25. Retirement benefit schemes

Defined benefit schemes

The Group operates a number of defined benefit schemes under which employees are entitled to retirement benefits which are based on final salary on retirement. These are as follows:

(a) Premier schemes

The Premier Foods Pension Scheme ("PFPS") was the principal funded defined benefit scheme within the old Premier Group which also operated a smaller funded defined benefit scheme, the Premier Ambient Products Pension Scheme ("PAPPS") for employees acquired with the Ambrosia business in 2001. As a result of the acquisition of Campbell's in 2006, the Group inherited the Premier Grocery Products Pension Scheme ("PGPPS") covering the employees of Campbell's UK business, and the Premier Grocery Products Ireland Pension Scheme ("PGPIPS") covering the employees of Campbell's Ireland. The Group also acquired two further schemes with the acquisition of Chivers Ireland in January 2007, the Chivers 1987 Pension Scheme and the Chivers 1987 Supplementary Pension Scheme. These schemes are presented together below as the Premier schemes.

(b) RHM schemes

As a result of the acquisition of RHM plc, the Group also acquired the RHM Pension Scheme, the Premier Foods Ireland Pension Scheme (1994), the Premier Foods Ireland Van Sales Scheme and the French Termination Indemnity Arrangements. These schemes are presented together below as the RHM schemes, with the exception of the French Termination Indemnity Arrangements which were disposed of with the speciality bakery businesses during the previous year, and the Premier Foods Ireland Van Sales Scheme which was wound up during the year.

The exchange rates used to translate the overseas euro based schemes are £1.00 = €1.1584 for the average rate during the year, and £1.00 = €1.1601 for the closing position at 31 December 2010.

Under all the schemes detailed above, the employees are entitled to retirement benefits which vary as a percentage of final salary on retirement. The assets of all schemes are held by the trustees of the respective schemes and are independent of the Group's finances.

The schemes invest through investment managers appointed by the trustees in UK and European equities and in investment products made up of a broader range of assets. The plan assets do not include any of the Group's own financial instruments, nor any property occupied by, or other assets used by, the Group. The pension schemes hold a charge over the assets of the Group.

At the balance sheet date, the combined principal actuarial assumptions used for all the schemes were as follows:

Premier
schemes
2010
RHM
schemes
2010
Discount rate 5.45% 5.45%
Inflation 3.45% 3.45%
Expected salary increases 4.45% 3.30%
Future pension increases 2.20% 2.20%
Premier
schemes
2009
RHM
schemes
2009
Discount rate 5.80% 5.80%
Inflation 3.50% 3.50%
Expected salary increases 4.50% 3.50%
Future pension increases 2.20% 2.20%

For the smaller overseas schemes the discount rate used was 5.50%, expected salary increases of 3.00%, and future pension increases of 1.75%.

The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are as follows:

2010 Life expectancy Premier
schemes
RHM
schemes
Total
Male pensioner, currently aged 65 87.4 85.5 86.0
Female pensioner, currently aged 65 89.4 87.7 88.1
Male non-pensioner, currently aged 45 88.5 86.6 87.1
Female non-pensioner, currently aged 45 90.6 88.9 89.3
2009 Life expectancy Premier
schemes
RHM
schemes
Total
Male pensioner, currently aged 65 85.9 85.0 85.2
Female pensioner, currently aged 65 88.4 87.3 87.6
Male non-pensioner, currently aged 45 87.2 86.2 86.4
Female non-pensioner, currently aged 45 89.6 88.4 88.7

The fair values of plan assets split by type of asset are as follows:

Pension scheme assets Premier
schemes
£m
RHM
schemes
£m
Total
£m
Assets at 31 December 2010
Equities 98.7 489.4 588.1
Government bo n ds 15.3 6.7 22.0
Corporate bonds 93.0 330.7 423.7
Property 1.0 120.5 121.5
Absolute/target return products 241.0 325.8 566.8
Interest rate and inflation swaps 24.8 56.1 80.9
Cash/other 39.0 957.4 996.4
Fair value of scheme assets 512.8 2,286.6 2,799.4
Assets at 31 December 2009
Equities 116.5 483.1 599.6
Government bo n ds 12.4 7.4 19.8
Corporate bonds 71.7 303.3 375.0
Property 2.0 164.0 166.0
Absolute/target return products 209.1 313.1 522.2
Interest rate and inflation swaps 25.3 (38.8) (13.5)
Cash/other 40.1 820.8 860.9
Fair value of scheme assets 477.1 2,052.9 2,530.0

The schemes invest in interest rate and inflation swaps to protect from fluctuations in interest and inflation.

