Consolidated financial statements
Notes to the financial statements
19. Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (‘the Plan’) was established on 31 May 1995 and currently 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 the income statement of £9.2m (2008: £8.5m) represents contributions payable to the defined contribution section of the Plan by the Group.
As at 31 December 2009, contributions of £0.7m (2008: £0.7m) were due in respect of December’s contribution not 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.
Defined benefit plan
The Plan includes a defined benefit section compromising liabilities and transfers of funds representing the accrued benefit rights of active and deferred members and pensioners of pension plans of companies which are now part of the Group. These include 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 those dates.
The most recent valuation of the Plan assets and the present value of the defined benefit liabilities was prepared at 31 December 2009. The present value of the defined benefit liabilities, the related current service cost and past service cost were measured using the projected unit credit method.
| Key assumptions used: |
2009
% |
2008
% |
| Discount rate |
5.6 |
6.1 |
| Expected return on the Plan assets |
4.9 |
4.8 |
| Expected rate of salary increases |
4.8 |
4.0 |
| Future pension increases(i) |
3.5 |
3.5 |
| Inflation increases |
3.8 |
3.0 |
Life expectancy
There is uncertainty around life expectancy of the UK population. Assumptions regarding future mortality experience are set based on advice in accordance with published statistics and experience in the UK. The value of current and future pension benefits will depend on how long they are assumed to be in payment. For the disclosures as at 31 December 2009 and 31 December 2008, the PXA92 series of tables from the Continuous Mortality Investigation was adopted appropriate to members’ actual years of birth and with a medium cohort projection for future improvements in life expectancy.
The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:
| |
2009 |
2008 |
| Male |
87.0 |
87.0 |
| Female |
89.9 |
89.8 |
The average life expectancy in years of a pensioner retiring at age 65, twenty years after the balance sheet date is as follows:
| |
2009 |
2008 |
| Male |
88.1 |
88.1 |
| Female |
90.9 |
90.9 |
An increase of one year to the average life expectancy at 65 would increase the present value of the Plan liabilities by around 3.0%. If such an assumption had been adopted as at 31 December 2009, the present value of the Plan liabilities would have increased to £9.2m (2008: increase of 3.0% with the present value of the Plan liabilities increasing from £8.0m to £8.2m).
The amount included in the balance sheet arising from the Group’s liabilities in respect of the Plan is as follows:
| |
2009
£m |
2008
£m |
| Present value of the Plan liabilities |
(8.9) |
(8.0) |
| Fair value of the Plan assets |
5.7 |
5.0 |
| Deficit in the Plan liability recognised in the balance sheet |
(3.2) |
(3.0) |
Amounts recognised in the income statement in respect of the Plan are as follows:
| |
2009
£m |
2008
£m |
| Interest cost |
(0.5) |
(0.5) |
| Expected return on the Plan assets |
0.3 |
0.3 |
| Net periodic cost |
(0.2) |
(0.2) |
The charge for the year has been included in administrative expenses. Actuarial gains and losses have been reported in the statement of comprehensive income. The actual return on the Plan assets was a gain of £0.4m (2008: loss of £0.1m).
Movements in the present value of the Plan liabilities were as follows:
| |
2009
£m |
2008
£m |
| Liabilities at 1 January |
(8.0) |
(8.0) |
| Interest cost |
(0.5) |
(0.5) |
| Actuarial (losses)/gains |
(0.8) |
0.2 |
| Benefits paid |
0.4 |
0.3 |
| Liabilities at 31 December |
(8.9) |
(8.0) |
The liabilities in respect of pensions in payment account for around 32% of the total liabilities (2008: 16%). The average term to retirement is five years for active members (i.e. members who are still employed by the Group and whose past service benefits are linked to their final salary but are no longer accruing final salary benefits) (2008: six years) and three years (2008: three years) for deferred members.
Movements in the value of the Plan assets were as follows:
| |
2009
£m |
2008
£m |
| Assets at 1 January |
5.0 |
4.7 |
| Expected return on the Plan assets |
0.2 |
0.3 |
| Actuarial gains/(losses) |
0.2 |
(0.4) |
| Contributions from sponsoring company |
0.7 |
0.7 |
| Benefits paid |
(0.4) |
(0.3) |
| Assets at 31 December |
5.7 |
5.0 |
The effect of a 1% movement in the key financial assumptions is set out below:
| |
Increase
of 1%
£m |
Decrease
of 1%
£m
|
Discount rate |
|
|
| Effect on interest cost |
– |
– |
| Effect on the defined benefit obligation |
(1.2) |
1.4 |
Inflation rate |
|
|
| Effect on interest cost |
– |
– |
| Effect on the defined benefit obligation |
0.3 |
(0.3) |
Expected rate of return on assets |
|
|
| Effect on the expected return on the Plan assets |
0.1 |
(0.1) |
The sensitivities to the interest cost and expected return on assets shown above relate to the calendar year ending 31 December 2010. The sensitivities to the defined benefit obligation relate to the liability as at 31 December 2009.
| |
2009
£m |
2008
£m |
| Actuarial losses recognised in the statement of comprehensive income |
0.6 |
0.2 |
| Cumulative actuarial losses recognised in the statement of comprehensive income |
3.8 |
3.2 |
The Plan assets and the expected rate of return at the balance sheet date were as follows:
| |
|
Fair value of assets |
|
Expected return |
| |
2009
£m |
2008
£m |
|
2009
% |
2008
% |
| Fixed interest gilts |
|
3.2 |
2.8 |
|
4.4 |
3.8 |
| Corporate bonds |
|
2.5 |
2.2 |
|
5.6 |
6.1 |
| |
|
5.7 |
5.0 |
|
|
|
The expected return on the Plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity reflect long-term real rates of return expected in the respective markets.
The history of experience adjustments is as follows:
| |
2009
£m |
2008
£m |
2007
£m |
2006
£m |
2005
£m |
| Present value of the Plan liabilities |
(8.9) |
(8.0) |
(8.0) |
(7.3) |
(7.7) |
| Fair value of the Plan assets |
5.7 |
5.0 |
4.7 |
4.8 |
4.4 |
| Deficit in the Plan |
(3.2) |
(3.0) |
(3.3) |
(2.5) |
(3.3) |
| Experience adjustments on the Plan liabilities |
|
|
|
|
|
| Amount |
(0.8) |
0.2 |
(0.4) |
0.7 |
(1.5) |
| Percentage of the Plan liabilities |
8.9% |
(1.9%) |
4.4% |
(9.2%) |
18.7% |
| Experience adjustments on the Plan assets. |
|
|
|
|
|
| Amount |
0.2 |
(0.3) |
(0.5) |
– |
0.2 |
| Percentage of the Plan assets |
2.6% |
(6.6%) |
(11.0%) |
0.4% |
3.8% |
The amount of contributions expected to be paid to the Plan during 2010 is £0.7m (2009: £0.7m).
Back to top
