Notes to the accounts
21. Employee benefit costs - pension schemes
The Group operates one defined benefit pension scheme in the UK (the “Group Scheme”), which ceased to admit new employees from April 2004. The assets of the Group Scheme, which is a funded scheme, are held in a separate trustee administered fund which is independently managed. The trustees of the Group Scheme during the year were Walker Boyd, John Gillum (retired 7 December 2007), Noel Lyons, Mark Jenkins (appointed 7 December 2007), Anne Riglar (member nominated, appointed 18 May 2007), Peter Gates (member nominated, appointed 18 May 2007) and The Law Debenture Pension Trust Corporation p.l.c. (independent trustee). Contributions to the Group Scheme were assessed as at 5 April 2006 in accordance with the advice of independent qualified actuaries using the attained age method of valuation. Where appropriate, supplementary pension and life assurance for UK directors and senior executives was provided until 5 April 2006 through the Signet Group Funded Unapproved Retirement Benefits Scheme (FURBS). No further contributions are paid into the FURBS and in substitution a supplement is now paid directly to the members.
An actuarial valuation of the Group Scheme was carried out as at 5 April 2006. Results of that valuation have been updated to 2 February 2008 by an independent qualified actuary. The next full actuarial valuation will be carried out as at 5 April 2009.
As the Group Scheme is closed to new entrants, the current service cost (calculated under the projected unit method, as required by IAS 19), will increase as a percentage of salaries as its members approach retirement.
In June 2004, the Group introduced a defined contribution plan which replaced the Group Scheme for new UK employees. The employer contributions to this scheme in the period were $0.2 million (2007: $0.2 million; 2006: $0.1 million).
In the US, the Group sponsors a defined contribution 401(k) retirement savings plan for all eligible employees who meet minimum age and service requirements. The assets of this plan are held in a separate trust managed by KeyBank under which the Group matches 25% of up to the first 6% of employee elective salary deferrals. The Group has also established, in the US, an unfunded, unqualified deferred compensation plan (“DCP”) which permits certain management employees to elect annually to defer all or a portion of their remuneration and earn interest on the deferred amounts. The plan also provides for a Group matching contribution based on each participant’s annual remuneration deferral. In connection with this plan, the Group has invested in trust-owned life insurance policies.
The main assumptions used by the actuary to calculate the Group Scheme liabilities were:
| 2008 | 2007 | |
|---|---|---|
| Rate of increase in salaries | 5.0% | 4.6 % |
| Rate of increase in deferred pensions during deferment | 3.5% | 3.1 % |
| Rate of increase in pensions in payment(1) | 3.5% | 3.1 % |
| Discount rate | 5.9% | 5.2 % |
| Inflation assumptions | 3.5% | 3.1 % |
| Expected return on Group Scheme assets | 6.9% | 6.9 % |
| Longevity at age 65 for current pensioners: | ||
| – Male | 22.0 years | 21.8 years |
| – Female | 24.8 years | 24.7 years |
| Longevity at age 65 for future pensioners: | ||
| – Male | 23.3 years | 23.2 years |
| – Female | 26.0 years | 26.0 years |
(1)For the majority of members.
The mortality tables used to value the Group Scheme’s liabilities as at 2 February 2008 are PA92(year of birth)mc for current pensioners and future retirees. These tables give a life expectancy as set out in the table above. Based on the advice of an independent qualified actuary, the directors consider these mortality tables to make an appropriate allowance for future projected improvements in life expectancy.
The table below shows the sensitivity of the funded status of the Group Scheme to changes in the assumptions used in calculating the benefit obligations and scheme asset fair values:
| Benefit obligation $m |
Fair value of Scheme assets $m |
Funded status $m |
Sensitivity $m |
|
|---|---|---|---|---|
| Recognised as at 2 February 2008 | (253.7) | 248.1 | (5.6) | |
| Discount rate +0.1% | (249.7) | 248.1 | (1.6) | +4.0 |
| Inflation –0.1% | (250.2) | 248.1 | (2.1) | +3.5 |
| Life expectancy + 1 year | (260.7) | 248.1 | (12.6) | -7.0 |
The Group expects to contribute a minimum of $7.4 million to the Group Scheme in 2008/09 based on funding rates agreed in the 5 April 2006 actuarial valuation.
