11 Retirement benefits
The Group provides pension arrangements for the benefit of its UK employees through the Marks & Spencer UK Pension Scheme. This has a defined benefit section, which was closed to new entrants with effect from 1 April 2002, and a defined contribution section which has been open to new members with effect from 1 April 2003.
The defined benefit section operates on a final salary basis and at the year end had some 21,000 active members (last year 24,000), 57,000 deferred members (last year 58,000) and 42,000 pensioners (last year 39,000). At the year end, the defined contribution section had some 8,000 active members (last year 8,000) and some 1,000 deferred members (last year 1,000).
The Group also operates a small funded defined benefit pension scheme in the Republic of Ireland. Retirement benefits also include a UK post-retirement healthcare scheme and unfunded retirement benefits.
Within the total Group retirement benefit cost, excluding the exceptional pension credits, of £31.8m (last year £44.2m), £14.0m (last year £28.0m) relates to the UK defined benefit section, £13.0m (last year £11.7m) to the UK defined contribution section and £4.8m (last year £4.5m) to other retirement benefit schemes.
A. Pensions and other post-retirement liabilities
|
2009
£m |
2008
£m |
| Total market value of assets |
3,977.0 |
5,045.5 |
| Present value of scheme liabilities |
(4,112.4) |
(4,542.3) |
| Net funded pension plan (deficit)/asset |
(135.4) |
503.2 |
| Unfunded retirement benefits |
(1.0) |
(1.3) |
| Post-retirement healthcare |
(15.8) |
(18.4) |
| Net retirement benefit (deficit)/asset |
(152.2) |
483.5 |
| |
|
|
| Analysed on the balance sheet as: |
|
|
| Retirement benefit asset |
– |
504.0 |
| Retirement benefit deficit |
(152.2) |
(20.5) |
|
(152.2) |
483.5 |
B. Financial assumptions
A full actuarial valuation of the UK defined benefit pension scheme was carried out at 31 March 2006 and showed a deficit of £704.0m. The financial assumptions for the UK scheme and the most recent actuarial valuations of the other post-retirement schemes have been updated by independent qualified actuaries to take account of the requirements of IAS 19 – ‘Retirement Benefits’ in order to assess the liabilities of the schemes:
|
2009
% |
2008
% |
| Rate of increase in salaries |
1.0 |
3.1 to 4.5 |
| Rate of increase in pensions in payment for service |
|
|
| – pre April 1997 |
2.6 |
2.8 |
| – between April 1997 and July 2005 |
2.9 |
3.5 |
| – post July 2005 |
2.3 |
2.4 |
| Discount rate |
6.8 |
6.8 |
| Inflation rate |
2.9 |
3.5 |
| Long-term healthcare cost increases |
7.9 |
8.5 |
The amount of the deficit varies if the main financial assumptions change, particularly the discount rate. If the discount rate increased/ decreased by 0.1% the IAS 19 deficit would decrease/increase by c. £75m.
C. Demographic assumptions
The demographic assumptions are in line with those adopted for the last formal actuarial valuation of the scheme. One of the most significant demographic assumptions underlying the valuation is mortality. The post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends under the scheme for the period to March 2006 updated to allow for anticipated longevity improvements over the subsequent years. The specific mortality rates used are based on the PMA92 and PFA92 tables, adjusted to allow for the experience of scheme pensioners. The life expectancies underlying the valuation are as follows:
|
|
2009
years |
2008
years |
| Current pensioners (at age 65) |
– males |
21.2 |
21.0 |
|
– females |
23.6 |
23.5 |
| Future pensioners (at age 65) |
– males |
22.0 |
21.9 |
|
– females |
24.3 |
24.3 |
D. Analysis of assets and expected rates of return
The major categories of assets as a percentage of total plan assets are:
|
2009
£m |
2008
£m |
2009
% |
2008
% |
| Property partnership interest |
529.8 |
506.6 |
13 |
10 |
| UK equities |
480.8 |
792.1 |
12 |
16 |
| Overseas equities |
644.3 |
1,116.6 |
16 |
22 |
| Government bonds |
127.2 |
465.4 |
3 |
9 |
| Corporate bonds |
2,278.0 |
2,058.5 |
58 |
41 |
| Cash and other |
(83.1) |
106.3 |
(2) |
2 |
|
3,977.0 |
5,045.5 |
100 |
100 |
The expected long-term rates of return are:
|
2009
% |
2008
% |
| Property partnership interest |
7.1 |
6.0 |
| UK equities |
8.0 |
8.3 |
| Overseas equities |
8.0 |
8.3 |
| Government bonds |
4.2 |
4.6 |
| Corporate bonds |
6.8 |
6.0 |
| Cash and other |
4.2 |
5.0 |
| Overall expected return |
7.2 |
6.7 |
The overall expected return on assets assumption is derived as the weighted average of the expected returns from each of the main asset classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward-looking views of financial markets (as suggested by the yields available) and the views of investment organisations. Consideration is also given to the rate of return expected to be available for reinvestment.
