31. Pensions
The Group operates both defined benefit and defined contribution pension schemes. These pension schemes are funded and contributions are made to separate trustee-administered funds. The assets of the pension schemes are held separately from the Group.
The pension charge for the defined contribution pension schemes for the year is £26.7m (2007: £21.8m).
In 2008 there was one main defined benefit pension scheme where the Group was the sole employing sponsor: The Capita Pension and Life Assurance Scheme (Capita scheme). Grouped together under ‘Other schemes’ are smaller arrangements: 1 scheme where the Group is the sole employing sponsor; allocated sections of 2 multi-employer schemes in which the Group is a participating employer; an allocated section in an industry wide scheme; and several schemes to which the Group makes contributions under Admitted Body status to our customers’ defined benefit pension schemes in respect of certain TUPE employees.
For the Admitted Body schemes, which are all part of the Local Government Pension Scheme, the Group will only participate in the schemes for a finite period up to the end of the contracts. The Group is required to pay regular contributions as decided by the respective Scheme Actuary and as detailed in each schemes’ Schedule of Contributions. In addition, for some schemes, the Group will be required to pay any deficit (as determined by the respective Scheme Actuary) that is remaining for the notional section of the scheme at the end of the contract.
The assets and liabilities of the defined benefit pension schemes (excluding additional voluntary contributions) as at 31 December are:
| At 31 December 2008 |
Capita
scheme
£m |
|
Other
schemes
£m |
|
Group
total
£m |
| Scheme assets at fair value: |
|
|
|
|
|
| Equities/hedge funds/absolute returns |
206.6 |
|
68.3 |
|
274.9 |
| Bonds |
66.7 |
|
29.9 |
|
96.6 |
| Property |
15.9 |
|
6.5 |
|
22.4 |
| Insurance contracts |
3.2 |
|
0.2 |
|
3.4 |
| Cash/other |
25.4 |
|
4.7 |
|
30.1 |
| Total |
317.8 |
|
109.6 |
|
427.4 |
| Present value of scheme liabilities |
(320.2) |
|
(131.7) |
|
(451.9) |
| Net asset/(liability) |
(2.4) |
|
(22.1) |
|
(24.5) |
| At 31 December 2007 |
Capita
scheme
£m |
Other
schemes
£m |
Group
total
£m |
| Scheme assets at fair value: |
|
|
|
| Equities/hedge funds/absolute returns |
248.9 |
85.1 |
334.0 |
| Bonds |
56.1 |
33.6 |
89.7 |
| Property |
17.5 |
8.8 |
26.3 |
| Insurance contracts |
3.5 |
0.5 |
4.0 |
| Cash/other |
24.5 |
9.6 |
34.1 |
| Total |
350.5 |
137.6 |
488.1 |
| Present value of scheme liabilities |
(330.2) |
(153.5) |
(483.7) |
| Net asset/(liability) |
20.3 |
(15.9) |
4.4 |
The pension schemes have not invested in any of the Group’s own financial instruments nor in properties or other assets used by the Group.
The amounts recognised in the consolidated income statement and in the consolidated statement of recognised income and expense for the year are analysed as follows:
| Year ended 31 December 2008 |
Capita
scheme
£m |
|
Other
schemes
£m |
|
Group
total
£m |
| Recognised in the income statement: |
|
|
|
|
|
| Current service cost |
21.6 |
|
3.2 |
|
24.8 |
| Past service cost |
0.7 |
|
– |
|
0.7 |
| Recognised in arriving at operating profit |
22.3 |
|
3.2 |
|
25.5 |
| Expected return on scheme assets |
(25.6) |
|
(9.5) |
|
(35.1) |
| Interest cost on scheme liabilities |
19.8 |
|
9.1 |
|
28.9 |
| Net finance cost included in administrative expenses |
(5.8) |
|
(0.4) |
|
(6.2) |
| Total defined benefit charge |
16.5 |
|
2.8 |
|
19.3 |
| Taken to the statement of recognised income and expense: |
|
|
|
|
|
| Actual return on scheme assets |
(67.1) |
|
(30.6) |
|
(97.7) |
| Less: expected return on scheme assets |
(25.6) |
|
(9.5) |
|
(35.1) |
|
(92.7) |
|
(40.1) |
|
(132.8) |
| Other actuarial gains |
52.1 |
|
32.6 |
|
84.7 |
| Actuarial losses recognised in the statement of recognised income and expense |
(40.6) |
|
(7.5) |
|
(48.1) |
Of the total service cost charge of £25.5m, £19.8m was included in cost of sales and £5.7m was included in administrative expenses.