| 2008 $m |
2007 $m |
|
|---|---|---|
| The Group pension cost for the period comprises: | ||
| Charge to operating profit: | ||
| UK Group Scheme net service cost | (6.4) | (6.6) |
| UK defined contribution plan | (0.2) | (0.2) |
| US retirement savings plan | (4.8) | (4.1) |
| (11.4) | (10.9) | |
| Net credit to financing costs: | ||
| Expected return on Group Scheme assets | 18.3 | 14.7 |
| Interest on Group Scheme liabilities | (13.5) | (12.6) |
| (6.6) | (8.8) |
The assets in the Group Scheme and the expected rates of return (net of administration expenses) were:
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| Long term rate of return expected % |
Value $m |
Long term rate of return expected % |
Value $m |
|||
| Equities and property | 7.7% | 171.9 | 7.9 % | 193.7 | ||
| Bonds | 4.9% | 72.9 | 4.7 % | 62.8 | ||
| Cash | 3.3 | 5.1 | ||||
| Total market value of assets | 248.1 | 261.6 | ||||
| Present value of Group Scheme liabilities | (253.7) | (257.9) | ||||
| (Deficit)/surplus in the Group Scheme | (5.6) | 3.7 | ||||
| Related deferred tax asset/(liability) | 1.6 | (1.2) | ||||
| Net pension (liability)/asset | (4.0) | 2.5 |
The Trustee’s investment strategy is set out in their Statement of Investment Principles. To guide them in their strategic management of the assets and control of the various risks to which the Group Scheme is exposed, the Trustees have adopted the following objectives:
- To make sure that obligations to the beneficiaries of the Group Scheme can be met;
- To acknowledge the Group’s interest in the size and incidence of its contribution payments.
The Trustees continue to monitor this investment strategy, after taking professional advice.
To develop the long term rate of return on asset assumptions, the Trustees considered the historical return and future expected returns for each asset class, as well as the target asset allocation of the pension portfolio. The expected return is then reduced by 0.3% per annum as an allowance for Group Scheme expenses. This resulted in the selection of the 6.9% per annum long term rate of return on assets assumption from 3 February 2007, and 6.9% per annum from 2 February 2008.
There is no investment by the Group Scheme in the shares of Signet Group plc or in property occupied by or other assets used by the Group.
Analysis of amount recognised in the consolidated statement of recognised income and expense (“SORIE”)
| 2008 $m |
2007 $m |
|
|---|---|---|
| Actual return less expected return on Group Scheme assets | (30.1) | (2.0) |
| Experience gain on liabilities including change in assumptions | 15.1 | 32.5 |
| Actuarial (loss)/gain | (15.0) | 30.5 |
| Deferred tax | 4.5 | (9.4) |
| Recognised in SORIE | (10.5) | 21.1 |
The accumulated benefit obligation (defined as the projected unit liability with no allowance for future salary growth) of the Group Scheme at 2 February 2008 was $240.4 million (2007: $246.9 million).
The movement in Group Scheme benefit obligation during the financial year was as follows:
| 2008 $m |
2007 $m |
|
|---|---|---|
| Benefit obligation at beginning of financial year | 257.9 | 251.0 |
| Current service cost | 6.4 | 6.4 |
| Past service cost | – | 0.2 |
| Benefits paid | (9.9) | (8.1) |
| Member contributions | 0.9 | 0.9 |
| Interest cost | 13.5 | 12.6 |
| Actuarial gain | (15.1) | (32.5) |
| Exchange | – | 27.4 |
| Benefit obligation at end of financial year | 253.7 | 257.9 |
The movement in Group Scheme assets during the financial year was as follows:
| 2008 $m |
2007 $m |
|
|---|---|---|
| Fair value of Group Scheme assets at beginning of financial year | 261.6 | 223.6 |
| Expected return on Group Scheme assets | 18.3 | 14.7 |
| Benefits paid | (9.9) | (8.1) |
| Member contributions | 0.9 | 0.9 |
| Employer contributions | 7.2 | 6.8 |
| Actuarial loss | (30.1) | (2.0) |
| Exchange | 0.1 | 25.7 |
| Fair value of Group Scheme assets at end of financial year | 248.1 | 261.6 |
The actual loss on Group Scheme assets was $11.8 million (2007: $12.7 million return).
History of experience gains and losses
| 2008 | 2007 | 2006 | 2005 | |
|---|---|---|---|---|
| Difference between expected and actual return on Group Scheme assets ($ million) | (30.1) | (2.0) | 22.0 | (0.5) |
| Percentage of Group Scheme assets | (12)% | (1)% | 10% | 0% |
| Experience gain/(loss) on Group Scheme liabilities ($ million) | 15.1 | 32.5 | (51.3) | (9.4) |
| Percentage of Group Scheme liabilities | 6% | 13% | (20)% | (5)% |
| Total amount recognised in SORIE – gross ($ million) | 15.0 | 30.5 | (29.3) | (9.9) |
| Percentage of Group Scheme liabilities | 6% | 12% | (11)% | (5)% |
The cumulative actuarial losses reported in the consolidated statement of recognised income and expense since the IFRS transition date are $6.3 million.
Projected benefits payments are as follows:
| $m(1) | |
|---|---|
| 2008/09 | 10.3 |
| 2009/10 | 11.3 |
| 2010/11 | 11.7 |
| 2011/12 | 12.0 |
| 2012/13 | 13.8 |
| 2013 to 2017/18 | 72.8 |
(1)Translated at $2.00 = £1.00, the average exchange rate applied for the 52 weeks ended 2 February 2008.