9. Pensions
A. Defined benefit pension scheme
The Group operates defined benefit pension schemes in Coillte Teoranta and Medite Europe Limited for the majority of employees with assets held in separately administered funds.
Actuarial valuation
The pension costs relating to the Group’s defined benefit schemes are assessed in accordance with the advice of independent qualified actuaries. The valuations were based on the attained age and the projected unit credit method and the last full valuations were carried out on 1 January 2009 (Medite Europe Limited) and 31 December 2008 (Coillte Teoranta).
The assumptions which have the most significant effect on the results of the actuarial valuations are those relating to the rate of return on investments and the rates of increase in remuneration and pensions. It was assumed that the rate of return on investments would on average exceed annual remuneration by 2.75% (Coillte Teoranta) and 2% (Medite Europe Limited) in the last full valuations and pension increases by 2.75% in Coillte Teoranta. No provision was made for future pension increases in Medite Europe Limited.
The market value of the assets in the Group’s defined benefit schemes at the respective valuation dates was €113.2m (Coillte Teoranta — 31 December 2008) and €10.7m (Medite Europe Limited — 1 January 2009) and the deficiency in both schemes at those dates were €89.4m (Coillte Teoranta) and €8.9m (Medite Europe Limited).
The valuations indicated that the actuarial value of the total scheme assets was sufficient to cover 56% of the benefits that had accrued to the members of the combined scheme as at the valuation dates. Coillte Teoranta and Medite Europe Limited contribute to their respective scheme at a rate of 25% and 15.4% respectively. The actuarial reports of both schemes are available to scheme members, but not for public inspection.
During 2009 the Group have undertaken a number of measures to address the deficit in the pension scheme and have formally submitted a funding proposal to the Pensions Board.
B. Financial Reporting Standard 17 (FRS 17)
| 2009 | 2008 | |
| €'000 | €'000 | |
| The amounts recognised in the balance sheet are as follows: | ||
| Present value of funded obligations | (233,847) | (221,022) |
| Fair value of plan assets | 161,475 | 138,408 |
| Pension Liability in the balance sheet | (72,372) | (82,614) |
| Related deferred tax asset (note 20) | 2,180 | 2,617 |
| Net pension liability |
(70,192) | (79,997) |
| The amounts recognised in the profit and loss account are as follows: |
||
| Current service cost | 5,022 | 6,489 |
| Past service cost * | 3,130 | - |
| Operating cost | 8,152 | 6,489 |
| Expected return on assets | (8,474) | (11,475) |
| Interest on liability | 12,896 | 13,692 |
| Finance cost | 4,422 | 2,217 |
| Total profit and loss account charge |
12,574 | 8,706 |
| *Included as part of the exceptional voluntary parting/early retirement charge (note 5a) | ||
| The amounts recognised in the statement of total recognised gains and losses are as follows: |
||
| Actual return less expected return on pension scheme assets | 1,562 | (51,348) |
| Experience gains and losses arising on the scheme liabilities | (12,723) | 9,161 |
| Changes in assumptions underlying the present value of scheme liabilities | 13,271 | 28,468 |
| Actuarial gain/(loss) recognised | 2,110 | (13,719) |
| Pension | Pension | Pension | |
| Assets | Liabilities | Deficit | |
| €'000 | €'000 | €'000 | |
| Movement in scheme assets and liabilities | |||
| At 31 December 2008 |
138,408 | (221,022) | (82,614) |
| Current service cost |
- | (5,022) | (5,022) |
| Interest on scheme liabilities |
- | (12,896) | (12,896) |
| Expected return on scheme assets |
8,474 | - | 8,474 |
| Actual less expected return on scheme assets |
1,562 | - | 1,562 |
| Experience losses on liabilities |
- | (12,723) | (12,723) |
| Changes in assumptions |
- | 13,271 | 13,271 |
| Contributions by plan participants |
1,037 | (1,037) | - |
| Past service cost |
- | (3,130) | (3,130) |
| Benefits paid from plan assets | (8,712) | 8,712 | - |
| Employer Contributions paid |
20,706 | - | 20,706 |
| As at 31 December 2009 | 161,475 | (233,847) | (72,372) |
| Pension | Pension | Pension | |
| Assets | Liabilities | Deficit | |
| €'000 | €'000 | €'000 | |
| At 31 December 2007 | 178,892 | (245,238) | (66,346) |
| Current service cost | - | (6,489) | (6,489) |
| Interest on scheme liabilities | - | (13,692) | (13,692) |
| Expected return on scheme assets | 11,475 | - | 11,475 |
| Actual less expected return on scheme assets | (51,348) | - | (51,348) |
| Experience gains on liabilities | - | 9,161 | 9,161 |
| Changes in assumptions | (302) | 28,770 | 28,468 |
| Past service cost | - | - | - |
| Contributions by plan participants | 561 | (561) | - |
| Benefits paid from plan assets | (7,027) | 7,027 | - |
| Employer contributions paid | 6,157 | - | 6,157 |
| As at 31 December 2008 | 138,408 | (221,022) | (82,614) |
The following amounts were measured in accordance with the requirements of FRS 17 at 31 December 2005-2009 inclusive.
