Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for employees in the United Kingdom, France, Belgium, Brazil, Canada, Italy and the United States of America. The assets of the schemes are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the schemes prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions.
The Group's employees in Denmark, Finland, Sweden and the Netherlands are members of state-managed retirement benefit schemes operated by the governments of each country. The relevant subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to these retirement benefit schemes is to make the specified contributions.
The total cost charged to income of £5.1m (2011: £4.5m) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2012 contributions of £0.3m (2011: £0.4m) due in respect of the current reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group operated a number of pension schemes and provided leaving service benefits to certain employees during the year. The defined benefit obligation less fair value of assets at the end of the year and total expense recognised in the income statement are summarised below as follows:
| 2012
£m | 2011
£m |
|---|
| UK Scheme | (4.2) | (1.8) |
| Non-UK Schemes | (14.3) | (11.7) |
| (18.5) | (13.5) |
Total expense recognised in income statement
| 2012
£m | 2011
£m |
|---|
| UK Scheme | 1.2 | 0.9 |
| Non-UK Schemes | 1.1 | 1.3 |
| 2.3 | 2.2 |
Further details of the Group's defined benefit arrangements are given in the Finance Director's report.
UK Scheme
The Company sponsors the Bodycote UK Pension Scheme which is a funded defined benefit arrangement for certain UK employees. The preliminary actuarial valuation of the scheme was carried out by a qualified independent actuary as at 6 April 2011 and was updated on an approximate basis to 31 December 2012.
The contributions made by the employer over the financial year have been £1.5m, comprising £0.5m in respect of benefit accrual and £1.0m in respect of deficit recovery and ongoing expense. This level of contribution is currently under review following the 6 April 2011 triennial valuation of the Scheme.
It is the policy of the Group to recognise all actuarial gains and losses in the year in which they occur outside of the profit and loss account and in other comprehensive income.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
| 2012
£m | 2011
£m |
|---|
| Defined benefit obligation at start of year | 82.2 | 75.8 |
| Current service cost | 0.6 | 0.8 |
| Interest cost | 3.9 | 4.1 |
| Contributions by plan participants | 0.2 | 0.3 |
| Actuarial loss | 2.7 | 7.2 |
| Benefits paid, death in service insurance premiums and expenses | (4.0) | (6.0) |
| Defined benefit obligation at end of year | 85.6 | 82.2 |
Reconciliation of opening and closing balances of the fair value of plan assets
| 2012
£m | 2011
£m |
|---|
| Fair value of assets at start of year | 80.4 | 75.2 |
| Expected return on assets | 3.3 | 4.0 |
| Actuarial (loss) / gain | (0.1) | 5.6 |
| Contributions by employer | 1.5 | 1.1 |
| Contributions by plan participants | 0.2 | 0.3 |
| Age related rebate | 0.1 | 0.2 |
| Benefits paid, death in service insurance premiums and expenses | (4.0) | (6.0) |
| Fair value of assets at end of year | 81.4 | 80.4 |
Total expense recognised in the income statement
| 2012
£m | 2011
£m |
|---|
| Current service cost | 0.6 | 0.8 |
| Interest on pension scheme liabilities | 3.9 | 4.1 |
| Expected return on pension scheme assets | (3.3) | (4.0) |
| Total expenses | 1.2 | 0.9 |
Of the total expenses for the year £0.6m (2011: £0.8m) has been included in cost of sales and overheads and the remaining £0.6m (2011: £0.1m) has been included in finance costs.
The cumulative amount of actuarial losses recognised in other comprehensive income since adoption of IAS 19 is £14.2m.
Assets
| 2012
£m | 2011
£m | 2010
£m |
|---|
| Equities (including property) | 10.7 | 27.1 | 32.2 |
| Bonds (including gilts) | 47.6 | 47.9 | 38.1 |
| Cash | 0.1 | 1.0 | 0.2 |
| Hedge funds | – | 4.4 | 4.7 |
| Diversified growth funds | 23.0 | – | – |
| 81.4 | 80.4 | 75.2 |
None of the fair value of the assets shown above include any of the Group's own financial instruments or any property occupied by, or other assets used by, the Group.
Expected long-term rates of return
The expected long-term return on cash is equal to bank base rate at the balance sheet date. The expected return on bonds is determined by reference to UK long dated gilt and bond yields at the balance sheet date. The expected rates of return on equities and property have been determined by setting an appropriate risk premium above gilt/bond yields having regard to market conditions at the balance sheet date.
