14 Pension costs

The group and company operate a defined contribution scheme and a defined benefit scheme. The latter was acquired as part of the acquisition of London Merchant Securities plc and is closed to new members. All new employees will join the defined contribution scheme. The assets of the pension schemes are held separately from those of the group companies.

Defined contribution plan

The total expense relating to this plan in the current year was £0.9m (2008: £0.7m).

Defined benefit plan

The defined benefit scheme, which is contributory for members, provides benefits based on final pensionable salary and contributions are invested in a Managed Fund Policy with Ignis Asset Management and F&C Investments plus annuity policies held in the name of the Trustees.

The pension charge for the defined benefit scheme is assessed in accordance with the advice of a qualified actuary. The most important assumptions made in connection with the establishment of this charge were that the return on the fund will be 7.1% pa (2008: 6.75% pa) and that salaries will be increased at 5.0% pa (2008: 4.4% pa). The market value of assets of the scheme at 31st December 2009 was £10.7m (2008: £8.7m) and the actuarial value of those assets on an ongoing basis represented 108% (2008: 113%) of the benefit of £9.9m (2008: £7.7m) that had accrued to members allowing for expected future increases in earnings. The pension surplus is £0.8m (2008: £1.0m).

Defined benefit obligations

2009 2008
£m £m
Present value of funded obligations (9.9) (7.7)
Fair value of plan assets 10.7 8.7
Recognised surplus for defined benefit obligations 0.8 1.0

Movements in present value of the defined benefit obligations recognised in the balance sheet

2009 2008
£m £m
Net surplus for defined benefit obligation at 1st January 1.0 2.8
Net return – 0.3
Actuarial losses recognised in reserves (0.2) (2.1)
Net surplus for defined benefit obligations at 31st December 0.8 1.0

Expense recognised in the income statement

2009 2008
£m £m
Current service costs (0.1) (0.1)
Interest on obligation (0.5) (0.5)
Expected return on plan assets 0.6 0.8
– 0.2

The expense is recognised in the following line items in the income statement:

2009 2008
£m £m
Administrative expenses (0.1) (0.1)
Other finance costs (0.5) (0.5)
Finance income 0.6 0.8
– 0.2

Change in the fair value of plan assets

2009 2008
£m £m
At 1st January 8.7 11.6
Expected return 0.6 0.8
Total contributions 0.1 0.1
Benefits paid – (0.4)
Actuarial gains/(losses) 1.3 (3.4)
At 31st December 10.7 8.7

The actual return on the plan assets for the year was £1.9m (2008: £(2.6)m). The overall expected return on plan assets is derived as the weighted average of the long-term expected returns from each of the main asset classes. The long-term expected rate of return on cash is determined by reference to gilt rates at the balance sheet dates. The long-term expected return on bonds is determined by reference to corporate bond yields at the balance sheet date. The long-term expected rates of return on equities and property are based on the rate of return on bonds with allowance for outperformance.

Changes in the present value of defined benefit obligations

2009 2008
£m £m
At 1st January 7.7 8.8
Service cost 0.1 0.1
Interest cost 0.5 0.5
Benefits paid – (0.4)
Actuarial gains 1.6 (1.3)
At 31st December 9.9 7.7

Experience gains and losses

2009 2008
£m £m
Experience gains/(losses) on plan assets 1.3 (3.4)
Experience gains on plan liabilities (1.6) (1.3)

Analysis of plan assets

2009 2008
£m £m
Equities 9.3 6.6
Bonds 1.0 1.3
Property – 0.1
Cash 0.4 0.7
Total 10.7 8.7

Principal actuarial assumptions

2009 2008
% pa % pa
Discount rate at 31st December 5.7 6.3
Expected return on plan assets at 31st December 7.1 6.8
Future salary increases 5.0 4.4
Inflation 3.5 2.9
Future pension increases 5.0 5.0
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