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103
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
OUR BUSINESSOUR PERFORMANCEGOVERNANCEFINANCIAL STATEMENTS
11 RETIREMENT BENEFITS CONTINUED
Within the total Group retirement benefi t cost of £86.7m (last year £74.9m), £41.0m (last year £33.7m) relates to the UK defi ned benefi t
scheme, £40.3m (last year £36.4m) to the UK defi ned contribution scheme and £5.4m (last year £4.8m) to other retirement benefi t schemes.
The most recent actuarial valuation of the Marks & Spencer UK Pension Scheme was carried out at 31 March 2015 and showed a funding
surplus of £204m. The valuation is based on the same methodology adopted for the 2012 valuation but incorporates the latest asset values
and revised assumptions. The Company and Trustees have agreed to continue with the current strategy to de-risk over the long term, with
no change to the agreed additional cash contributions due to be paid into the scheme in respect of benefi ts already accrued by members.
This meant that the Group paid an additional contribution of £28m in March 2016 and will pay a further £28m by 31 March 2017. In addition,
it was agreed that ongoing contributions paid into the scheme to cover future benefi ts earned by members will increase from 23.4% to
34.3% of pensionable salaries.
By funding its defi ned benefi t pension schemes, the Group is exposed to the risk that the cost of meeting its obligations is higher than
anticipated. This could occur for several reasons, for example:
> Investment returns on the schemes’ assets may be lower than anticipated, especially if falls in asset values are not matched by similar
falls in the value of the schemes’ liabilities.
> The level of price infl ation may be higher than that assumed, resulting in higher payments from the schemes.
> Scheme members may live longer than assumed, for example due to unanticipated advances in medical healthcare. Members may
also exercise (or not exercise) options in a way that lead to increases in the schemes’ liabilities, for example through early retirement or
commutation of pension for cash.
> Legislative changes could also lead to an increase in the schemes’ liabilities.
In addition, the Group has an obligation to the UK defi ned benefi t scheme via the interest in the Scottish Limited Partnership (refer to note
12), through which the Group is exposed to additional risks. In particular, under the legal terms of the Partnership, a default by the Group
on the rental payments to the Partnership or a future change in legislation could trigger earlier or higher payments to the Pension Scheme,
or an increase in the coll ateral to be provided by the Group.
A. Pensions and other post-retirement liabilities
2016
£m
2015
£m
Total market value of assets 8,515.3 8,596.5
Present value of scheme liabilities (7,682.3) (8,135.8)
Net funded pension plan asset 833.0 460.7
Unfunded retirement benefi ts (0.9) (0.7)
Post-retirement healthcare (8.0) (11.0)
Net retirement benefi t asset 824.1 449.0
Analysed in the statement of fi nancial position as:
Retirement benefi t asset 851.0 460.7
Retirement benefi t defi cit (26.9) (11.7)
Net retirement benefi t asset 824.1 449.0
The asset recognised for the UK defi ned benefi t scheme is based on the assumption that the full surplus will ultimately be available to the
Group as a future refund of surplus.
B. Financial assumptions
The fi nancial assumptions for the UK defi ned benefi t scheme and the most recent actuarial valuations of the other post-retirement
schemes have been updated by independent qualifi ed actuaries to take account of the requirements of IAS 19 ‘Employee Benefi ts’ in
order to assess the liabilities of the schemes and are as follows:
2016
%
2015
%
Rate of increase in salaries 1.0 1.0
Rate of increase in pensions in payment for service 1.9-3.0 1.9-3.0
Discount rate 3.40 3.10
Infl ation rate 2.95 3.10
Long-term healthcare cost increases 6.95 7.10
The infl ation rate of 2.95% (last year 3.10%) refl ects the Retail Price Index (RPI) rate. Certain benefi ts have been calculated with reference to
the Consumer Price Index (CPI) as the infl ationary measure and in these instances a rate of 1.95% (last year 2.10%) has been used.