Financial statements
Notes to the financial statements
9 Retirement benefit deficit
Retirement benefit plans
(i) Defined contribution plans The Group operates a number of defined contribution retirement benefit plans for qualifying employees throughout the Group. The assets of these plans are held separately from those of the Group. The employees of the Group's subsidiaries in France are members of a state-managed retirement benefit plan operated by the country's government. The French subsidiary is required to contribute a specific percentage of payroll costs to the retirement benefit scheme to fund the benefits.
The total expense recognised in profit or loss is £4 million (2006: £4 million), which represents the contributions payable to these plans. There were no outstanding payments due to these plans at the balance sheet date.
(ii) Defined benefit scheme The Group operates a final salary defined benefit plan for qualifying employees of its subsidiaries in the UK. The plan has not been offered to new employees joining 3i since 1 April 2006. The plan is a funded scheme, the assets of which are independent of the Company's finances and are administered by the trustees.
The last full actuarial valuation as at 30 June 2004 was updated on an IAS 19 basis by an independent qualified actuary as at 31 March 2007.
The principal assumptions made by the actuaries and used for the purpose of the year end valuation were as follows:
| 2007 | 2006 | |
|---|---|---|
| Discount rate | 5.0% | 4.6% |
| Expected rate of salary increases | 4.5% | 4.2% |
| Expected rate of pension increases | 3.1% | 3.0% |
| Price inflation | 3.0% | 2.7% |
| Expected return on Plan assets | 6.1% | 5.7% |
|
The post-retirement mortality assumptions used to value the benefit obligation at 31 March 2006 and 31 March 2007 are based on the "PA92 medium cohort" table with a current year of use. The life expectancy of a male member reaching age 60 in 2027 is projected to be 27.9 years compared to 26.7 years for someone reaching 60 in 2007. The amount recognised in the balance sheet in respect of the Group's defined benefit plan is as follows: |
||
| 2007 £m |
2006 £m |
|
| Present value of funded obligations | 480 | 472 |
| Fair value of Plan assets | (479) | (455) |
| Retirement benefit deficit | 1 | 17 |
|
Amounts recognised in the income statement in respect of the defined benefit plan are as follows: |
||
| 2007 £m |
2006 £m |
|
| Included in operating costs | ||
| Current service cost | 12 | 11 |
| Included in finance costs (note 10) | ||
| Expected return on Plan assets | (26) | (23) |
| Interest on obligation | 22 | 21 |
| Included in statement of recognised income and expenses | ||
| Actuarial (gain)/loss | (14) | 16 |
| (6) | 25 | |
|
During the year, the Group introduced amendments to the main scheme in response to new regulations in relation to age discrimination. As a result, the accrual rate has been replaced by a uniform accrual rate. This change has not had a significant impact on the value of the funded obligation at 31 March 2007. Changes in the present value of the defined benefit obligation were as follows: |
||
| 2007 £m |
2006 £m |
|
| Opening defined benefit obligation | 472 | 390 |
| Current service cost | 12 | 11 |
| Past service cost | – | – |
| Interest cost | 22 | 21 |
| Actuarial (gains)/losses | (15) | 63 |
| Contributions | – | 1 |
| Benefits paid | (11) | (14) |
| Closing defined benefit obligation | 480 | 472 |
|
Changes in the fair value of the Plan assets were as follows: |
||
| 2007 £m |
2006 £m |
|
| Opening fair value of Plan assets | 455 | 367 |
| Expected returns | 26 | 23 |
| Actuarial (losses)/gains | (1) | 48 |
| Contributions | 10 | 31 |
| Benefits paid | (11) | (14) |
| Closing fair value of Plan assets | 479 | 455 |
|
Contributions paid to the Group Pension Plan are related party transactions as defined by IAS 24 Related party transactions. The fair value of the Plan assets at the balance sheet date is as follows: |
||
| 2007 £m |
2006 £m |
|
| Equities | 268 | 245 |
| Gilts | 213 | 190 |
| Other | (2) | 20 |
| 479 | 455 | |
The actual return on Plan assets for the year was £25 million (2006: £71 million).
The Plan assets do not include any of the Group's own equity instruments nor any property in use by the Group. The expected rate of returns of individual categories of Plan assets is determined by reference to individual indices.
The history of the Plan is as follows:
| 2007 £m |
2006 £m |
2005 £m |
2004 £m |
2003 £m |
|
|---|---|---|---|---|---|
| Present value of defined benefit obligation | 480 | 472 | 390 | 355 | 303 |
| Fair value of Plan assets | (479) | (455) | (367) | (272) | (213) |
| Deficit | 1 | 17 | 23 | 83 | 90 |
| Experience adjustments on Plan liabilities | 2% | – | (4)% | (3)% | (2)% |
| Experience adjustments on Plan assets | – | (11)% | (4)% | (3)% | (2)% |
The cumulative actuarial losses recognised in equity are £4 million (2006: losses £17 million).
The Group expects to make contributions of approximately £10 million to the Plan in the year to 31 March 2008.
Employees in Germany are entitled to a pension based on their length of service. 3i Deutschland GmbH contributes to individual investment policies for its employees and has agreed to indemnify any shortfall on an employee's investment policy should it arise. The total value of 3i Deutschland GmbH's investment policies intended to cover pension liabilities is £3 million (2006: £3 million) and the future liability calculated by German actuaries is £5 million (2006: £4 million). The Group carries both the asset and liability in its consolidated financial statements and has recognised an actuarial loss of £1 million (2006: nil).