| The Group operates a number of pension schemes. The main scheme, which covers most employees, is the 3i Group Pension Plan (“the Plan”). The cost of the Plan recognised in the accounts was £10 million (2003: £12 million) and other plans was £5 million (2003: £3 million). This is a funded defined benefit scheme, the assets of which are independent of the Group’s finances and are administered by Trustees. The Group accounts for pension arrangements in accordance with Statement of Standard Accounting Practice 24 – Accounting for Pension Costs (SSAP 24). The Plan is the subject of an actuarial valuation every three years. The last full valuation was made at 30 June 2001 on the projected unit method. At that date, the market value of the assets was £246 million, and the actuarial value of the assets (taken to be market value) was sufficient to cover 92% of the value of benefits that had accrued to members after allowing for assumed increases in earnings and benefits. The principal assumptions were as follows: |
| |
Accrued
liabilities |
Future
contributions |
| Price inflation |
2.7% |
2.7% |
| Rate of return pre-retirement |
8.2% |
8.6% |
| Rate of return post-retirement |
5.2% |
5.5% |
| Salary increases (excluding promotion) |
5.2% |
5.2% |
| Pension increases |
3.0% |
3.0% |
| The deficit at 30 June 2001 has been spread over a 10 year period, the average remaining service lives of the existing employees, using the percentage of payroll method. |
| |
| The net cost and contributions in respect of the main scheme comprises: |
| |
2004
£m |
2003
£m |
| Regular cost |
10 |
11 |
| Variation from regular cost (including interest) |
– |
1 |
| Net cost for the year |
10 |
12 |
| Contributions – cash |
24 |
25 |
| As a result of adverse economic and market conditions since 30 June 2001, the market value of the Plan’s assets at 31 March 2004 would have been sufficient to cover 77% of the value of benefits that had accrued to members after allowing for assumed increases in earnings and benefits. If these conditions persist until the next triennial actuarial valuation of the Plan at 30 June 2004, the SSAP 24 based net cost will increase for 2005. During the year, the Board of the Company agreed to provide a guarantee to the Trustees of the Plan in respect of the liabilities to the Plan of 3i plc, the principal employer under the Plan. This guarantee had not been executed by 31 March 2004. |
| Following advice from independent actuaries, no employer’s contributions were made during the period from 1 July 1985 to 1 April 2002 except that during the year to 31 March 2002 two payments were made into the Plan totalling £22 million. Employer’s contributions to the Plan recommenced on 1 April 2002. An additional £13 million was paid in March 2003. For the year to 31 March 2003, standard contributions were agreed to be 31.5% of members’ pensionable salaries. An additional £13 million was also paid in October 2003. An amount of £27 million (2003: £13 million) included in prepayments represents the cumulative difference between the net pension cost and contributions made. |
| New employees joining 3i and the Plan after 1 September 2002 are required to contribute 5% of their monthly pensionable salaries. Under its rules, the Plan was non contributory for employees, joining prior to 1 September 2002, from 1 April 1978 to 31 December 2002. From 1 January 2003, the rules of the Plan were changed and employees who joined the Plan prior to 1 September 2002 were required to contribute 1% of monthly pensionable salary, currently this will increase by 1% each year to a target of 5% of pensionable salary. After a review of the discretionary early retirement arrangements of the Plan, the employer’s standard contribution rate changed from 1 April 2003 to 29.2%. |