| Year ended 31 December 2007 |
Capita
scheme
£m |
Other
schemes
£m |
Group
total
£m |
| Recognised in the income statement: |
|
|
|
| Current service cost |
17.9 |
2.1 |
20.0 |
| Past service cost |
1.3 |
0.2 |
1.5 |
| Recognised in arriving at operating profit |
19.2 |
2.3 |
21.5 |
| Expected return on scheme assets |
(22.8) |
(8.3) |
(31.1) |
| Interest cost on scheme liabilities |
17.4 |
7.4 |
24.8 |
| Net finance cost included in administrative expenses |
(5.4) |
(0.9) |
(6.3) |
| Total defined benefit charge |
13.8 |
1.4 |
15.2 |
| Taken to the statement of recognised income and expense: |
|
|
|
| Actual return on scheme assets |
18.5 |
8.0 |
26.5 |
| Less: expected return on scheme assets |
(22.8) |
(8.3) |
(31.1) |
|
(4.3) |
(0.3) |
(4.6) |
| Other actuarial gains |
28.4 |
1.6 |
30.0 |
| Actuarial gains recognised in the statement of recognised income and expense |
24.1 |
1.3 |
25.4 |
Of the total service cost charge of £21.5m, £16.7m was included in cost of sales and £4.8m was included in administrative expenses.
Pension contributions are determined based on the advice of qualified independent actuaries. The Group made special additional cash contributions to the Capita scheme of £10m in December 2008 and £40m in January 2009 as a result of the outcome of the full formal valuation.
Formal valuations of the Capita scheme and the FPS scheme were carried out as at 6 April 2005 and 31 March 2005 respectively. For the other schemes, the latest formal valuations were carried out as at either 1 April 2004, 31 December 2006 or 31 March 2007. The latest triennial formal valuation for the Capita scheme as at 6 April 2008 has been prepared and approval by the scheme’s trustees is expected shortly (the indicative valuation on the statutory funding objective basis is a deficit of £26.0m). These valuations are updated by qualified independent actuaries at each balance sheet date. Scheme assets are stated at their market valuations at each respective balance sheet date.
The assumption for the expected long term rate of return on assets has been derived by considering the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset was then weighted based on the target asset allocation to develop the assumption for the expected long term rate of return on assets for the portfolio.
|
|
Capita scheme
| |
|
Other schemes
|
| Main assumptions: |
2008
% |
2007
% |
|
2008
% |
2007
% |
| Rate of price inflation |
2.7 |
3.2 |
|
2.7 |
3.2 |
| Rate of salary increase |
3.7 |
4.2 |
|
3.7 |
4.2 |
| Rate of increase of pensions in payment1: |
|
|
|
|
|
| – inflation capped at 5% |
2.6 |
3.2 |
|
2.6 |
3.2 |
| – inflation capped at 2.5% |
2.0 |
2.3 |
|
2.0 |
2.3 |
| Discount rate |
6.2 |
5.9 |
|
6.2 |
5.9 |
| Expected rates of return on scheme assets (net of scheme expenses): |
|
|
|
|
|
| Equities/hedge funds/absolute returns |
5.6 to 7.7 |
7.6 |
|
5.6 to 7.7 |
7.6 |
| Bonds |
5.7 |
5.2 |
|
4.6 to 6.2 |
5.0 to 5.5 |
| Property |
4.6 |
7.6 |
|
4.6 |
7.6 |
| Insurance contracts |
6.2 |
5.9 |
|
6.2 |
5.9 |
| Cash/other |
2.0 |
5.5 |
|
2.0 |
5.5 |
| Expected take up of extended limits of tax free cash due to A day legislation |
50.0 |
50.0 |
|
50.02 |
50.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capita scheme |
|
|
Other schemes3 |
| Post retirement mortality |
2008 |
2007 |
|
2008 |
2007 |
| – Current pensioners |
PA92 MC (YOB) rated up 1 year, 0.5% p.a. minimum improvement |
PA92 MC (YOB) rated up 2 years |
|
PA92 MC (YOB) rated up 1 year, 0.5% p.a. minimum improvement |
PA92 MC (YOB) rated up 2 years |
| – Future pensioners |
PA92 MC (YOB) rated up 1 year, 0.5% p.a. minimum improvement |
PA92 MC (YOB) rated up 2 years |
|
PA92 MC (YOB) rated up 1 year, 0.5% p.a. minimum improvement |
PA92 MC (YOB) rated up 2 years |
Mortality tables above are independently prepared and published.
1There are other levels of pension increase which apply to particular periods of membership.
2This does not apply to the Admitted Body Schemes where no allowance for the extended limits is taken.
3This does not apply to the Admitted Body schemes.
