Marks and Spencer 1998 Annual Report Download - page 59

A PENSION COSTS
The Group operates a number of funded defined benefit pension
schemes throughout the world.
The total pension cost for the Group was £111.1m (last year
£86.5m) of which £8.1m (last year £7.4m) related to overseas
schemes.
The latest actuarial valuation of the UK Scheme was carried out
at 1 A pril 1995 by an independent actuary using the projected
unit method. The key assumptions adopted were:
Rate of increase in salaries 6.0%
Rate of increase in pensions in payment 4.0%
Rate of return on investments 9.0%
Rate of increase in dividend income 5.0%
Rate of interest applied to discount liabilities 9.0%
After allowing for cer tain changes to benefits, the latest actuarial
valuation revealed a shortfall of £90.0m in the actuarial value of
the assets of the UK Scheme of £1,507m compared to the
actuarial liability for pension benefits. (The market value of assets
at 1 A pril 1995 was £1,451.9m.) The Company funded the deficit
in full in November 1995, bringing the funding level (at 1 April
1995) up to 100%, although for profit and loss account purposes
under SSAP24 it is being amor tised over a period of 11 years
from
1 A pril 1995, being the remaining estimated ser vice lives of the
current scheme members.
The 1997 Finance A ct amended the tax treatment of dividend
income received by UK pension funds. A s this is ex pected to
affect adversely the income of the GroupÕs UK pension scheme,
the directors have decided, having taken actuarial advice, that it
would be prudent to recognise an estimate of the cost to the
Group of this change. Consequently, an additional pension
provision of £20m, representing the estimated annual cost, has
been made against UK operating profit.
An actuarial valuation of the UK pension scheme will be carried
out as at 1 A pril 1998 and will incorporate fully the impact of the
changes in legislation. The results of the valuation will be
reflected in the financial statements for the year ending 31 March
1999.
The total UK pension cost of £103.0m (last year £79.1m) is
analysed as follows:
1998 1997
£m £m
Normal pension cost(1) 81.5 75.8
Amor tisation of deficit 8.2 8.2
Net interest elements (6.7) (4.9)
Additional pension provision 20.0 Ð
Total 103.0 79.1
(1) A t standard contribution rate of 15.7% (1997: 15.7%).
As shown in note 13, the Company has pre-paid pension costs of
£187.3m. This includes the funding of the £90.0m deficit, offset
by the amor tisation and interest elements shown above, with the
balance being pre-paid contributions to the UK Scheme.
The pension costs relating to overseas schemes have been
determined in accordance with the advice of independent qualified
actuaries.
B POST-RETIREMENT HEALTH BENEFITS
The Company has a commitment to pay all or a proportion of the
health insurance premiums for a number of its retired employees
and their spouses, the last of whom retired in 1988. There is no
commitment in respect of current employees or those who have
retired since 1988.
At 31 March 1996, the Company re-assessed this liability in
accordance with the advice of an independent qualified actuary.
The discounted present value of £27.8m has been fully provided.
The valuation assumed a premium inflation of 8% and an after-tax
rate of discount of 7.5%. There is a matching deferred tax ation
asset of £8.6m.
The next actuarial valuation will be carried out as at 31 March
1999.
C UNITED KINGDOM EMPLOYEES’ PROFIT SHARING SCHEMES
The Trustees of the United Kingdom EmployeesÕ Profit Sharing
Schemes have been allocated £22.5m (last year £23.5m) with
which to subscribe for ordinary shares in the Company.
D UNITED KINGDOM EMPLOYEES’ SAVE AS YOU EARN SHARE
OPTION SCHEME
Under the terms of the Scheme, the Board may offer options to
purchase ordinary shares in the Company once in each financial
year to those employees who enter into an Inland Revenue
approved Save A s You Earn (SAYE) savings contract. The price at
which options may be offered is 80% of the market price for three
consecutive dealing days preceding the date of offer. The options
may normally be ex ercised during the period of six months after
the completion of the SAYE contract, either three, five or seven
years after entering the Scheme.
Outstanding options granted under the UK EmployeesÕ Save As
You Earn Share Option Scheme are as follows:
Number of shares Option
Options granted 1998 1997 price
January 1991 490,968 3,325,410 182p
January 1992 4,331,286 4,894,336 229p
January 1993 3,635,936 7,392,050 257p
January 1994 6,527,538 6,828,186 319p
January 1995 8,733,912 9,095,012 322p
January 1996 9,441,106 9,865,012 330p
January 1997 11,175,741 11,605,097 389p
January 1998 11,797,433 Ð 467p
9EMPLOYEES continued
NO TES TO TH E FIN AN CIAL STATEM EN TS
MA RKS A ND SPENCER p.l.c. 57