|
|
Rate of increase in pensionable pay |
+/- 0.5% |
+/- 2.0% |
|
Rate of increase in current and future pensions |
+/- 0.5% |
+/- 5.7% |
|
Rate used to discount schemes' liabilities |
+/- 0.5% |
+/- 9.0% |
|
Inflation |
+/- 0.5% |
+/- 8.3% |
|
Life expectancy |
+/- 1year |
+/- 2.8% |
The amounts recognised in the income statement were:
|
2010 |
2009 |
|
|
Current service cost |
(3.2) |
(2.6) |
|
Total included in employment costs |
(3.2) |
(2.6) |
|
Expected returns on pension schemes' assets |
5.6 |
2.3 |
|
Interest cost on retirement benefit obligations |
(5.0) |
(2.6) |
|
Total included within net finance costs |
0.6 |
(0.3) |
|
Total charge |
(2.6) |
(2.9) |
The actual return on schemes' assets was a loss of £24.7m (2009 a loss of £10.6m).
The amounts recognised in the statement of recognised income and expense were:
|
2010 |
2009 |
|
|
Actuarial losses recognised in the year |
(7.2) |
(8.2) |
The amounts recognised in the balance sheet were:
|
2010 |
2009 |
|
|
Fair value of schemes' assets |
100.8 |
36.9 |
|
Present value of defined benefit obligations |
(113.6) |
(44.2) |
|
Net liability recognised in the balance sheet |
(12.8) |
(7.3) |
The schemes' assets and the expected long-term rates of return at the year end were:
|
2010 |
2009 |
|||||
|
Expected |
Value |
Fund |
Expected |
Value |
Fund |
|
|
Equities |
8.5 |
59.0 |
58.6 |
8.75 |
17.1 |
46.3 |
|
Property/currency |
9.0 |
5.7 |
5.7 |
7.9 |
2.8 |
7.6 |
|
Bonds |
5.0 |
34.2 |
33.9 |
5.2 |
12.9 |
35.0 |
|
Other |
4.5 |
1.9 |
1.8 |
8.75 |
4.1 |
11.1 |
|
100.8 |
100.0 |
36.9 |
100.0 |
|||
Other assets principally represent cash contributions received from the Group towards the year-end which are invested during the subsequent financial year.
The expected return on schemes' assets is determined by considering the long-term returns and the balance between risk and reward on the various categories of investment assets held. Expected returns on equity and property investments reflect long-term rates of return experienced in the respective markets. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date.
In conjunction with its investment advisers, Pennon Group Plc has structured the schemes' investments with the objective of balancing investment returns and levels of risk. The asset allocation has three main elements:
- holding of bonds which is expected to be less volatile than most other asset classes and reflects the schemes' liabilities
- a proportion of equities, with fund managers having freedom in making investment decisions to maximise returns
- investment of a relatively small proportion of the schemes' assets (circa 10%) in alternative asset classes which give the potential for gaining higher returns (property and currency).
The liabilities of the defined benefit schemes are measured by using the projected unit credit method which is an accrued benefits valuation method in which the scheme liabilities make allowance for projected earnings.
Movements in the balance sheet net liability were:
|
2010 |
2009 |
|
|
At 1 April |
(7.3) |
(1.7) |
|
Income statement |
(2.6) |
(2.9) |
|
Statement of recognised income and expense |
(7.2) |
(8.2) |
|
Regular contributions |
3.2 |
0.2 |
|
Other employer contributions |
1.1 |
5.3 |
|
At 31 March |
(12.8) |
(7.3) |
At the 31 March 2010, the two schemes operated by Viridor Waste (Greater Manchester) Limited had a combined surplus of £6.9m. This surplus was not recognised in accordance with the requirements of IFRIC 14.
Movements in the fair value of schemes' assets were:
|
2010 |
2009 |
|
|
At 1 April |
36.9 |
42.1 |
|
Expected return on schemes' assets |
5.6 |
2.3 |
|
Actuarial gains/(losses) |
17.7 |
(11.3) |
|
Acquisition of subsidiary |
38.2 |
- |
|
Member contributions |
0.8 |
0.1 |
|
Benefits paid |
(2.7) |
(1.8) |
|
Group regular contributions |
3.2 |
0.2 |
|
Other employer contributions |
1.1 |
5.3 |
|
At 31 March |
100.8 |
36.9 |
Movements in the present value of schemes' defined benefit obligations were:
|
2010 |
2009 |
|
|
At 1 April |
(44.2) |
(43.8) |
|
Service cost |
(3.2) |
(2.6) |
|
Interest cost |
(5.0) |
(2.6) |
|
Acquisition of subsidiary |
(38.2) |
- |
|
Actuarial (losses)/gains |
(24.9) |
3.1 |
|
Members' contributions |
(0.8) |
(0.1) |
|
Benefits paid |
2.7 |
1.8 |
|
At 31 March |
(113.6) |
(44.2) |
The future cash flows arising from the payment of the defined benefits are expected to be settled primarily in the period between 15 and 40 years from the balance sheet date.
The five-year history of experience adjustment is:
|
2010 |
2009 |
2008 |
2007 |
2006 |
|
|
Fair value of schemes' assets |
100.8 |
36.9 |
42.1 |
35.1 |
25.5 |
|
Present value of defined benefit obligations |
(113.6) |
(44.2) |
(43.8) |
(38.4) |
(28.8) |
|
Net liability recognised |
(12.8) |
(7.3) |
(1.7) |
(3.3) |
(3.3) |
|
Experience gains/(losses) on schemes' assets |
|||||
|
Amount (£m) |
17.7 |
(11.3) |
5.0 |
(1.8) |
(2.7) |
|
Percentage of schemes' assets |
17.6% |
(30.6)% |
11.9% |
(5.1)% |
(10.7)% |
|
Experience (losses)/gains on defined benefit obligations |
|||||
|
Amount (£m) |
(24.9) |
3.1 |
(2.2) |
2.4 |
(1.6) |
|
Percentage of defined benefit obligations |
(21.9)% |
7.0% |
(5.0)% |
6.3% |
(5.5)% |
The cumulative actuarial losses recognised in the Group statement of recognised income and expense at 31 March 2010 were £19.9m (2009 £12.7m).
In 2008 Pennon Group Plc completed the triennial actuarial valuation of its defined benefit schemes as at 1 April 2007 which resulted in higher future service and deficit recovery contributions. It further updated this valuation to 31 March 2009 and has made additional contributions during the year. The Group's share of this contribution was £1.1m (2009 £5.3m). Pennon Group Plc monitors funding levels on an annual basis and the Group expects to pay further contributions as determined by the Parent during the year ended 31 March 2011.