Tesco 2002 Annual Report Download - page 39

TESCO PLC 37
NOTE 27 Pensions
The Group has continued to account for pensions in accordance with SSAP 24 and the disclosures in (a) are those required by that standard.
FRS 17, ‘Retirement Benefits’, was issued in November 2000 but will not be fully mandatory for the Group until the year ended 28 February
2004. Prior to this, transitional disclosures are required from the current year. These disclosures, to the extent not given in (a), are set
out in (b).
(a) Pension commitments
The Group operates a funded defined benefit pension scheme for employees in the UK, the assets of which are held as a segregated fund
and administered by trustees. The total cost of the scheme to the Group was £85m (2001 – £71m).
An independent actuary, using the projected unit method, carried out the latest actuarial assessment of the scheme at 5 April 1999.
The assumptions that have the most significant effect on the results of the valuation are those relating to the rate of return on investments
and the rate of increase in salaries and pensions.
The key assumptions made were a rate of return on investments of 7.25%, a rate of increase in salaries of 4.50% and a rate of increase
in pensions of 2.75%.
At the date of the latest actuarial valuation, the market value of the scheme’s assets was £1,297m and the actuarial value of these assets
represented 96% of the benefits that had accrued to members, after allowing for expected future increases in earnings. The actuarial
shortfall of £53m will be met via increased contributions over a period of 11 years, being the expected average remaining service lifetime
of employed members.The next actuarial valuation is due at 31 March 2002.
Until 7 October 2001, the Group also operated a defined contribution scheme for some employees which was introduced on 6 April
1988. The assets of the scheme are held separately from those of the Group, being invested with an insurance company. The pension cost
represents contributions payable by the Group to the insurance company and amounted to £12m (2000 – £20m). There were no material
amounts outstanding to the insurance company at the year end. Members of the scheme as at 7 October 2001 moved to the defined benefit
scheme for future benefit accrual.
The Group operates a number of pension schemes worldwide, some of which are defined contribution schemes. The contributions
payable for non-UK schemes of £7m (2001 – £7m) have been fully expensed against profits in the current year. A defined benefit scheme
operates in the Republic of Ireland. At the latest actuarial valuation at 1 April 2001, the market value of the scheme’s assets was £55m and
the actuarial value of these assets represented 123% of the benefits that had accrued to members, after allowing for expected future
increases in earnings.
(b) FRS 17, ‘Retirement Benefits’
The valuations used for FRS 17 disclosures have been based on the most recent actuarial valuations and updated by Watson Wyatt Partners
to take account of the requirements of FRS 17 in order to assess the liabilities of the schemes at 23 February 2002. Scheme assets are stated
at their market value at 23 February 2002. Buck Consultants (Ireland) Limited have updated the most recent Republic of Ireland valuation.
The liabilities relating to post-retirement healthcare benefits (note 28) have also been determined in accordance with FRS 17.
The major assumptions, on a weighted average basis, used by the actuaries were salary increases of 3.6% per annum, price inflation of
2.3%, an increase of 2.3% per annum for pensions in payment and for deferred pensioners and a discount rate of 5.8%.