The expected rates of return on assets were:

Premier
schemes
RHM
schemes
Total
2010 (for 2011 return)
Expected rate (%) 7.8 6.7 6.9
Market value (£ m ) 512.8 2,286.6 2,799.4
2009 (for 2010 return)
Expected rate (%) 8.0 7.0 7.2
Market value (£ m ) 477.1 2,052.9 2,530.0
2008 (for 2009 return)
Expected rate (%) 7.4 6.3 6.5
Market value (£ m ) 415.4 2,112.9 2,528.3
2007 (for 2008 return)
Expected rate (%) 8.0 6.9 7.2
Market value (£ m ) 506.2 2,079.2 2,585.4
2006 (for 2007 return)
Expected rate (% ) 7.5 - 7.5
Market value (£ m ) 465.7 - 465.7

The expected return on pension scheme assets is based on the long-term investment strategy set out in the Schemes' Statement of Investment Principles at the start of the year.

The actual rate of return on plan assets was a gain of 8.5% (2009: 17.5% gain) for Premier schemes, and a gain of 14.4% for RHM schemes (2009: 0.2% loss).

The amounts recognised in the balance sheet arising from the Group's obligations in respect of its defined benefit schemes is as follows:

Premier
schemes
£m
RHM
schemes
£m
Total
£m
2010
Present value of funded obligations (748.0) (2,372.3) (3,120.3)
Fair value of plan assets 512.8 2,286.6 2,799.4
Deficit in scheme (235.2) (85.7) (320.9)
2009
Present value of funded obligations (685.5) (2,273.0) (2,958.5)
Fair value of plan assets 477.1 2,052.9 2,530.0
Deficit in scheme (208.4) (220.1) (428.5)
2008
Present value of funded obligations (587.7) (1,952.1) (2,539.8)
Fair value of plan assets 415.4 2,112.9 2,528.3
(Deficit)/surplus in scheme (172.3) 160.8 (11.5)
2007
Present value of funded obligations (581.7) (2,126.9) (2,708.6)
Fair value of plan assets 506.2 2,079.2 2,585.4
Deficit in scheme (75.5) (47.7) (123.2)
2006
Present value of funded obligations (550.4) - (550.4)
Fair value of plan assets 465.7 - 465.7
Deficit in scheme (84.7) - (84.7)

The aggregate deficit has decreased by £107.6m during the year primarily due to an increase in the fair value of plan assets, offset by an increase in the defined benefit obligation. This was primarily a result of a fall in discount rate assumption used, which is based on the AA bond yield, from 5.80% to 5.45%.

Changes in the present value of the defined benefit obligation were as follows:

Premier
schemes
£m
RHM
schemes
£m
Total
£m
2010
Opening defined benefit obligation (685.5) (2,273.0) (2,958.5)
Current service cost (13.2) (7.5) (20.7)
Past service credit 6.7 4.9 11.6
Interest cost (39.2) (129.1) (168.3)
Actuarial loss (42.8) (66.8) (109.6)
Other income/exchange differences 1.5 0.5 2.0
Curtailments/settlements (1.5) 1.5
Contributions by plan participants (5.1) (10.8) (15.9)
Benefits paid 29.6 108.0 137.6
Closing defined benefit oblig a tion (748.0) (2,372.3) (3,120.3)
2009
Opening defined benefit obligation (587.7) (1,952.1) (2,539.8)
Current service cost (8.0) (3.6) (11.6)
Past service cos t - (1.2) (1.2)
Interest cost (36.1) (119.9) (156.0)
Actuarial loss (81.2) (295.1) (376.3)
Other costs/exchange differences 3.6 1.4 5.0
Curtailments 0.1 0.9 1.0
Contributions by plan participants (4.7) (11.5) (16.2)
Benefits paid 28.5 108.1 136.6
Closing defined benefit obligation (685.5) (2,273.0) (2,958.5)

Changes in the fair value of plan assets were as follows:

