The Group operates a number of defined contribution retirement benefit plans for qualifying employees outside the UK. A new defined contribution scheme for UK employees was set up on 1 April 2006. 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 only obligation of the Group is to make the contributions.
The total expense recognised in profit or loss is £4 million (2005: £3 million), which represents the contributions payable to these plans. There were no outstanding payments due to these plans at the balance sheet date.
The Group operates a final salary defined benefit plan for qualifying employees of its subsidiaries in the UK. The Plan is not offered to new employees joining 3i on or after 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 at 30 June 2004 was updated for 31 March 2006 on an IAS 19 basis by an independent qualified actuary.
The principal assumptions made by the actuaries used for the purpose of the year end valuation were as follows:
2006 | 2005 | |
---|---|---|
Discount rate | 4.6% | 5.4% |
Expected rate of salary increases | 4.2% | 4.5% |
Expected rate of pension increases | 3.0% | 3.1% |
Price inflation | 2.7% | 3.0% |
Expected return on Plan assets | 5.7% | 6.4% |
The post-retirement mortality assumptions used to value the benefit obligation at 31 March 2005 and 31 March 2006 are based on the "PA92 medium cohort" table with a current year of use.
The amount recognised in the balance sheet in respect of the Group's defined benefit plans is as follows:
2006 £m |
2005 £m |
|
---|---|---|
Present value of funded obligations | 472 | 390 |
Fair value of Plan assets | (455) | (367) |
Total | 17 | 23 |
Amounts recognised in profit or loss in respect of the defined benefit plan are as follows:
2006 £m |
2005 £m |
|
---|---|---|
Operating costs | ||
Current service costs | 11 | 10 |
Past service cost | - | 2 |
Net finance costs | ||
Expected return on Plan assets | (23) | (21) |
Interest on obligation | 21 | 20 |
Statement of recognised income and expenses | ||
Actuarial loss | 16 | 1 |
Total | 25 | 12 |
Changes in the present value of the defined benefit obligation were as follows:
2006 £m |
2005 £m |
|
---|---|---|
Opening defined benefit obligation | 390 | 355 |
Current service cost | 11 | 10 |
Past service cost | - | 2 |
Interest cost | 21 | 20 |
Actuarial losses | 63 | 14 |
Contributions | 1 | - |
Benefits paid | (14) | (11) |
Closing defined benefit obligation | 472 | 390 |
Changes in the fair value of the Plan assets were as follows:
2006 £m |
2005 £m |
|
---|---|---|
Opening fair value of Plan assets | 367 | 272 |
Expected returns | 23 | 21 |
Actuarial gains | 48 | 13 |
Contributions | 31 | 72 |
Benefits paid | (14) | (11) |
Closing fair value of Plan assets | 455 | 367 |
Contributions paid to the Group Pension Plan are related party transactions as defined by IAS 24 Related party transactions ("IAS 24").
The fair value of the Plan assets at the balance sheet date is as follows:
2006 £m |
2005 £m |
|
---|---|---|
Equities | 245 | 205 |
Gilts | 190 | 162 |
Cash equivalents | 20 | - |
Total | 455 | 367 |
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 on individual categories of Plan assets is determined by reference to individual indices.
The history of the Plan for the current and prior period is as follows:
2006 £m |
2005 £m |
|
---|---|---|
Present value of defined benefit obligation | 472 | 390 |
Fair value of Plan assets | (455) | (367) |
Deficit | 17 | 23 |
Experience adjustments on Plan liabilities | - | (4)% |
Experience adjustments on Plan assets | (11)% | (4)% |
In accordance with the transitional provisions for the amendment to IAS 19 Retirement Benefits in December 2004, the disclosures above are from the transition date of 1 April 2004.
The Group expects to make contributions of approximately £10 million to the Plan in the year to 31 March 2007.
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 (2005: £2 million) and the future liability calculated by German actuaries is £4 million (2005: £3 million). The Group carries both the asset and liability in its consolidated financial statements.