Financial Statements
9 Pensions
The British Land Group of Companies Pension Scheme ('the scheme') is the principal pension scheme in the Group. It is a defined benefit scheme which is externally funded and not contracted out of SERPS. The assets of the scheme are held in a trustee-administered fund and kept separate from those of the Company. It is not planned to admit new employees to the scheme. Existing entitlements will be retained by the members, with freedom to transfer to a new Defined Contribution Scheme. Contributions to this scheme are at a flat rate of 15% of salary and paid by the Company. In certain circumstances it may be necessary to pay higher contributions when recruiting senior executives. The Group has five other small pension schemes. The total pension cost charged for the year was £12m (2005: £4m).
A full actuarial valuation of the scheme was carried out at 31 March 2003 and updated to 31 March 2004 and to 31 March 2005 and to 31 March 2006 by consulting actuaries, Hewitt Bacon & Woodrow. The employer's contributions will be paid in the future at the rate recommended by the actuary of 38.5% pa of basic salaries. The major assumptions used for the actuarial valuation were:
| 2006 % pa |
2005 % pa |
2004 % pa |
2003 % pa |
|
|---|---|---|---|---|
| Discount rate | 4.9 | 5.3 | 5.5 | 5.5 |
| Salary inflation | 5.2 | 5.1 | 5.1 | 4.8 |
| Pensions increase | 3.0 | 2.9 | 2.9 | 2.5 |
| Price inflation | 3.0 | 2.9 | 2.9 | 2.6 |
The mortality rates adopted are from the medium cohort projection of the PA92 year-of-birth tables reduced by 25% to reflect the nature of the membership. This means, for example, that members currently aged 60 are expected to draw their pension for 29 years (males) and 32 years (females) whereas members currently aged 45 who retire at age 60 are expected to draw their pension for 30 years (males) and 33 years (females).
Amounts recognised in the income statement within administrative expenses in respect of the defined benefit scheme are:
| 2006 £m |
2005 £m |
|
|---|---|---|
| Current service cost | (3) | (3) |
| Interest cost | (3) | (2) |
| Expected return on scheme assets | 3 | 3 |
| Past service costs | (9) | (1) |
| (12) | (3) |
The actual return on scheme assets was £11m (2005: £5m).
The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit scheme is as follows:
| 2006 £m |
2005 £m |
|
|---|---|---|
| Present value of defined scheme obligations | (78) | (55) |
| Fair value of scheme assets | 67 | 51 |
| Scheme (deficit) surplus | (11) | (4) |
| Liability recognised in the balance sheet | (11) | (4) |
Movements in the present value of defined benefit obligations were as follows:
| 2006 £m |
2005 £m |
|
|---|---|---|
| At 1 April | (55) | (43) |
| Current service cost | (3) | (3) |
| Interest cost | (3) | (3) |
| Actuarial gains and losses | (9) | (6) |
| Benefits paid | 1 | 1 |
| Past service cost | (9) | (1) |
| At 31 March | (78) | (55) |
Movements in the fair value of the scheme assets were as follows:
| 2006 £m |
2005 £m |
|
|---|---|---|
| At 1 April | 51 | 44 |
| Expected return on scheme assets | 3 | 3 |
| Contributions by employer | 6 | 3 |
| Actuarial gains and losses | 8 | 2 |
| Benefits paid | (1) | (1) |
| At 31 March | 67 | 51 |
| Composition of scheme assets | Expected return 2006/7 % |
2006 £m |
Expected return 2005/6 % |
2005 £m |
|---|---|---|---|---|
| Equities | 6.8 | 28 | 7.0 | 31 |
| Bonds | 4.3 | 37 | 4.5 | 19 |
| Other assets | 4.3 | 2 | 4.5 | 1 |
| Total scheme assets | 67 | 51 |
| History of experience gains and losses | 2006 £m |
2005 £m |
2004 £m |
2003 £m |
|---|---|---|---|---|
| Difference between expected and actual return on scheme assets | ||||
| Amount | 8 | 2 | 4 | (4) |
| Percentage of scheme assets | 12.1% | 4.7% | 8.6% | 15.5% |
| Experience gains and losses on scheme liabilities | ||||
| Amount | 2 | (1) | 1 | (2) |
| Percentage of present value on scheme liabilities | 1.9% | 1.8% | 1.9% | 4.5% |
| Changes in assumptions underlying the present value of scheme liabilities | (11) | (5) | (5) | (6) |
| Total actuarial loss recognised in the statement of changes in equity | ||||
| Amount* | (1) | (4) | (12) | |
| Percentage of present value on scheme liabilities | 1.4% | 7.1% | 0.8% | 32.4% |
| Deferred taxation attributable to pension movements | 1 | 4 | ||
| Pension scheme movement for the year | (1) | (3) | (8) |
* Cumulative amount recognised in the statement of changes in equity is £17m.