Premier
schemes
£m
RHM
schemes
£m
Total
£m
2010
Opening fair value of plan assets 477.1 2,052.9 2,530.0
Expected return 37.6 141.4 179.0
Administrative and life insurance costs (3.1) (3.5) (6.6)
Actuarial gain 2.8 153.2 156.0
Assets disposed due to settlement - (1.6) (1.6)
Contributions by employer 24.1 41.9 66.0
Contributions by plan participants 5.1 10.8 15.9
Other costs/exchange differences (1.2) (0.5) (1.7)
Benefits paid (29.6) (108.0) (137.6)
Closing fair value of plan assets 512.8 2,286.6 2,799.4
2009
Opening fair value of plan assets 415.4 2,112.9 2,528.3
Expected return 30.2 131.6 161.8
Administrative and life insurance costs (2.2) (5.4) (7.6)
Actuarial gain/(lo ss) 42.5 (135.0) (92.5)
Contributions by employer 17.7 46.8 64.5
Contributions by plan participants 4.7 11.5 16.2
Other income/exchange differences (2.7) (1.4) (4.1)
Benefits paid (28.5) (108.1) (136.6)
Closing fair value of plan assets 477.1 2,052.9 2,530.0

The history of the plans for the current and prior years is as follows:

Premier
schemes
£m
RHM
schemes
£m
Total
£m
2010
Actuarial loss on plan liabilities (42.8) (66.8) (109.6)
Actuarial gain on plan assets 2.8 153.2 156.0
Net actuarial (loss)/gain for the year (40.0) 86.4 46.4
Cumulative actuarial loss (265.0) (31.7) (296.7)
2009
Actuarial loss on plan liabilities (81.2) (295.1) (376.3)
Actuarial gain/(loss) on plan assets 42.5 (135.0) (92.5)
Net actuarial loss for the year (38.7) (430.1) (468.8)
Cumulative actuarial loss (225.0) (118.1) (343.1)
2008
Actuarial gain on plan liabilities 23.3 214.8 238.1
Actuarial loss on plan assets (131.6) (50.3) (181.9)
Net actuarial (loss)/gain for the year (108.3) 164.5 56.2
Cumulative actuarial (loss)/gain (186.3) 312.0 125.7
2007
Actuarial gain on plan liabilities 2.6 135.8 138.4
Actuarial (loss)/gain on plan assets (14.8) 11.7 (3.1)
Net actuarial (loss)/gain for the period (12.2) 147.5 135.3
Cumulative actuarial (loss)/g a in (78.0) 147.5 69.5
2006
Actuarial gain on plan liabilities 4.4 - 4.4
Actuarial gain on plan assets 11.7 - 11.7
Net actuarial gain for the year 16.1 - 16.1
Cumulative actuarial loss (65.8) - (65.8)

The actual return on plan assets was a £335.0m gain (2009: £69.3m gain), which is £156.0m more (2009: £92.5m less) than the expected return on plan assets of £179.0m (2009: £161.8m) at the start of the relevant periods.

The actuarial loss on liabilities of £109.6m (2009: £376.3m loss) comprises a gain on member experience of £36.8m (2009: £8.9m gain) and an actuarial loss due to changes in assumptions of £146.4m (2009: £385.2m loss).

The net actuarial gains taken to the statement of comprehensive income were £46.4m (2009: £468.8m losses). These were £34.2m (2009: £336.7m loss) net of taxation (with tax at 27.0% for UK schemes, and 12.5% for Irish schemes).

The Group expects to contribute approximately £77.1m (2010: £66.0m) to its defined benefit plans in 2011, £28.8m (2010: £28.0m) of regular contributions and expenses and £48.3m (2010: £38.0m) of additional contributions to fund the scheme deficits.

The total amounts recognised in the Group's income statement are as follows:

Premier
schemes
£m
RHM
schemes
£m
Total
£m
2010
Current service cost (13.2) (7.5) (20.7)
Past service credit 6.7 4.9 11.6
Administrative and life insurance costs (3.1) (3.5) (6.6)
Interest cost (39.2) (129.1) (168.3)
Expected return on plan assets 37.6 141.4 179.0
Loss on curtailm ent - (0.1) (0.1)
Total (expense)/income (11.2) 6.1 (5.1)
2009
Current service cost (8.0) (3.6) (11.6)
Past service cost - (1.2) (1.2)
Administrative and life insurance costs (2.2) (5.4) (7.6)
Interest cost (36.1) (119.9) (156.0)
Expected return on plan assets 30.2 131.6 161.8
Losses on curtailment 0.1 0.9 1.0
Total (expense)/income (16.0) 2.4 (13.6)

Defined contribution schemes

A number of companies in the Group operate defined contribution schemes, predominantly stakeholder arrangements. In addition a number of schemes providing life assurance benefits only are operated. The total expense recognised in the income statement of £1.1m (2009: £1.1m) represents contributions payable to the plans by the Group at rates specified in the rules of the plans.

Other post retirement benefits

The Group does not provide any other post retirement benefits.