Changes in the present value of the defined benefit pension obligations are analysed as follows:
|
Capita
scheme
£m |
Other
schemes
£m |
Group total
£m |
| As at 1 January 2007 |
328.8 |
141.8 |
470.6 |
| Current service cost |
17.9 |
2.1 |
20.0 |
| Past service cost |
1.3 |
0.2 |
1.5 |
| Interest cost |
17.4 |
7.4 |
24.8 |
| Benefits paid |
(8.1) |
(3.3) |
(11.4) |
| Actuarial gains and losses |
(28.4) |
(1.6) |
(30.0) |
| Contributions by employees |
0.3 |
1.1 |
1.4 |
| Contract bulk transfers/change in classification of plans |
1.0 |
5.8 |
6.8 |
| As at 31 December 2007 |
330.2 |
153.5 |
483.7 |
| Current service cost |
21.6 |
3.2 |
24.8 |
| Past service cost |
0.7 |
– |
0.7 |
| Interest cost |
19.8 |
9.1 |
28.9 |
| Benefits paid |
(9.5) |
(2.8) |
(12.3) |
| Actuarial gains and losses |
(52.1) |
(32.6) |
(84.7) |
| Contributions by employees |
0.3 |
1.3 |
1.6 |
| Contract bulk transfers/change in classification of plans |
9.2 |
– |
9.2 |
| As at 31 December 2008 |
320.2 |
131.7 |
451.9 |
The defined benefit obligation comprises £451.9m (2007: £483.7m) arising from schemes that are wholly or partly funded.
Changes in the fair value of scheme assets are analysed as follows:
|
Capita
scheme
£m |
Other
schemes
£m |
Group total
£m |
| As at 1 January 2007 |
321.4 |
122.4 |
443.8 |
| Expected return on scheme assets |
22.8 |
8.3 |
31.1 |
| Contract bulk transfers/business combinations |
1.0 |
5.8 |
6.8 |
| Employer contributions |
17.4 |
3.6 |
21.0 |
| Contributions by employees |
0.3 |
1.1 |
1.4 |
| Benefits paid |
(8.1) |
(3.3) |
(11.4) |
| Actuarial gains and losses |
(4.3) |
(0.3) |
(4.6) |
| As at 31 December 2007 |
350.5 |
137.6 |
488.1 |
| Expected return on scheme assets |
25.6 |
9.5 |
35.1 |
| Contract bulk transfers/business combinations |
9.2 |
– |
9.2 |
| Employer contributions |
34.4 |
4.1 |
38.5 |
| Contributions by employees |
0.3 |
1.3 |
1.6 |
| Benefits paid |
(9.5) |
(2.8) |
(12.3) |
| Actuarial gains and losses |
(92.7) |
(40.1) |
(132.8) |
| As at 31 December 2008 |
317.8 |
109.6 |
427.4 |
The total employer contributions to the defined benefit pension schemes in 2009 are estimated to be £66.9m in respect of the Capita scheme and £5.1m in respect of the ‘Other’ schemes.
History of experience gains and losses:
|
2008
£m |
2007
£m |
2006
£m |
2005
£m |
2004
£m |
| Capita scheme |
|
|
|
|
|
| Fair value of scheme assets |
317.8 |
350.5 |
321.4 |
286.1 |
234.4 |
| Present value of defined benefit obligation |
(320.2) |
(330.2) |
(328.8) |
(308.1) |
(257.8) |
| Scheme surplus/(deficit) |
(2.4) |
20.3 |
(7.4) |
(22.0) |
(23.4) |
| Experience adjustments arising on scheme liabilities |
3.5 |
– |
3.6 |
(29.3) |
(20.6) |
| Experience adjustments arising on scheme assets |
(92.7) |
(4.3) |
9.8 |
26.4 |
2.6 |
| Other schemes |
|
|
|
|
|
| Fair value of scheme assets |
109.6 |
137.6 |
122.4 |
109.3 |
84.6 |
| Present value of defined benefit obligation |
(131.7) |
(153.5) |
(141.8) |
(130.3) |
(105.3) |
| Scheme deficit |
(22.1) |
(15.9) |
(19.4) |
(21.0) |
(20.7) |
| Experience adjustments arising on scheme liabilities |
28.7 |
0.1 |
(3.9) |
(13.1) |
(4.7) |
| Experience adjustments arising on scheme assets |
(40.1) |
(0.3) |
3.5 |
12.5 |
3.0 |
The cumulative amount of actuarial losses recognised since 1 January 2004 in the consolidated statement of recognised income and expense is £33.1m (2007: cumulative actuarial gains of £15.0m). The Directors are unable to determine how much of the pension scheme deficit recognised on transition to IFRS of £77.8m (of which an IFRS transitional adjustment of £67.7m was taken directly to equity) is attributable to actuarial gains and losses since inception of those pension schemes. Consequently, the Directors are unable to determine the amount of actuarial gains and losses that would have been recognised in the consolidated statement of recognised income and expense before 1 January 2004.