a) Retirement benefit schemes operated
Where applicable, subsidiaries contribute to the relevant state pension scheme. Certain subsidiaries operate schemes which provide retirement benefits, including those of the defined benefit type, which are in most cases funded by investments held outside the Group.
b) Defined benefit schemes
The Group operates funded defined benefit pension schemes for qualifying employees in the United Kingdom, France, Spain and Austria. In addition the Group operates unfunded defined benefit pension schemes for employees in Germany, an unfunded defined benefit statutorily determined termination scheme for employees in Italy and also previously in Greece. The principal schemes are in the United Kingdom and Germany.
The valuations used have been based on the most recent actuarial valuations available, updated by the scheme actuaries to assess the liabilities of the scheme and the market value of the scheme assets at each of the balance sheet dates.
| Funded schemes | Unfunded schemes | ||||||
| Main assumptions (weighted average) | 2007 |
2006 |
2007 |
2006 |
|||
| Discount rate | 5.9% | 5.2% | 5.5% | 4.4% | |||
| Inflation rate | 3.4% | 3.0% | 1.8% | 1.6% | |||
Expected rate of salary increases |
4.8% | 4.5% | 2.9% | 3.0% | |||
| Rate of pension increases in payment | 2.5% | 2.5% | 1.4% | 1.7% | |||
| Rate of pension increases in deferment | 3.2% | 3.1% | 0.0% | 1.6% | |||
| Expected return on plan assets: | |||||||
| - equities | 7.7% | 7.4% | n/a | n/a | |||
- bonds |
5.7% | 4.5% | n/a | n/a | |||
| - other | 4.4% | 6.1% | n/a | n/a | |||
| - weighted average | 6.5% | 6.3% | n/a | n/a | |||
The expected rates of return on plan assets are based on market expectations at the beginning of each year for returns over the entire life of the related obligation. The expected return on bonds is based on long-term bond yields. The expected return on equities is based on a wide range of qualitative and quantitative market analysis including consideration of market equity risk premiums.
The key demographic assumption is mortality. By its very nature, mortality can be difficult to predict. Assumptions regarding future mortality experience are set based on advice from actuaries, published statistics and experience in each territory. In 2006, the mortality assumption for the principal funded scheme was updated to reflect the "2000" series tables along with certain improvements (known as "medium cohort") which makes allowances for increases in longevity projections. Within the context of increasing life expectancy, the Group further strengthened the mortality improvement assumption in the principal funded scheme in 2007 by introducing a 1% per annum minimum level of improvement within the medium cohort allowance. The longevity assumption in the principal funded scheme applied a post-retirement life expectancy for a member aged 65 in 2007 of 21.2 years (2006: 20.8 years) for males, and 23.6 years (2006: 23.1 years) for females. The post-retirement longevity assumption in the principal unfunded scheme applied a life expectancy for a member aged 65 in 2007 of 17.9 years (2006: 17.7 years) for males, and 22.0 years (2006: 21.9 years) for females.
