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| 11 Pension arrangements |
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| 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
(2002: £13 million) and other plans was £3 million (2002: £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: |
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Accrued |
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Future |
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liabilities |
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contributions |
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| Price inflation |
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2.7% |
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2.7% |
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| Rate of return pre-retirement |
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8.2% |
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8.6% |
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| Rate of return post-retirement |
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5.2% |
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5.5% |
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| Salary increases (excluding promotion) |
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5.2% |
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5.2% |
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| Pension increases |
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3.0% |
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3.0% |
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The deficit at 30 June 2001 has been spread
over a ten 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: |
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2003 |
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2002 |
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£m |
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£m |
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| Regular cost |
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11 |
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11 |
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| Variation from regular cost (including interest) |
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1 |
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1 |
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| Net cost for the year |
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12 |
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13 |
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| Contributions – cash |
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25 |
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22 |
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As a result of adverse economic and market
conditions since 30 June 2001, the market value of the Plan’s assets at
31 March 2003 would have been sufficient to cover 66% 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.
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. 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 on 31 March 2003. An amount of £13 million (2002: £nil) 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%.
R W Perry and 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 2002 and
31 March 2003 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 2003.
The key FRS17 assumptions used for the Plan were: |
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2003 |
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2002 |
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| Price inflation |
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2.5% |
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2.5% |
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| Salary increases (excluding promotion) |
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4.0% |
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5.0% |
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| Pension increases |
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3.0% |
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3.0% |
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| Discount rate |
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5.6% |
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6.1% |
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| The assets of the Plan and their expected return were: |
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2003 |
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£m |
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| Revenue account |
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| Amount charged to administrative expenses |
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| Current service cost |
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(11 |
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| Vested past service |
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(1 |
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| Total administrative expenses |
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(12 |
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| Amount charged to other finance costs |
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| Expected return on Plan assets |
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20 |
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| Interest on Plan liabilities |
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(16 |
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| Net return |
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4 |
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| Revenue return |
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(8 |
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| Capital account |
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| Difference between expected and actual return on Plan assets |
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(76 |
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| Experience (losses) on Plan liabilities |
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(5 |
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| Changes in assumptions underlying the present value of
Plan liabilities |
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(12 |
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| Actuarial (losses) recognised in total return |
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(93 |
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| Total return |
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(101 |
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| The movement in pension deficit is as follows: |
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2003 |
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£m |
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| Opening balance |
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(14 |
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| Current service cost |
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(11 |
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| Past service cost |
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(1 |
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| Contributions |
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25 |
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| Other financial interest |
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4 |
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| Actuarial (losses) recognised in capital reserve |
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(93 |
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| Movement in the year |
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(76 |
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| Closing balance |
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(90 |
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| History of experience gains and losses: |
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2003 |
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| Difference between the expected and actual return on Plan
assets: |
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| Amount |
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£(76)m |
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| Percentage of Plan assets (closing) |
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36% |
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| Experience gains and losses on Plan liabilities: |
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| Amount |
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£(5)m |
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| Percentage of present value of Plan liabilities (closing) |
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2% |
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| Total amount recognised in Statement of total return: |
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| Amount |
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£(93)m |
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| Percentage of present value of Plan liabilities (closing) |
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31% |
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