For the short period 1 April 2006 to 3 March 2007
Home Retail Group has both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under which Home Retail Group pays contributions into an independently administered fund. Home Retail Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The cost of providing these benefits, recognised in the income statement, comprises the amount of contributions payable to the schemes in respect of the period.
Pension arrangements for UK employees are operated principally through a defined benefit scheme (the Argos Scheme) and a defined contribution scheme (the GUS Defined Contribution Scheme, now replaced by the Home Retail Group Defined Contribution Scheme). In other countries, benefits are determined in accordance with local practice and regulations and funding is provided accordingly.
| (a) | Defined Benefit Schemes |
| (i) | The Argos Defined Benefit Scheme |
| The scheme has rules which specify the benefits to be paid and are financed accordingly with assets being held in independently administered funds. A full actuarial valuation of this scheme is carried out every three years with interim reviews in the intervening years. The latest full actuarial valuation of the scheme was carried out as at 31 March 2006 by independent, qualified actuaries,Watson Wyatt LLP, using the projected unit method. Under the projected unit method of valuation the current service cost will increase as members approach retirement due to the ageing active membership of the scheme. |
| 2007 £m |
2006 £m |
|
| Opening | 25.5 | (73.0) |
| Total charge recognised in the consolidated income statement – as disclosed in (iv) below | (11.2) | (22.1) |
| Actuarial (loss)/gain recognised in the consolidated statement of recognised income and expense | (18.3) | 5.7 |
| Contributions paid | 13.3 | 114.9 |
| Closing | 9.3 | 25.5 |
The contributions paid for 2006 included a special contribution of £100m. The estimated amount of contributions expected to be paid into the Argos Pension Scheme by the Group during the next financial year is £14m.
(iii) The amounts recognised in the consolidated balance sheet are determined as follows:| 2007 £m |
2006 £m |
|
| Fair value of schemes’ assets | 637.3 | 604.6 |
| Present value of funded schemes’ liabilities | (617.7) | (570.0) |
| Surplus in the funded schemes | 19.6 | 34.6 |
| Present value of unfunded pension arrangements | (10.3) | (9.1) |
| Retirement benefit asset recognised in the balance sheet | 9.3 | 25.5 |
| 2007 £m |
2006 £m |
|
| Current service cost | (23.3) | (24.7) |
| Discount unwind on schemes’ liabilities | (25.7) | (24.9) |
| Expected return on schemes’ assets | 37.8 | 27.5 |
| Total charge to consolidated income statement | (11.2) | (22.1) |
| 2007 £m |
2006 £m |
|
| Administrative costs | (23.3) | (24.7) |
| Finance expense | (25.7) | (24.9) |
| Finance income | 37.8 | 27.5 |
| Total charge to consolidated income statement | (11.2) | (22.1) |
| (vi) | IAS 19 valuations |
| The valuations used for IAS 19 have been based on the most recent actuarial funding valuations and have been updated by Watson Wyatt LLP to take account of the requirements of IAS 19 in order to assess the liabilities of the schemes at 3 March 2007 and 31 March 2006. The principal actuarial assumptions used to calculate the present value of the defined benefit obligations were as follows: |
| Argos Defined Benefit Scheme |
||
| 2007 % |
2006 % |
|
| Rate of inflation | 3.1 | 2.9 |
| Rate of increases for salaries | 4.4 | 4.9 |
| Rate of increase for pensions in payment | 3.0 | 2.9 |
| Rate of increase for deferred pensions | 3.1 | 2.9 |
| Discount rate | 4.9 | 4.9 |
The amount charged to the income statement in respect of unfunded pension arrangements was £0.8m (2006: £2.7m).
The principal financial assumption is the discount rate. If this assumption is increased/decreased by 0.1%, the defined benefit obligation would decrease/increase by approximately 2.6% and the current service cost would decrease/increase by 3.8%. The discount rate is based on market yields on high quality corporate bonds of equivalent currency and term to the defined benefit obligation.