The amounts recognised in the balance sheet are summarised as follows:
| 2007 | 2006 | ||||||||||
| Funded schemes €m |
Unfunded schemes €m |
Total €m |
Funded schemes €m |
Unfunded schemes €m |
Total €m |
||||||
| Fair value of scheme assets | 146.7 | – | 146.7 | 140.4 | – | 140.4 | |||||
| Present value of defined benefit obligations | (209.2) | (35.0) | (244.2) | (220.5) | (41.9) | (262.4) | |||||
| Retirement benefit obligation | (62.5) | (35.0) | (97.5) | (80.1) | (41.9) | (122.0) | |||||
| 2007 | 2006 | ||||||||||
| Analysis of movements in the scheme assets | Funded schemes €m |
Unfunded schemes €m |
Total €m |
Funded schemes €m |
Unfunded schemes €m |
Total €m |
|||||
| At 1 January | 140.4 | – | 140.4 | 124.1 | – | 124.1 | |||||
| Expected return on plan assets | 9.0 | – | 9.0 | 8.0 | – | 8.0 | |||||
| Actuarial loss: – experience loss on assets |
(2.5) | – | (2.5) | (0.6) | – | (0.6) | |||||
| Contributions by the Group | 12.3 | 1.5 | 13.8 | 13.5 | 1.0 | 14.5 | |||||
| Contributions by employees | 0.7 | – | 0.7 | 0.6 | – | 0.6 | |||||
| Benefits paid | (3.4) | (1.5) | (4.9) | (6.0) | (1.0) | (7.0) | |||||
| Settlements paid | (1.0) | – | (1.0) | (0.3) | – | (0.3) | |||||
| Exchange (loss)/gain | (8.8) | – | (8.8) | 1.1 | – | 1.1 | |||||
| At 31 December | 146.7 | – | 146.7 | 140.4 | – | 140.4 | |||||
| 2007 | 2006 | ||||||||||
| Analysis of movements in the present value of defined benefit scheme obligations | Funded schemes €m |
Unfunded schemes €m |
Total €m |
Funded schemes €m |
Unfunded schemes €m |
Total €m |
|||||
| At 1 January | (220.5) | (41.9) | (262.4) | (206.2) | (47.2) | (253.4) | |||||
| Current service costs | (6.1) | (1.2) | (7.3) | (8.4) | (2.2) | (10.6) | |||||
| Past service costs | (0.1) | 0.8 | 0.7 | – | – | – | |||||
| Exceptional past service costs (see Note 5e) | – | – | – | – | 3.2 | 3.2 | |||||
| Exceptional curtailments (see Note 5a) | – | – | – | 1.2 | – | 1.2 | |||||
| Curtailments | – | 0.4 | 0.4 | – | – | – | |||||
| Interest on scheme liabilities | (11.2) | (1.8) | (13.0) | (9.4) | (1.8) | (11.2) | |||||
| Actuarial (loss)/gain: – experience (loss)/gain on liabilities |
(0.5) | 0.1 | (0.4) | (2.0) | 1.5 | (0.5) | |||||
| – gain on change of assumptions | 11.9 | 5.9 | 17.8 | 0.5 | 3.5 | 4.0 | |||||
| Contributions by employees | (0.7) | – | (0.7) | (0.6) | – | (0.6) | |||||
| Benefits paid | 3.4 | 1.5 | 4.9 | 6.0 | 1.0 | 7.0 | |||||
| Settlements paid | 1.0 | – | 1.0 | 0.3 | – | 0.3 | |||||
| Disposal of business (see Note 39) | – | 1.2 | 1.2 | – | – | – | |||||
| Exchange gain/(loss) | 13.6 | – | 13.6 | (1.9) | 0.1 | (1.8) | |||||
| At 31 December | (209.2) | (35.0) | (244.2) | (220.5) | (41.9) | (262.4) | |||||
| Funded schemes | |||||||
| 2007 | 2006 | ||||||
| Defined benefit scheme assets | €m | % | €m | % | |||
| Equities | 77.8 | 53% | 80.9 | 58% | |||
| Corporate bonds and index linked gilts | 55.4 | 38% | 46.3 | 33% | |||
| Other | 13.5 | 9% | 13.2 | 9% | |||
| Fair value of scheme assets | 146.7 | 100% | 140.4 | 100% | |||
The fair value of scheme assets did not include any property or other assets used by the Group, nor any financial instruments of the Group.
| 2007 | 2006 | ||
| Analysis of return on scheme assets | €m | €m | |
| Expected return on scheme assets | 9.0 | 8.0 | |
| Actual return less expected return on assets | (2.5) | (0.6) | |
| Actual return on scheme assets | 6.5 | 7.4 |
The amounts recognised in the Income Statement are as follows:
| 2007 | 2006 | ||||||||||
| Funded schemes €m |
Unfunded schemes €m |
Total €m |
Funded schemes €m |
Unfunded schemes €m |
Total €m |
||||||
| Current service costs | 6.1 | 1.2 | 7.3 | 8.4 | 2.2 | 10.6 | |||||
| Past service costs/(credit) | 0.1 | (0.8) | (0.7) | – | – | – | |||||
Interest on scheme liabilities |
11.2 | 1.8 | 13.0 | 9.4 | 1.8 | 11.2 | |||||
| Expected return on scheme assets | (9.0) | – | (9.0) | (8.0) | – | (8.0) | |||||
| Curtailments | – | (0.4) | (0.4) | – | – | – | |||||
| Underlying charge before tax to Income Statement (see Note 4) | 8.4 | 1.8 | 10.2 | 9.8 | 4.0 | 13.8 | |||||
Exceptional past service costs |
– | – | – | – | (3.2) | (3.2) | |||||
| Exceptional curtailments | – | – | – | (1.2) | – | (1.2) | |||||
| Exceptional credit before tax to Income Statement | – | – | – | (1.2) | (3.2) | (4.4) | |||||
| Net charge before tax to Income Statement | 8.4 | 1.8 | 10.2 | 8.6 | 0.8 | 9.4 | |||||
The scheme settlements in the year had no impact on the amounts recognised in the Income Statement. The charge before tax is reported in administrative expenses in the Income Statement.