At year end, the UK scheme indirectly held 369,793 (last year 479,356) ordinary shares in the Company through its investment in an Aquila Life UK Equity Index Fund.
E. Analysis of amount charged against profits
|
2009
£m |
2008
£m |
| Operating cost |
|
|
| Current service cost |
72.2 |
106.1 |
| Curtailment gain |
(5.0) |
(3.0) |
| Exceptional pension credit (see note 5) |
(231.3) |
(95.0) |
|
(164.1) |
8.1 |
| Finance cost |
|
|
| Expected return on plan assets |
(334.6) |
(342.7) |
| Interest on scheme liabilities |
299.2 |
283.8 |
| Net finance income |
(35.4) |
(58.9) |
| Total |
(199.5) |
(50.8) |
F. Scheme assets
Changes in the fair value of the scheme assets are as follows:
|
2009
£m |
2008
£m |
| Fair value of scheme assets at start of year |
5,045.5 |
5,227.5 |
| Expected return on scheme assets1 |
334.6 |
342.7 |
| Employer contributions2 |
92.1 |
111.1 |
| Contributions from scheme members |
2.0 |
1.0 |
| Benefits paid |
(226.5) |
(220.4) |
| Actuarial loss |
(1,280.3) |
(422.6) |
| Exchange movement |
9.6 |
6.2 |
| Fair value of scheme assets at end of year |
3,977.0 |
5,045.5 |
G. Retirement benefit obligations
Changes in the present value of retirement benefit obligations are as follows:
|
2009
£m |
2008
£m |
| Present value of obligation at start of year |
4,562.0 |
5,510.8 |
| Current service cost |
72.2 |
106.1 |
| Curtailment gain |
(5.0) |
(3.0) |
| Exceptional pension credit |
(231.3) |
(95.0) |
| Interest cost |
299.2 |
283.8 |
| Contributions from scheme members |
2.0 |
1.0 |
| Benefits paid |
(226.5) |
(220.4) |
| Actuarial gain |
(353.2) |
(1,028.0) |
| Acquisition of subsidiary |
– |
0.4 |
| Exchange movement |
9.8 |
6.3 |
| Present value of obligation at end of year |
4,129.2 |
4,562.0 |
| Analysed as: |
|
|
| Present value of pension scheme liabilities |
4,112.4 |
4,542.3 |
| Unfunded pension plans |
1.0 |
1.3 |
| Post-retirement healthcare |
15.8 |
18.4 |
| Present value of obligation at end of year |
4,129.2 |
4,562.0 |
H. Cumulative actuarial gains and losses recognised in equity
|
2009
£m |
2008
£m |
| Loss at start of year |
(330.2) |
(935.6) |
| Net actuarial (losses)/gains recognised in the year |
(927.1) |
605.4 |
| Loss at end of year |
(1,257.3) |
(330.2) |
I. History of experience gains and losses
|
2009
£m |
2008
£m |
2007
£m |
2006
£m |
2005
£m |
| Experience adjustments arising on scheme assets |
(1,280.3) |
(422.6) |
(80.4) |
454.3 |
77.4 |
| Experience gains/(losses) arising on scheme liabilities |
81.2 |
(61.5) |
18.8 |
20.0 |
(24.0) |
| Changes in assumptions underlying the present value of scheme liabilities |
272.0 |
1,089.5 |
53.0 |
(643.6) |
(131.5) |
| Actuarial (losses)/gains recognised in equity |
(927.1) |
605.4 |
(8.6) |
(169.3) |
(78.1) |
| |
|
|
|
|
|
|
|
|
|
|
|
| Fair value of scheme assets |
3,977.0 |
5,045.5 |
5,227.5 |
4,606.2 |
3,956.8 |
| Present value of scheme liabilities |
(4,112.4) |
(4,542.3) |
(5,487.0) |
(5,381.3) |
(4,611.0) |
| Pension scheme (deficit)/asset |
(135.4) |
503.2 |
(259.5) |
(775.1) |
(654.2) |