Vodafone 2005 Annual Report Download - page 119

Financials |117
32.Pensions
As at 31 March 2005, the Group operated a number of pension plans for the benefit of its employees throughout the world, which vary with conditions and practices in the
countries concerned. The Group’s pension plans are provided through both defined benefit and defined contribution arrangements. Defined benefit schemes provide benefits
based on the employees’ length of pensionable service and their final pensionable salary or other criteria. Defined contribution schemes offer employees individual funds that
are converted into benefits at the time of retirement.
Further details on the three principal defined benefit pension schemes, in the United Kingdom, Germany and Japan are shown below. In addition to the principal schemes,
the Group operates defined benefit schemes in Greece, Ireland, Italy, Sweden and the United States. Defined contribution pension schemes are provided in Australia, Belgium,
Egypt, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Malta, the Netherlands, New Zealand, Portugal, Spain, the United Kingdom and the United States. There is a
post retirement medical plan in the United States for a small closed group of participants.
The Group accounts for its pension schemes in accordance with SSAP 24, “Accounting for pension costs”. Scheme liabilities are assessed by independent actuaries using
the projected unit funding method and applying the principal actuarial assumptions set out in “Pension disclosures required under SSAP 24”below. Assets are shown at
market value.
From 2006, the Group will account for its pension schemes in accordance with IFRS principles (which are largely equivalent to the current FRS 17 requirements under UK
GAAP). Additional disclosures required under the current transitional provisions of FRS 17 are also set out below. The bases of calculation under FRS 17 are significantly
different to SSAP 24. Whilst both require use of formal actuarial valuations, FRS 17 requires the use of a different set of underlying assumptions and also specifies more
frequent valuation updates. Accordingly, when IFRS is implemented in full, the Group’s reported pension costs and balance sheet position will change accordingly.
United Kingdom
The majority of the UK employees are members of the Vodafone Group Pension Scheme (the “main scheme”). This is a tax approved defined benefit scheme, the assets of
which are held in an external trustee-administered fund. In addition, there is an internally funded unapproved defined benefit plan in place for a small number of senior
executives. The pension cost for these defined benefit arrangements are included in the summary information shown below.
The main scheme is subject to quarterly funding updates by independent actuaries and to formal actuarial valuations at least every three years. The most recent formal
triennial valuation of this scheme was carried out as at 31 March 2004 and valued scheme assets at £434 million and scheme liabilities at £393 million. This represents a
funding ratio of 111% (2004: 116%).
As a result of the triennial actuarial valuation, the Group’s UK subsidiaries agreed to make a special lump sum contribution of £100 million during the financial year and to
maintain the ongoing contributions of 13% of pensionable earnings. The updated funding level as at 31 March 2005 has been estimated as approximately 130% using
assumptions consistent with the 2004 actuarial valuation. This special contribution brings the funding position on an FRS 17 basis to 101% at 31 March 2005.
The SSAP 24 liabilities are valued using the same assumptions adopted for the triennial valuation. These are outlined further below. As a result of the acceleration of
payments, a net prepayment of £299 million (2004: £193 million) is included in debtors due after more than one year, representing the excess of the amounts funded over
accumulated pension costs.
Germany
There are a number of separate pension and associated arrangements in Germany, with the majority of these being financed through a funded trust arrangement. The
German schemes are subject to annual valuations, with the last formal valuations having been completed at 31 March 2005.
Under SSAP 24 requirements, an amount of £7 million (2004: £14 million) is included in provisions for liabilities and charges, representing the excess of the accumulated
pension cost over the funded amounts on some schemes, with an equal amount in prepayments (2004: £nil), representing the excess of the amounts funded over
accumulated pension costs for the remaining schemes.
Under the requirements of FRS 17, the total pension liability at 31 March 2005 for benefits funded through the trust arrangement was £191 million. The market value of the
trust arrangement assets was £181 million. A contribution of £14 million was made into the trust during the financial year. The total FRS 17 pension liability for additional
unfunded arrangements was £22 million.
Japan
There are a number of separate pension schemes operating in Japan. These plans are generally not funded externally. The latest formal actuarial valuation was prepared at
31 March 2005.
Under the requirements of SSAP 24, an amount of £21 million (2004: £26 million) is included in provisions for liabilities and charges, representing the excess of the
accumulated pension costs over the amounts funded externally reflecting the internally funded nature of the principal arrangements.
On an FRS 17 basis, liabilities are valued at £30 million at 31 March 2005 while scheme assets are valued at £2 million.