Amounts recognised through the Statement of Recognised Income and Expense are as follows:
| 2007 | 2006 | ||||||||||
| Funded schemes €m |
Unfunded schemes €m |
Total €m |
Funded schemes €m |
Unfunded schemes €m |
Total €m |
||||||
| Actual return less expected return on assets | (2.5) | – | (2.5) | (0.6) | – | (0.6) | |||||
| Experience (loss)/gain on liabilities | (0.5) | 0.1 | (0.4) | (2.0) | 1.5 | (0.5) | |||||
| Gain on change of assumptions (financial and demographic) | 11.9 | 5.9 | 17.8 | 0.5 | 3.5 | 4.0 | |||||
| 8.9 | 6.0 | 14.9 | (2.1) | 5.0 | 2.9 | ||||||
Cumulative actuarial losses recognised in the Statement of Recognised Income and Expense since 1 January 2004 (the date of adoption of IAS 19) are €27.1 million (at 31 December 2006: €42.0 million).
The contributions paid by the Group into funded schemes during 2007 were €12.3 million (2006: €13.5 million), which includes payments to fund the net actuarial obligations over time. The best estimate of the contributions expected to be made by the Group into funded schemes during the 2008 annual period is €10.9 million, which includes payments to fund the net actuarial obligations over time.
The indicative sensitivity of principal scheme liabilities as at 31 December 2007 to changes in the above assumptions is as follows:
| Change in assumption | Indicative increase in scheme liabilities €m | ||||
| Assumption | UK | Germany | |||
| Discount rate | –0.1% | 4.1 | 0.5 | ||
| Inflation rate | +0.1% | 4.2 | 0.3 | ||
| Real rate of salary increases | +0.5% | 3.1 | 0.2 | ||
| Longevity | +1 year | 4.5 | 0.7 | ||
The sensitivity of non-principal scheme liabilities to the changes in the assumptions shown above is not material to the Group.
| Funded Schemes | |||||||
| Retirement benefit obligation history | 2007 €m |
2006 €m |
2005 €m |
2004 €m |
|||
| Fair value of scheme assets | 146.7 | 140.4 | 124.1 | 102.4 | |||
| Present value of defined benefit obligation | (209.2) | (220.5) | (206.2) | (153.0) | |||
| Retirement benefit obligation | (62.5) | (80.1) | (82.1) | (50.6) | |||
| Actual return less expected return on assets | 2.5 | 0.6 | (13.4) | (2.6) | |||
| Percentage of scheme assets carried forward | 1.7% | 0.4% | (10.8)% | (2.5)% | |||
| Experience (loss)/gain on liabilities | (0.5) | (2.0) | (5.6) | 3.3 | |||
| Percentage of scheme liabilities carried forward | 0.2% | 0.9% | 2.7% | (2.2)% | |||
| Unfunded Schemes | |||||||
| Retirement benefit obligation history | 2007 €m |
2006 €m |
2005 €m |
2004 €m |
|||
| Retirement benefit obligation | (35.0) | (41.9) | (47.2) | (36.0) | |||
| Experience gain/(loss) on liabilities | 0.1 | 1.5 | 0.2 | (0.4) | |||
| Percentage of scheme liabilities carried forward | (0.3)% | (3.6)% | (0.4)% | 1.1% | |||