| Mr R W Perry and Mr O H J Stocken are Directors of 3i Group plc and were also throughout the year Directors of Gardens Pension Trustees Limited, one of two Corporate Trustees of the 3i Group Pension Plan. |
| Financial Reporting Standard 17 – Retirement Benefits (“FRS17”) changes the basis of accounting for pensions and other post-retirement benefits. Under the transitional arrangements for the introduction of FRS17, certain additional disclosures are required and these are given below. |
| The actuarial valuation at 30 June 2001 was updated to 31 March 2003 and 31 March 2004 by an independent qualified actuary in accordance with FRS17. The Plan’s liabilities have been measured using the projected unit method. The valuation for FRS17 purposes is based on the membership details and demographic assumptions used in the most recent actuarial valuation. The Plan assets have been updated to market value as at 31 March 2004. |
| |
| The key FRS17 assumptions used for the Plan were: |
| |
2004 |
2003 |
2002 |
| Price inflation |
2.9% |
2.5% |
2.5% |
| Salary increases (excluding promotion) |
4.4% |
4.0% |
5.0% |
| Pension increases |
3.0% |
3.0% |
3.0% |
| Discount rate |
5.5% |
5.6% |
6.1% |
| |
| The assets of the Plan and their expected return were: |
| |
Long-term
rate of return
expected at
31 March 2004 |
2004
Value
£m |
Long-term
rate of return
expected at
31 March 2003 |
2003
Value
£m |
Long-term
rate of return
expected at
31 March 2002 |
2002
Value
£m |
| Equities |
7.9% |
187 |
7.5% |
144 |
8.5% |
212 |
| Gilts |
4.7% |
62 |
4.5% |
42 |
– |
– |
| Other |
4.6% |
23 |
3.8% |
27 |
5.2% |
39 |
| |
|
272 |
|
213 |
|
251 |
| Present value of Plan liabilities |
|
(355) |
|
(303) |
|
(265) |
| Net pension liability |
|
(83) |
|
(90) |
|
(14) |
| A deferred tax asset has not been recognised on this deficit because its utilisation is considered unlikely in the foreseeable future. |
| |
| If FRS17 had been adopted in the financial statements, the following amounts would have been recognised in the total return: |
| |
2004
£m |
2003
£m |
| Revenue account |
|
|
| Amount charged to administrative expenses |
|
|
| Current service cost |
(9) |
(11) |
| Vested past service |
(1) |
(1) |
| Total administrative expenses |
(10) |
(12) |
| Amount charged to other finance costs |
|
|
| Expected return on Plan assets |
14 |
20 |
| Interest on Plan liabilities |
(17) |
(16) |
| Net return |
(3) |
4 |
| Revenue return |
(13) |
(8) |
| Capital account |
|
|
| Difference between the expected and actual return on Plan assets |
30 |
(76) |
| Experience (losses) on Plan liabilities |
(12) |
(5) |
| Changes in assumptions underlying the present value of Plan liabilities |
(22) |
(12) |
| Actuarial (losses) recognised in total return |
(4) |
(93) |
| Total return |
(17) |
(101) |
| |
| The movement in pension deficit is as follows: |
| |
2004
£m |
2003
£m |
| Opening balance |
(90) |
(14) |
| Current service cost |
(9) |
(11) |
| Past service cost |
(1) |
(1) |
| Contributions |
24 |
25 |
| Other financial interest |
(3) |
4 |
| Actuarial (losses) recognised in capital reserve |
(4) |
(93) |
| Movement in the year |
7 |
(76) |
| Closing balance |
(83) |
(90) |
| |
| History of experience gains and losses: |
| |
2004 |
2003 |
| Difference between the expected and actual return on Plan assets: |
|
|
| Amount |
£30m |
£(76)m |
| Percentage of Plan assets (closing) |
11% |
36% |
| Experience gains and losses on Plan liabilities: |
|
|
| Amount |
£(12)m |
£(5)m |
| Percentage of present value of Plan liabilities (closing) |
3% |
2% |
| Total amount recognised in Statement of total return: |
|
|
| Amount |
£(4)m |
£(93)m |
| Percentage of present value of Plan liabilities (closing) |
1% |
31% |
| |
| If FRS17 had been fully implemented net assets would have reduced by: |
| |
2004
£m |
2003
£m |
| FRS17 deficit |
83 |
90 |
| SSAP 24 prepayment |
27 |
13 |
| |
110 |
103 |
