Marks and Spencer 2002 Annual Report Download - page 39

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www.marksandspencer.com 37
11. Employees continued
A Pension costs
The total pension cost for the Group was £147.9m (last year £120.1m) of which £138.5m relates to the UK scheme
(last year £110.6m), and £9.4m relates to overseas schemes (last year £9.5m). The Group operates a number of
funded defined benefit pension schemes of which the UK scheme is by far the most significant.
The latest full actuarial valuation of the UK scheme was carried out at 1 April 2001 by an independent actuary using
the projected unit method. The key assumptions adopted were: %
Inflation rate 2.5
Rate of increase in pensions in payment 2.5
Rate of increase in salaries 4.0
Discount rate and rate of return on investments 6.0
This actuarial valuation revealed a shortfall of £134m in the market value of the assets of the UK Scheme of £3,102m
compared to the actuarial liability for pension benefits. This represents a funding level of 96%.
The shortfall of £134m together with the unamortised accounting deficit relating to prior periods gives a total
unamortised deficit of £177m. This is being amortised in accordance with SSAP 24 over a period of 12 years from
1 April 2001, being the remaining estimated service lives of the current Scheme members.
The total UK pension cost is analysed as follows: 2002 2001
£m £m
Normal pension cost1116.1 92.6
Amortisation of deficit 14.8 14.1
Net interest elements 7.6 3.9
Tot al 138.5 110.6
1At standard contribution rate of 19.7% (last year 15.9%).
As shown in note 15, the Group has prepaid pension costs of £169.4m in relation to the UK scheme. This includes the
partial funding of the deficit, offset by the amortisation and interest elements shown above, with the balance being
prepaid contributions to the UK scheme.
Financial Reporting Standard 17 (FRS 17) ‘Retirement benefits’ was issued in November 2000 to replace SSAP 24
‘Accounting for pension costs’ and is fully effective for accounting periods ending on or after 22 June 2003. This year
the Group has continued to account for pension costs under SSAP 24 as shown above, although in accordance with
the FRS 17 transitional arrangements, certain additional disclosures are required as shown below.
The major assumptions used by the independent qualified actuaries in updating the most recent valuations of the UK
and Republic of Ireland defined benefit pension schemes to 30 March 2002 for FRS 17 purposes were:
%
Rate of increase in salaries 4.0
Rate of increase in pensions in payment 2.5
Discount rate 5.9
Inflation rate 2.5
Long-term healthcare cost increases 7.5
The assets in the UK and Republic of Ireland defined benefit pension schemes and the expected rates of return as at
30 March 2002 were: Long-term rate of return p.a. Value
%£m
UK equities 7.9 1,156
Overseas equities 8.3 992
Bonds 5.7 1,080
Total market value of assets 7.3 3,228
Present value of scheme liabilities (3,498)
Pension scheme deficit before adjustment for prepayment (270)
Prepaid pension costs included in assets noted above (119)
Pension scheme deficit (389)
Unfunded pension plans (5)
Post-retirement healthcare (25)
Total post-retirement liabilities (419)
Less: Related deferred tax asset 126
Net post-retirement liability (293)