Notes to the financial statements
23. Retirement benefit obligations
a) Pension schemes – defined benefit
Prior to 16 July 2007 certain of the Group’s employees were members of two funded defined benefit pension schemes operated by Provident Financial plc. As part of the demerger, it was agreed that the companies and employees of the new International Personal Finance plc group (‘the Group’) would continue to participate in the Provident Financial plc pension scheme arrangements until 31 December 2007.
On 1 January 2008, the Group set up a new funded defined benefit scheme for those individuals who had previously been members of the schemes operated by Provident Financial plc. As part of the demerger agreement, the liabilities relating to the past and present employees of the Group were transferred from the Provident Financial plc schemes to the new scheme together with an agreed amount of assets. The amount of assets transferred was equal to the value of liabilities on 16 July 2007 adjusted to allow for subsequent investment returns and cash flows plus £3.5m.
Scheme assets are stated at fair value at 31 December 2008. The major assumptions used by the actuary were:
| Group and Company | 2008 % |
2007 % |
|---|---|---|
| Price inflation | 2.9 | 3.4 |
| Rate of increase in pensionable salaries | 4.4 | 5.0 |
| Rate of increase to pensions in payment | 2.9 | 3.4 |
| Discount rate | 6.2 | 5.7 |
| Long-term rate of return: | ||
| – equities | 7.1 | 7.9 |
| – bonds | 6.7 | 4.7 |
| – index-linked gilts | 3.6 | 4.3 |
| – other | – | 4.5 |
| – overall (weighted average) | 6.2 | 6.3 |
The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.
The mortality assumptions are based on standard tables which allow for future mortality improvements. Different assumptions are used for different groups of members. Most members have not yet retired. On average, we expect a male retiring in the future at age 65 to live for a further 23 years. On average, we expect a female retiring in the future at age 65 to live for a further 26 years. If assumed life expectancies had been assumed to be one year greater for all members, the charge to the income statement would have increased by £0.1m and the present value of defined benefit obligations would have increased by approximately £0.8m.
The amounts recognised in the balance sheet are as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Equities | 14.7 | 17.6 | 3.2 | 3.8 | |
| Bonds | 5.9 | 4.8 | 1.3 | 1.1 | |
| Index-linked gilts | 4.0 | 4.8 | 0.9 | 1.1 | |
| Other | 2.1 | 4.7 | 0.5 | 1.0 | |
| Total fair value of scheme assets | 26.7 | 31.9 | 5.9 | 7.0 | |
| Present value of funded defined benefit obligations | (28.2) | (30.2) | (6.2) | (6.6) | |
| Net (obligation) / asset recognised in the balance sheet | (1.5) | 1.7 | (0.3) | 0.4 | |
The amounts recognised in the income statement are as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Current service cost | 0.6 | 0.1 | 0.1 | – | |
| Interest cost | 1.7 | 0.8 | 0.4 | 0.2 | |
| Expected return on scheme assets | (2.0) | (1.0) | (0.4) | (0.2) | |
| 0.3 | (0.1) | 0.1 | – | ||
| Exceptional credit on demerger | – | (3.5) | – | (0.8) | |
| Net charge / (credit) recognised in the income statement | 0.3 | (3.6) | 0.1 | (0.8) | |
The net charge / (credit) recognised in the income statement has been included within administrative expenses.
Movements in the fair value of scheme assets were as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Fair value of scheme assets at 1 January | 31.9 | – | 7.0 | – | |
| Transfer from Provident Financial plc | – | 30.9 | – | 6.8 | |
| Expected return on scheme assets | 2.0 | 1.0 | 0.4 | 0.2 | |
| Actuarial losses on scheme assets | (6.7) | (0.1) | (1.4) | – | |
| Contributions by the Group | 0.4 | 0.1 | 0.1 | – | |
| Contributions paid by scheme participants | 0.1 | 0.1 | – | – | |
| Net benefits paid out | (1.0) | (0.1) | (0.2) | – | |
| Fair value of scheme assets at 31 December | 26.7 | 31.9 | 5.9 | 7.0 | |
Movements in the present value of the defined benefit obligation were as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Defined benefit obligation at 1 January | (30.2) | – | (6.6) | – | |
| Transfer from Provident Financial plc | – | (27.4) | – | (6.0) | |
| Current service cost | (0.6) | (0.1) | (0.1) | – | |
| Interest cost | (1.7) | (0.8) | (0.4) | (0.2) | |
| Contributions paid by scheme participants | (0.1) | (0.1) | – | – | |
| Actuarial gains / (losses) on scheme liabilities | 3.4 | (1.9) | 0.7 | (0.4) | |
| Net benefits paid out | 1.0 | 0.1 | 0.2 | – | |
| Defined benefit obligation at 31 December | (28.2) | (30.2) | (6.2) | (6.6) | |
The actual return on scheme assets compared to the expected return is as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Expected return on scheme assets | 2.0 | 1.0 | 0.4 | 0.2 | |
| Actuarial losses on scheme assets | (6.7) | (0.1) | (1.4) | – | |
| Actual return on scheme assets | (4.7) | 0.9 | (1.0) | 0.2 | |
Actuarial gains and losses have been recognised through the statement of recognised income and expense ('SORIE') in the period in which they occur.
An analysis of the amounts recognised in the SORIE is as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 £m |
2007 £m |
2008 £m |
2007 £m |
||
| Actuarial losses on scheme assets | (6.7) | (0.1) | (1.4) | – | |
| Actuarial gains / (losses) on scheme liabilities | 3.4 | (1.9) | 0.7 | (0.4) | |
| Total loss recognised in the SORIE in the year | (3.3) | (2.0) | (0.7) | (0.4) | |
| Cumulative amount of losses recognised in the SORIE | (5.3) | (2.0) | (1.1) | (0.4) | |
The history of experience adjustments is as follows:
| Group | Company | ||||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | ||
| Experience losses on scheme assets: | |||||
| – amount (£m) | (6.7) | (0.1) | (1.4) | – | |
| – percentage of scheme assets (%) | (25.1%) | (0.3%) | (23.7%) | – | |
| Experience losses on scheme liabilities: | |||||
| – amount (£m) | – | – | – | – | |
| – percentage of scheme liabilities (%) | – | – | – | – | |
b) Pension schemes – defined contribution
The defined benefit pension arrangements are no longer open to new members. All eligible UK employees joining are now invited to join a stakeholder pension plan into which the Group contributes 8% of members’ pensionable earnings, provided the employee contributes a minimum of 6%. The assets of the scheme are held separately from those of the Group. The pension charge in the income statement represents contributions payable by the Group in respect of the plan and amounted to £0.2m for the year ended 31 December 2008 (2007: £0.1m). £nil of contributions were payable to the plan at the year end (2007: £nil).
In addition an amount of £0.3m (2007: £0.2m) has been charged to the income statement in respect of contributions into personal pension arrangements for certain directors and employees.