Notes to the financial statements
For the 52 weeks ended 1 March 2008
25. Post-employment benefits
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. 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 Home Retail Group Pension Scheme) and a defined contribution scheme (the Home Retail Group Stakeholder Pension Scheme). In other countries, benefits are determined in accordance with local practice and regulations and funding is provided accordingly.
Defined Benefit Schemes
The Home Retail Group Pension 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.
The movements during the year in the net asset recognised in the balance sheet were as follows:
| 2008 £m | 2007 £m | |
|---|---|---|
| Opening | 9.3 | 25.5 |
| Total charge recognised in the consolidated income statement | (13.8) | (11.2) |
| Actuarial gain/(loss) recognised in the consolidated statement of recognised income and expense | 73.9 | (18.3) |
| Contributions paid | 14.3 | 13.3 |
| Closing | 83.7 | 9.3 |
The estimated amount of contributions expected to be paid into the Home Retail Group Pension Scheme by the Group during the next financial year is £14m.
The amounts recognised in the consolidated balance sheet are determined as follows:
|
2008 £m |
2007 £m |
|
|---|---|---|
| Fair value of scheme assets | 646.5 | 637.3 |
| Present value of funded scheme liabilities | (552.1) | (617.7) |
| Surplus in the funded scheme | 94.4 | 19.6 |
| Present value of unfunded pension arrangements | (10.7) | (10.3) |
| Retirement benefit asset recognised in the balance sheet | 83.7 | 9.3 |
The amounts recognised in the consolidated income statement were as follows:
|
2008 £m |
2007 £m |
|
|---|---|---|
| Current service cost | (26.8) | (23.3) |
| Discount unwind on scheme liabilities | (30.5) | (25.7) |
| Expected return on scheme assets | 43.5 | 37.8 |
| Total charge to consolidated income statement | (13.8) | (11.2) |
The charge is recognised in the following line items in the consolidated income statement:
|
2008 £m |
2007 £m |
|
|---|---|---|
| Administrative costs | (26.8) | (23.3) |
| Finance expense (note 11) | (30.5) | (25.7) |
| Finance income (note 11) | 43.5 | 37.8 |
| Total charge to consolidated income statement | (13.8) | (11.2) |
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 1 March 2008 and 3 March 2007. The principal actuarial assumptions used to calculate the present value of the defined benefit obligations were as follows:
|
2008 % |
2007 % |
|
|---|---|---|
| Rate of inflation | 3.5 | 3.1 |
| Rate of increases for salaries | 4.8 | 4.4 |
| Rate of increase for pensions in payment | 3.4 | 3.0 |
| Rate of increase for deferred pensions | 3.5 | 3.1 |
| Discount rate | 6.1 | 4.9 |
The amount charged to the income statement in respect of unfunded pension arrangements was £2.2m (2007: £0.8m).
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 £14.4m and the current service cost would decrease/increase by £0.8m. 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 approximately 0.25% each year, equivalent to increasing life expectancy by approximately one month each year.
Overall, the average expectation of life on retirement in normal health is assumed to be:
- 21.4 years at age 65 for a male currently aged 65 (2007: 21.3)
- 24.3 years at age 65 for a female currently aged 65 (2007: 24.2)
- 22.3 years at age 65 for a male currently aged 50 (2007: 22.2)
- 25.1 years at age 65 for a female currently aged 50 (2007: 25.0)
The assets of the Home Retail Group Pension Scheme and the expected rates of return are summarised as follows:
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
|
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 scheme assets: | ||||||
| Equities | 438.0 | 68 | 8.1 | 448.6 | 70 | 7.9 |
| Fixed interest securities | 202.7 | 31 | 5.0 | 182.0 | 29 | 4.4 |
| Other | 5.8 | 1 | 5.3 | 6.7 | 1 | 4.9 |
| 646.5 | 100 | 7.1 | 637.3 | 100 | 6.9 | |
The overall expected rate of return on scheme assets is the weighted average of the best estimate of the individual asset categories and their inherent expected rates of return.
Changes in the present value of the defined benefit obligation are as follows:
|
2008 £m |
2007 £m |
|
|---|---|---|
| Opening defined benefit obligation | (628.0) | (579.1) |
| Current service cost | (26.8) | (23.3) |
| Interest cost | (30.5) | (25.7) |
| Contributions paid by employees | (6.9) | (6.6) |
| Actuarial gain/(loss) on liabilities recognised in statement of recognised income and expense | 118.7 | (0.3) |
| Benefits paid | 10.7 | 7.0 |
| Closing defined benefit obligation | (562.8) | (628.0) |
Changes in the market value of the scheme assets are as follows:
|
2008 £m |
2007 £m |
|
|---|---|---|
| Opening market value of scheme assets | 637.3 | 604.6 |
| Expected return | 43.5 | 37.8 |
| Actuarial loss on assets recognised in statement of recognised income and expense | (44.8) | (18.0) |
| Contributions paid by Home Retail Group | 14.3 | 13.3 |
| Contributions paid by employees | 6.9 | 6.6 |
| Benefits paid | (10.7) | (7.0) |
| Closing market value of scheme assets | 646.5 | 637.3 |
| Cumulative actuarial gain/(loss) included in statement of recognised income and expense | 34.0 | (39.9) |
The actual return on scheme assets was a loss of £1.3m (2007: £19.8m gain).
History of experience gains and losses:
|
2008 £m |
2007 £m |
2006 £m |
2005 £m |
|
|---|---|---|---|---|
| Present value of defined benefit obligation | (562.8) | (628.0) | (579.1) | (465.5) |
| Fair value of scheme assets | 646.5 | 637.3 | 604.6 | 392.5 |
| Net surplus/(deficit) on the scheme | 83.7 | 9.3 | 25.5 | (73.0) |
| Experience (loss)/gain on scheme liabilities | (4.3) | 20.8 | 0.2 | 3.6 |
| Percentage of scheme liabilities | (0.8%) | 3.3% | 0.0% | 0.8% |
| Experience (loss)/gain on scheme assets | (44.8) | (18.0) | 70.9 | 8.1 |
| Percentage of scheme assets | (6.9%) | (2.8%) | 11.7% | 2.1% |
Defined contribution schemes
The pension cost represents contributions payable by the Group to defined contribution schemes and amounted to £6.2m (2007: £5.9m). Contributions totalling £0.3m (2007: £nil) were payable to the schemes at 1 March 2008 and are included within creditors.
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