The IAS 19 valuation assumes that mortality will be in line with ‘PA92 Series’ tables with ‘medium cohort’ projections for males and females. An allowance is also made for anticipated future improvements in life expectancy assuming that the probability of death occurring at each age will decrease by 0.25% each year.
Overall, the average expectation of life on retirement in normal health is assumed to be:
– 21.3 years at age 65 for a male currently aged 65 (2006: 18.9)
– 24.2 years at age 65 for a female currently aged 65 (2006: 22.0)
– 22.2 years at age 65 for a male currently aged 50 (2006: 19.6)
– 25.0 years at age 65 for a female currently aged 50 (2006: 22.9)
(vii) The assets of Home Retail Group’s defined benefit schemes
and the expected rates of return are summarised as follows:
| Fair value £m |
Percentage of scheme assets % |
Expected long-term rate of return % pa |
Fair value £m |
Percentage of scheme assets % |
Expected long-term rate of return % pa |
||||||
| Market value of schemes’ assets: | |||||||||||
| Equities | 448.6 | 70 | 7.9 | 428.2 | 70 | 7.9 | |||||
| Fixed interest securities | 182.0 | 29 | 4.4 | 176.1 | 29 | 4.5 | |||||
| Other | 6.7 | 1 | 4.9 | 0.3 | 1 | 3.7 | |||||
| 637.3 | 100 | 6.9 | 604.6 | 100 | 6.9 | ||||||
The overall expected rate of return on plan assets is the weighted average of the best estimate of the individual asset categories and their inherent expected rates of return.
(viii) Changes in the present value of the defined benefit obligation are as follows:| 2007 £m |
2006 £m |
|
| Opening defined benefit obligation | (579.1) | (465.5) |
| Current service cost | (23.3) | (24.7) |
| Interest cost | (25.7) | (24.9) |
| Contributions paid by employees | (6.6) | (6.4) |
| Actuarial (loss) on liabilities recognised in Statement of Recognised Income and Expense | (0.3) | (65.2) |
| Benefits paid | 7.0 | 7.6 |
| Closing defined benefit obligation | (628.0) | (579.1) |
(ix) Changes in the market value of the plan assets are as follows:
| 2007 £m |
2006 £m |
|
| Opening market value of plan assets | 604.6 | 392.5 |
| Expected return | 37.8 | 27.5 |
| Actuarial (loss)/gain on assets | (18.0) | 70.9 |
| Contributions paid by Home Retail Group | 13.3 | 114.9 |
| Contributions paid by employees | 6.6 | 6.4 |
| Benefits paid | (7.0) | (7.6) |
| Closing market value of plan assets | 637.3 | 604.6 |
| Cumulative actuarial loss included in Statement of Recognised Income and Expense | (39.9) | (21.6) |
The actual return on plan assets was £19.8m (2006: £98.4m).
(x) The history experienced adjustments are as follows:| 2007 £m |
2006 £m |
2005 £m |
|
| Present value of defined benefit obligation | (628.0) | (579.1) | (465.5) |
| Fair value of scheme assets | 637.3 | 604.6 | 392.5 |
| Net surplus/(deficit) on the scheme | 9.3 | 25.5 | (73.0) |
| Experience gain on scheme liabilities | 20.8 | 0.2 | 3.6 |
| Percentage of scheme liabilities | 3.3% | 0.0% | 0.8% |
| Experience (loss)/gain on scheme assets | (18.0) | 70.9 | 8.1 |
| Percentage of scheme assets | (2.8%) | 11.7% | 2.1% |
| (b) | Defined Contribution Schemes |
| The pension cost represents contributions payable by Home Retail Group to the fund and amounted to £5.9m (2006: £5.5m). Contributions totalling nil (2006: £0.5m) were payable to the fund at 3 March 2007 and are included within creditors. |