The Group sponsors two defined benefit pension arrangements and both of these pension schemes are managed externally to, and independently of, the Group's operations. Our approach to valuing our defined benefit pension obligations remains prudent.
At 30 January 2011, the schemes had a surplus of £38m. The improvement, from the deficit of £17m at 31 January 2010, is summarised in the table below.
|Net pension deficit at 31 January 2010
|Actual vs expected return on scheme assets
|Actuarial loss due to changes in financial assumptions
|Funding above annual service cost
|Net pension surplus at 30 January 2011
IAS19 Employee benefits requires the Group to assess the liabilities with reference to the market conditions at the balance sheet date and the Directors' best estimate of the experience expected from the schemes.
The movement in the year has been influenced by three factors:
- changes in assumptions due to changes in market conditions;
- an update of information on the schemes following the triennial valuation; and
- a change in the way future pension increases are measured.
Scheme assets performed better than assumed returns, however, the liabilities increased by £191m due to a combination of financial and demographic changes in assumptions. Over the year market conditions deteriorated, in particular for Corporate bond yield returns while inflationary expectations rose. A review of longevity was made as part of the triennial valuation review as mentioned below.
The results of the triennial valuation review are based on the latest information on scheme members. This update of the membership status resulted in an improvement to the funding position of £91m.
Further to the above, the schemes value improved due to a one-off increase as a result of changing the way future pension increases (inflation) are measured. In 2010 the UK Government changed the way in which pension increases will be measured in future, by changing the benchmark index to the Consumer Price Index rather than the Retail Price Index. Both the Trustees and the Company consulted legal and actuarial advisors to assess the impact of this change on the two schemes and this resulted in the liabilities of the schemes being reduced by £72m.
The triennial actuarial valuations of the schemes were completed in April 2010 and funding and investment strategy agreed between the Group and the Trustees of the schemes. There was a small combined deficit at this valuation date and the Group has entered into an agreement with the Trustees to pay £30m per annum to meet the cost of pension benefits being built up by the current employees. It is assumed that the small deficit in the funds will be eliminated by the schemes' expected superior investment returns. In line with our prudent approach, we have used the most up-to-date mortality tables, which provide the average life expectancy of members in the UK, this being the latest advice from the Pension Regulator.