| 2009 | 2008 | 2007 | 2006 | 2005 | |
| Expected rate of return: | |||||
| Equities | 8.00% | 8.50% | 7.50 - 8.00% | 7.50% | 7.10% |
| Bonds | 3.80% | 3.75% | 4.30 - 4.40% | 3.95% | 3.15% |
| Property | 6.00% | 6.00% | 5.75 - 5.90% | 5.40% | 5.00% |
| Other | 2.00% | 2.50% | 3.00% | 2.00% | 2.00% |
| 2009 | 2008 | 2007 | 2006 | 2005 | |
| €'000 | €'000 | €'000 | €'000 | €'000 | |
| Market Value: | |||||
| Equities | 99,695 | 70,250 | 117,429 | 118,637 | 99,572 |
| Bonds | 40,741 | 44,482 | 38,553 | 38,381 | 24,936 |
| Property | 13,310 | 8,213 | 10,075 | 10,097 | 8,805 |
| Other | 7,729 | 15,463 | 12,835 | 9,998 | 11,821 |
| Total market value of assets | 161,475 | 138,408 | 178,892 | 177,113 | 145,134 |
| Present value of scheme liabilities | (233,847) | (221,022) | (245,238) | (248,205) | (231,486) |
| Deficit in the scheme | (72,372) | (82,614) | (66,346) | (71,092) | (86,352) |
Scheme assets do not include any of Coillte Teoranta’s own financial instruments, or any property occupied by Coillte Teoranta.
For the purposes of disclosure under FRS 17 — ‘Retirement Benefits’ the assets and liabilities of the Coillte Teoranta and Medite Europe Limited defined benefit schemes have been combined in 2009. Under FRS 17 the deficit in the Coillte Teoranta scheme was €67.4m (2008: deficit of €75.2m) and the deficit in the Medite Europe Limited scheme was €5.0m (2008: deficit of €7.4m).
| 2009 | 2008 | 2007 | 2006 | 2005 | |
| The principal actuarial assumptions at the balance sheet date: | |||||
| Rate of increase in salaries | 3.50% | 3.50% | 4.00% | 3.75% | 3.75% |
| Rate of increase in pension payments | |||||
| Coillte Teoranta | 3.50% | 3.50% | 4.00% | 3.75% | 3.75% |
| Medite Europe Limited | 0.00% | 0.00% | 0.00% | 0.00% | n/a |
| Discount rate | 5.90% | 5.75% | 5.50% | 4.65% | 4.20% |
| Price inflation | 2.00% | 2.00% | 2.50% | 2.25% | 2.25% |
Assumptions regarding future mortality are set based on advice from published statistics and experience. The average life expectancy in years for a pensioner retiring aged 65 is as follows:
| 2009 | 2008 | |
| Male — current pensioner | 21.70 | 20.20 |
| Female — current pensioner | 24.70 | 23.20 |
| Male — future pensioner | 22.70 | 21.00 |
| Female — future pensioner | 25.80 | 24.00 |
Amounts for the current and previous four years are as follows:
| 2009 | 2008 | 2007 | 2006 | 2005 | |
| €'000 | €'000 | €'000 | €'000 | €'000 | |
| Present value of the defined benefit obligation | (233,847) | (221,022) | (245,238) | (248,205) | (231,486) |
| Fair value of plan assets | 161,475 | 138,408 | 178,892 | 177,113 | 145,134 |
| Pension Deficit | (72,372) | (82,614) | (66,346) | (71,092) | (86,352) |
| 2009 | 2008 | 2007 | 2006 | 2005 | |
| Experience adjustment on plan liabilities as a percentage of scheme liabilities at the balance sheet date |
5.4% | (4.14%) | 1.44% | 2.04% | 0.05% |
| Experience adjustment on plan assets as a percentage of scheme assets at the balance sheet date |
1.0% | (37.10%) | (7.78%) | 4.28% | 11.10% |
Sensitivity analysis of the scheme liabilities
A decrease of 1% in the discount rate would increase the Coillte defined benefit pension scheme obligation by €39.4m and an increase of 1% in the discount rate would decrease the Coillte defined benefit pension scheme obligation by €30.6m. A decrease of 1% in the discount rate would increase the Medite defined benefit obligation by €4.2m and an increase of 1% in the discount rate would decrease the Medite defined benefit pension scheme obligation by €3.3m.
C. Defined contribution pension scheme
SmartPly Europe Limited contributes to a defined contribution pension scheme on behalf of certain of its employees. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost for the period amounted to €326,000 (2008: €380,000) and contributions of €23,000 (2008: €32,000) were not transferred to the fund until after the year end.
The Group contributes to a defined contribution pension scheme on behalf of certain employees in Coillte Teoranta and Medite Europe Limited who are not members of the defined benefit schemes. The assets of these schemes are held separately from those of the Group in an independently administered scheme. The pension cost for the period amounted to €144,000 (2008: €208,360) and contributions of €11,785 (2008: €81,781) were not transferred to the fund until after the year end.