Notes to the financial statements

for the year ended 31 March 2012

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30 Retirement benefit obligation – consolidated

Defined contribution schemes

The Company operates defined contribution schemes, which are open to all eligible employees. Contributions charged to the income statement in respect of defined contribution schemes amounted to £3.5 million (2011: £2.9 million).

Defined benefit schemes

The principal defined benefit scheme at 31 March 2012 was the Kingston Communications Pension Scheme, which is a funded scheme and provides defined benefits based on final pensionable salary. The assets of the scheme are held separately from the assets of the Group in trustee administered funds. The Company operates also a second funded defined benefit scheme, the Kingston Communications (Data) Pension Scheme. Both schemes are closed to both new members and future accrual.

Parent company

At 31 March 2011, the Parent company ceased to be the principal employer of both of the Group’s defined benefit schemes, with KCH (Holdings) Limited, a wholly owned subsidiary of the Parent, becoming responsible for all obligations and liabilities of the schemes. As a result of this, the outstanding liability to the schemes at that date was released to the profit and loss account of the Parent company. An equivalent liability has been provided in the accounts of KCH (Holdings) Limited.

At the same time as ceasing to be the principal employer, the Parent company provided a guarantee to both defined benefit schemes, whereby if KCH (Holdings) Limited is unable to meet its obligations to the schemes, such obligations would be met by the Parent company. No liability has been recognised in respect of the guarantee at 31 March 2012 (2011: £Nil).

Most recent valuations

The most recent formal valuation for the Kingston Communications Pension Scheme was at 1 April 2010. The main long-term financial assumptions used in that valuation were:

Per annum
%
Rate of return on scheme assets 5.50
Rate of future salary inflation 4.90
Rate of future pension increases1 3.90

1. On the excess over the guaranteed minimum pension.

The most recent formal valuation for the Kingston Communications (Data) Pension Scheme was at 1 April 2010. The main long-term financial assumptions used in that valuation were:

Per annum
%
Rate of return on scheme assets 5.20
Rate of future salary inflation 4.90
Rate of future pension increases 3.90

Employer contributions for the year ended 31 March 2012

The disclosures below are for the two schemes combined.

Contributions into the two defined benefit schemes during the year were as follows:

2012
£’000
2011
£’000
Normal employee contributions 187
Deficit payments 16,888 9,773
16,888 9,960

Effective from 1 April 2010, the Group increased its ongoing deficit contributions into both schemes for the next three years to £6.9 million per annum (previously £3.5 million per annum). Shortly before the current financial year end the Group made an accelerated payment of £10.0 million to the Group's defined benefit pension schemes. This comprised a £6.9 million advance payment of previously committed deficit contributions in respect of the financial year ended 31 March 2013 and an additional one-off contribution of £3.1 million.

Main financial assumptions
2012
per annum
%
2011
per annum
%
RPI inflation 3.10 3.30
CPI inflation 2.40 2.60
Rate of increase to pensions in payment 2.30 2.15
Discount rate for scheme liabilities 4.70 5.50
Expected return on plan assets 6.10 6.95

Fair value of assets
Value at
2012
£’000
Value at
2011
£’000
Equities 61,639 96,289
Hedge funds 16,700
Fixed interest gilts 3,036 2,547
Index linked gilts 24,600 20,500
Corporate bonds 40,936 26,547
Other 38,580 22,906
Total fair value of assets 185,491 168,789

The change in asset profiles from 31 March 2011 to 31 March 2012 reflects the change in investment strategy of the Kingston Communication Pension Scheme. The Trustees have committed to holding 40% of scheme assets in 'return-seeking' assets compared to 60% which has been historically targeted.

History of asset values, defined benefit obligation, deficit in scheme and experience gains and losses

2012
£’000
2011
£’000
2010
£’000
2009
£’000
2008
£’000
As at 31 March
Present value of defined benefit obligation (199,377) (175,716) (207,241) (196,005) (177,133)
Fair value of plan assets 185,491 168,789 156,868 135,012 167,995
Deficit (13,886) (6,927) (50,373) (60,993) (9,138)
Experience losses on plan assets (2,860) (507) (507) (41,497) (15,658)
Experience (losses)/gains on plan liabilities (22,606) 32,011 1,670 (1,653) (3,762)

The Group employs a building block approach in determining the long-term rate of return on pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The overall expected rate of return on assets is derived by aggregating the expected return for each asset class over the actual asset allocation for the scheme as at 31 March 2012.

The mortality assumptions are based on standard mortality tables, which allow for future improvements in life expectancy. The effect of these tables are that:

The defined benefit obligation reflects the assumption that 20% (2011: 20%) of deferred members will transfer out of the scheme over its life. Where such transfers take place, the value of such transfers are assumed to be 0% (2011: 0%) above the current IAS 19 value for individual members.

Reconciliation of funded status to balance sheet
2012
£’000
2011
£’000
Fair value of assets 185,491 168,789
Present value of funded defined benefit obligations (199,377) (175,716)
Liability recognised on the balance sheet (13,886) (6,927)
Analysis of income and expenditure charge:
– current service cost 644
– past service cost 79
– curtailment and settlement gain1 (2,950)
– interest cost 9,417 10,664
– expected return on assets (11,036) (10,419)
(Income)/expense recognised in income statement (1,619) (1,982)

1. During the year ended 31 March 2011, the curtailment and settlement gain arose from the closure of the Group’s two defined benefit schemes to future accrual and breaking the salary link. This is treated as an
exceptional item due to its incidence and size.

2012
£’000
2011
£’000
Changes to the present value of the defined benefit obligation during the year
Opening defined benefit obligation 175,716 207,241
Current service cost 644
Interest cost 9,417 10,664
Contributions by members 114
Actuarial losses/(gains) on scheme liabilities 22,606 (32,011)
Net benefits paid out (8,362) (8,065)
Past service cost 79
Curtailment and settlement gain (2,950)
Closing defined benefit obligation 199,377 175,716

2012
£’000
2011
£’000
Changes to the fair value of scheme assets
Opening fair value of assets 168,789 156,868
Expected return on assets 11,036 10,419
Actuarial (losses)/gains (2,860) (507)
Contributions by the employer 16,888 9,960
Contributions by members 114
Net benefits paid out (8,362) (8,065)
Closing fair value of assets 185,491 168,789
Actual return on plan assets
Expected return on assets 11,036 10,419
Actuarial (losses)/gains (2,860) (507)
Actual return on assets 8,176 9,912

Analysis of amounts recognised in Consolidated statement of comprehensive income
Value at
2012
£’000
Value at
2011
£’000
Total actuarial (losses)/gains in Consolidated statement of comprehensive income (25,466) 31,504
Movement in related deferred tax asset 5,602 (9,333)
Total (losses)/gains in Consolidated statement of comprehensive income (19,864) 22,171
Cumulative amount of losses recognised in Consolidated statement of comprehensive income gross (31,928) (12,064)
Deferred tax asset 3,333 1,801
Cumulative amount of losses recognised in Consolidated statement of comprehensive income (28,595) (10,263)

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