The expected long-term rates of return are as follows:
| 2012
% per annum | 2011
% per annum | 2010
% per annum |
|---|
| Equities | 5.8 | 5.4 | 6.9 |
| Bonds | 3.7 | 3.8 | 4.9 |
| Hedge funds | – | 5.4 | 6.9 |
| Cash | 0.5 | 0.5 | 0.5 |
| Diversified growth funds | 5.3 | – | – |
| Overall for scheme | 4.4 | 4.4 | 5.8 |
Actual return on plan assets
The actual return on the plan assets for the year ended 31 December 2012 was 4.1% (2011: 13.5%).
Assumptions
| 2012
% per annum | 2011
% per annum | 2010
% per annum |
|---|
| RPI inflation | 3.10 | 3.25 | 3.65 |
| CPI inflation | 2.60 | 2.75 | 3.15 |
| Salary increases | 3.00 | 3.00 | 3.00 |
| Rate of discount | 4.50 | 4.75 | 5.50 |
| Allowance for pension in payment increases of RPI or 5% p.a. if less | 3.37* | 3.58* | 3.55 |
| Allowance for pension in payment increases of RPI or 3% p.a. if less | 2.34 | 2.62 | 2.75 |
| Allowance for revaluation of deferred pensions | 2.60 | 2.75 | 3.15 |
* CPI minimum 3%, maximum 5% for 2012 and 2011.
Mortality – current pensioners:
Actuarial tables used | S1PxA YoB CMI 2010 1.5%
long term trend
2012 | S1PxA YoB CMI 2010 1.5% long term trend
2011 | PA 92 YoB MC, 1% underpin
2010 |
|---|
| Life expectancy for members currently aged 65 | 22.7 | 22.7 | 22.5 |
Mortality – future pensioners:
Actuarial tables used | S1PxA YoB CMI 2010 1.5%
long term trend
2012 | S1PxA YoB CMI 2010 1.5% long term trend
2011 | PA 92 YoB MC, 1% underpin
2010 |
|---|
| Life expectancy at age 65 for members currently aged 40 | 25.6 | 25.6 | 24.0 |
Present value of defined benefit obligations, fair value of assets and deficit
| 2012
£m | 2011
£m | 2010
£m |
|---|
| Present value of defined benefit obligation | 85.6 | 82.2 | 75.8 |
| Fair value of plan assets | (81.4) | (80.4) | (75.2) |
| Deficit in the scheme | 4.2 | 1.8 | 0.6 |
As all actuarial gains and losses are recognised, the deficit shown above at 31 December 2012 is that recognised in the balance sheet.
The best estimate of contributions to be paid into the plan for the year ending 31 December 2013 is £1.2m.
Amounts for the current and previous four years
| 2012
£m | 2011
£m | 2010
£m | 2009
£m | 2008
£m |
|---|
| Fair value of assets | (81.4) | (80.4) | (75.2) | (69.9) | (63.0) |
| Present value of defined benefit obligation | 85.6 | 82.2 | 75.8 | 73.6 | 63.7 |
| Deficit in the scheme | 4.2 | 1.8 | 0.6 | 3.7 | 0.7 |
| Loss from experience adjustment on plan liabilities | – | (7.7) | – | – | (0.4) |
| (Loss)/gain from experience adjustment on plan assets | (0.1) | 5.7 | 2.3 | 4.5 | (10.7) |
Impact of changes to assumptions
The impact of changes to certain assumptions on the current deficit and the 2013 charge to the income statement on the UK scheme is shown in the table below:
| Impact on current deficit
£m | Impact on 2013 charge to income statement
£m |
|---|
| Change in discount rate by 0.25% (decrease in rate increases liability) | 4.0 | 0.2 |
| Change in inflation assumption by 0.25% (increase in rate increases liability) | 1.3 | 0.1 |
| Change in mortality assumption from S1PxA CMI 2010 1.5% long term trend rate to S1PxA CMI 2011 1.5% long term trend rate (change increases liability) | 0.2 | – |
| Change in the value of equities by 5% (decrease increases liability) | 0.5 | – |
| Change in the expected return on equities assumption by 0.25% | – | – |
Combined non-UK disclosures
The Group operates schemes in the USA, Brazil and continental Europe.
