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22 Pensions and other post-retirement
benefits
The Group has a number of contributory and non-contributory pension schemes
providing retirement benefits for the majority of employees and all executive
directors. The main schemes are of the defined benefit type, the benefits
being based on years of service and either the employee’s final remuneration
or the employee’s average remuneration during a period of years before
retirement.
The assets of these schemes are held in separate trustee administered
funds or are unfunded but with provisions maintained on the Group balance
sheet. The total cost of post-retirement health care and pensions to the
Group was £3.3 million (2000: £2.1 million), of which £4.3 million (2000:
£3.3 million) related to overseas schemes, and which included a credit
of £2.6 million (2000: £4.0 million) for variations from regular pension
costs in respect of the amortisation of the surplus/deficit arising on
the main UK scheme.
At 31 December 2001, provisions for liabilities and charges include provisions
of £2.9 million (2000: £1.3 million) in respect of overseas pension schemes
and £11.2 million (2000: £12.6 million) in respect of post retirement
health care benefits. Debtors include a post retirement benefit asset
of £3.0 million (2000: £nil million) and provisions for liabilities and
charges include a provision of £0.4 million in respect of the Group’s
UK pension arrangements (2000: £0.3 million).
United Kingdom pension scheme
In the UK, most employees are members of the Elementis Group Pension Scheme
(“the Scheme”), a funded defined benefit scheme which was formed in September
1988. Contributions to the Scheme are determined with the advice of an
independent qualified actuary on the basis of regular valuations. An actuarial
valuation of the Scheme as at 30 September 2001 is currently being undertaken
using the projected unit method. The total pension charge for the year,
in respect of the UK pension scheme, is based upon the results of the
prior actuarial valuation at 30 September 1999 for the nine months to
30 September 2001 and the results of the preliminary 30 September 2001
actuarial valuation for the balance of the year. In carrying out the valuations,
separate investment assumptions were made for gilts, corporate bonds and
equity based investments. The principal actuarial assumptions used in
the preliminary 30 September 2001 valuation were that the return on equity
investments and corporate bonds would exceed the return on gilts by 2.75
per cent and 1.4 per cent per annum respectively when valuing past service
benefits and 2.25 per cent and 1.0 per cent respectively when valuing
future service benefits. The assumption for the return on gilts was derived
from prevailing market yields and was taken as 5.0 per cent per annum.
Salaries were assumed to increase at 4.5 per cent per annum, inflation
to average 2.5 per cent per annum in the long term and present and future
pensions to increase at 2.5 per cent per annum. Assets were taken at market
value. The valuation takes full account of the removal of tax credits
on UK equity dividends.
At the date of this valuation, the market value of the Scheme’s assets
was £388.7 million; of which £68.9 million relates to pension assets to
be transferred out in respect of historic business disposals, £15.7 million
relates to insured annuities and £2.2 million relates to money purchase
benefits. The balance of £301.9 million has been used for the purposes
of the actuarial valuation and is sufficient to cover 97 per cent of the
benefits that had accrued to members after allowing for expected future
increases in salaries. The surplus or deficit as calculated by the actuaries
is amortised on a straight line basis over a period of 12 years, being
the expected average remaining service lives of employees in the Scheme.
Overseas pension schemes
The charge to profit and loss for retirement benefit costs has been determined
in accordance with SSAP24. The principal overseas schemes are funded defined
benefit schemes in the US. The most recent actuarial valuation of these
schemes was made at 1 January 2001 using the projected unit credit method
and based on assumptions of investment returns of 8.0 per cent per annum
and of weighted average salary increases of 4.7 per cent per annum. There
are no increases in pensions in payment post retirement. The most recent
actuarial valuation has been projected to 31 December 2001. At that date,
the market value of the schemes’ assets was £46.8 million, which is sufficient
to cover 85 per cent of the benefits that had accrued to members after
allowing for expected future increases in salaries.
Other post-retirement benefits
Certain Group companies, principally in the US, provide post retirement
health care to their retired employees and dependants. The entitlement
to these benefits is usually based on the employee remaining in service
until retirement age and completion of a minimum service period. At 31
December 2001, approximately 589 (2000: 789) current and retired employees
were potentially eligible to receive benefits. The cost to the Group in
2001 was £0.7 million (2000: £0.8 million). In addition a curtailment
gain of £1.6 million was recognised upon the disposal of the Harcros Chemicals
business; this has been reflected in the exceptional profit on disposal
of this business. The obligation in respect of these benefits is assessed
annually by independent actuaries. The main assumptions used in determining
the required provision are medical cost inflation of 5.4 per cent and
a discount rate of 7.25 per cent. The Group funds the post retirement
benefits when incurred.
FRS17 reporting
The Group has taken advantage of the transitional requirements of FRS17
’Retirement Benefits’. This will be adopted in full in 2002.
The Group operates defined benefit pension schemes in the UK and in the
US. A full actuarial valuation was carried out at 30 September 2001 for
the UK scheme and at 1 January 2001 for the US schemes. The major assumptions
used by the actuaries were:
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2001
UK schemes
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2001
US schemes
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2000
UK schemes
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2000
US schemes
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Rate of increase in salaries
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4.50%
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4.70%
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4.50%
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4.70%
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Rate of increase in pensions in payment
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2.50%
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-
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2.50%
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-
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Discount rate
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6.00%
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6.75%
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6.50%
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7.00%
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Inflation assumption
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2.50%
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3.50%
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2.50%
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3.50%
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In addition, the Group operates an unfunded post-retirement medical benefit
(PRMB) scheme in the US. For FRS17 purposes the main assumptions for this
scheme are a discount rate of 6.50 per cent per annum (2000: 6.75 per
cent) and a health care cost trend of 5.40 per cent per annum (2000: 5.40
per cent).
Actuarial valuations of pension schemes in other jurisdictions were not
obtained because of the costs involved and the considerably smaller scheme
size and number of employees involved.
The assets in the defined benefit pension schemes and the expected rates
of return were:
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