Notes to the accounts

Notes to the accounts list

12 Pension arrangements

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 £12 million (2004: £10 million) and other plans was £3 million (2004: £5 million). The Plan 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 Financial Reporting Standard 17 - Retirement Benefits ("FRS 17"), having previously complied with the transitional disclosure requirements of the standard and SSAP 24, the effect of adopting FRS 17 is explained in note 42.

The last full actuarial valuation at 30 June 2004 was updated to 31 March 2005 by an independent qualified actuary in accordance with FRS 17. The Plan's liabilities have been measured using the projected unit method. The valuation for FRS 17 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 2005.

The key FRS 17 assumptions used for the Plan were:

	2005	2004	2003
Price inflation	3.0%	2.9%	2.5%
Salary increases (excluding promotion)	4.5%	4.4%	4.0%
Pension increases	3.1%	3.0%	3.0%
Discount rate	5.4%	5.5%	5.6%

Following advice from the actuaries, no regular employer contributions were made during the period 1 July 1985 to 1 April 2002. Regular employer contributions recommenced on 1 April 2002. For the year to 31 March 2005 standard contributions were agreed to be 29.2% of members' pensionable salaries. Additional employer contributions were made in the year to 31 March 2005 of £60 million (2004: £13 million, 2003: £13 million and 2002: £13 million).

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, this will increase by 1% each year to a target of 5% of pensionable salary. Currently, the contributions are 3% of pensionable salary.

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.

During the year, the Board of the Company provided 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.

The assets of the Plan and their expected return were:

	Long-term rate of return expected at 31 March 2005	2005 Value £m	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
Equities	7.7%	205	7.9%	187	7.5%	144
Gilts	4.7%	162	4.7%	62	4.5%	42
Other	4.7%	-	4.6%	23	3.8%	27
		367		272		213
Present value of Plan liabilities		(390)		(355)		(303)
Net pension liability		(23)		(83)		(90)

A deferred tax asset has not been recognised on this deficit because its utilisation is considered unlikely in the foreseeable future.

The following amounts have been recognised in the total return:

		2005 £m	2004 £m
Revenue account
Amount charged to administrative expenses
Current service cost		(10)	(9)
Vested past service		(2)	(1)
Total administrative expenses		(12)	(10)
Amount charged to other finance costs
Expected return on Plan assets		21	14
Interest on Plan liabilities		(20)	(17)
Net return		1	(3)
Revenue return		(11)	(13)
Capital account
Difference between the expected and actual return on Plan assets		13	30
Experience gains/(losses) on Plan liabilities		17	(12)
Changes in assumptions underlying the present value of Plan liabilities		(31)	(22)
Actuarial (losses) recognised in total return		(1)	(4)
Total return		(12)	(17)

The movement in pension deficit is as follows:

		2005 £m	2004 £m
Opening balance		(83)	(90)
Current service cost		(10)	(9)
Past service cost		(2)	(1)
Contributions		72	24
Other financial income/(costs)		1	(3)
Actuarial (losses) recognised in capital reserve		(1)	(4)
Movement in the year		60	7
Closing balance		(23)	(83)

History of experience gains and losses:

	2005	2004	2003
Difference between the expected and actual return on Plan assets:
Amount	£13m	£30m	£(76)m
Percentage of Plan assets (closing)	4%	11%	36%
Experience gains/(losses) on Plan liabilities:
Amount	£17m	£(12)m	£(5)m
Percentage of present value of Plan liabilities (closing)	4%	3%	2%
Total amount recognised in the capital reserve:
Amount	£(1)m	£(4)m	£(93)m
Percentage of present value of Plan liabilities (closing)	-	1%	31%