In Europe the Group operates defined benefit pension, post retirement and long-service arrangements for certain employees in France, Germany, Italy, Turkey (all of which are unfunded), Switzerland and Liechtenstein.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
| 2012
£m | 2011
£m |
|---|
| Defined benefit obligation at start of year | 22.0 | 22.0 |
| Current service cost | 0.5 | 0.6 |
| Interest cost | 0.8 | 1.0 |
| Actuarial loss | 2.9 | 0.6 |
| Benefits paid, death in service insurance premiums and expenses | (1.6) | (1.7) |
| Curtailments | (0.1) | – |
| Employee contributions | 0.1 | 0.2 |
| Acquisitions | – | 0.1 |
| Exchange rate gain | (0.7) | (0.8) |
| Defined benefit obligation at end of year | 23.9 | 22.0 |
Reconciliation of opening and closing balances of the fair value of plan assets
| 2012
£m | 2011
£m |
|---|
| Fair value of assets at start of year | 9.7 | 10.4 |
| Expected return on assets | 0.2 | 0.4 |
| Actuarial gain / (loss) | 0.4 | (0.2) |
| Contributions by employer | 0.2 | 0.4 |
| Contributions by employees | 0.1 | 0.2 |
| Benefits paid, death in service insurance premiums and expenses | (1.2) | (1.3) |
| Settlements | (0.1) | – |
| Exchange rate loss | (0.3) | (0.2) |
| Fair value of assets at end of year | 9.0 | 9.7 |
Total expense recognised in the income statement
| 2012
£m | 2011
£m |
|---|
| Current service cost | 0.5 | 0.6 |
| Interest on pension scheme liabilities | 0.8 | 1.0 |
| Expected return on pension scheme assets | (0.2) | (0.4) |
| Curtailments | (0.1) | – |
| Settlements | 0.1 | – |
| Acquisitions | – | 0.1 |
| Total expenses | 1.1 | 1.3 |
The cumulative amount of actuarial losses recognised in the Consolidated Statement of Comprehensive Income since adoption of IAS 19 is £1.9m.
Assets
| 2012
£m | 2011
£m | 2010
£m |
|---|
| Equities | 1.2 | 1.1 | 1.1 |
| Bonds | 0.3 | 0.5 | 0.6 |
| Cash | 1.4 | 1.4 | 1.3 |
| Insurance contracts – Brazil | – | 0.2 | 1.2 |
| Insurance contracts – Switzerland and Liechtenstein | 6.1 | 6.5 | 6.2 |
| 9.0 | 9.7 | 10.4 |
None of the fair values of the assets shown above include any of the Group's own financial instruments or any property occupied by, or other assets used by, the Group.
Expected long-term rates of return
The expected long-term return on assets varies by country and each reflect the respective expected future market rates or returns on assets underlying insurance contracts where relevant.
Actual return on plan assets
The actual return on the plan assets for the year ending 31 December 2012 was 1.1% (2011: 0.0%).
Assumptions for 2012
| Salary
increases
% per annum | Rate of
discount
% per annum | Inflation
% per annum | Pension
increases
% per annum |
|---|
| USA | n/a | 4.25 | n/a | n/a |
| Brazil | 6.59 | 8.70 | 4.50 | n/a |
| France | 3.00 | 3.00 | 2.00 | n/a |
| Germany | 2.50 | 2.69 | n/a | 1.75 |
| Italy | n/a | 2.77 | 2.00 | n/a |
| Turkey | n/a | 9.00 | 5.00 | n/a |
| Liechtenstein | 2.50 | 1.80 | n/a | n/a |
| Switzerland | 3.00 | 1.80 | n/a | n/a |
Present value of defined benefit obligations, fair value of assets and deficit
| 2012
£m | 2011
£m | 2010
£m |
|---|
| Present value of defined benefit obligation | 23.9 | 22.0 | 22.0 |
| Fair value of plan assets | (9.0) | (9.7) | (10.4) |
| Deficit in the scheme | 14.9 | 12.3 | 11.6 |
| Unrecognised prior service cost | (0.6) | (0.6) | (0.6) |
| Net liability recognised in the balance sheet | 14.3 | 11.7 | 11.0 |
As all actuarial gains and losses are recognised, the net liability shown above at 31 December 2012 is that recognised in the balance sheet.
Amounts for the current and previous four years
| 2012
£m | 2011
£m | 2010
£m | 2009
£m | 2008
£m |
|---|
| Fair value of assets | (9.0) | (9.7) | (10.4) | (8.5) | (8.4) |
| Present value of defined benefit obligation | 23.9 | 22.0 | 22.0 | 19.8 | 22.6 |
| Deficit in the scheme | 14.9 | 12.3 | 11.6 | 11.3 | 14.2 |
| Gain/(loss) from experience adjustment on plan liabilities | 0.4 | 0.1 | 0.5 | (0.3) | (3.7) |
| Gain/(loss) from experience adjustment on plan assets | 0.4 | (0.2) | 1.1 | 0.6 | 2.9 |
| Loss from effects of changing assumptions | (3.3) | (0.6) | (0.5) | (0.7) | (0.5) |
The only funded plans are those operated in USA, Brazil, Switzerland and Liechtenstein. The best estimate of contributions to be paid into the plans for the year ending 31 December 2013 is £0.4m.