Annual Report 2020

22. RETIREMENT BENEFITS

The Group operates a number of defined benefit pension schemes for certain employees, past and present, in the Republic of Ireland (ROI) and in Northern Ireland (NI), all of which provide pension benefits based on final salary and the assets of which are held in separate trustee administered funds. The Group closed its defined benefit pension schemes to new members in March 2006 and provides only defined contribution pension schemes for employees joining the Group since that date. The Group provides permanent health insurance cover for the benefit of certain employees and separately charges this to the Income Statement.

The defined benefit pension scheme assets are held in separate trustee administered funds to meet long-term pension liabilities to past and present employees. The trustees of the funds are required to act in the best interest of the funds’ beneficiaries. The appointment of trustees to the funds is determined by the schemes’ trust documentation. The Group has a policy in relation to its principal staff pension fund that members of the fund should nominate half of all fund trustees.

There are no active members remaining in the executive defined benefit pension scheme (2019: no active members). There are 55 active members, representing less than 10% of total membership, in the ROI Staff defined benefit pension scheme (2019: 57 active members) and 2 active members in the NI defined benefit pension scheme (2019: 3 active members). The Group’s ROI defined benefit pension reform programme concluded during the financial year ended 29 February 2012 with the Pensions Board issuing a directive under Section 50 of the Pensions Act 1990 to remove the mandatory pension increase rule, which guaranteed 3% per annum increase to certain pensions in payment, and to replace it with guaranteed pension increases of 2% per annum for each year 2012 to 2015 and thereafter for all future pension increases to be awarded on a discretionary basis.

Actuarial valuations – funding requirements

Independent actuarial valuations of the defined benefit pension schemes are carried out on a triennial basis using the attained age method. The most recent actuarial valuations of the ROI defined benefit pension schemes were carried out with an effective date of 1 January 2018 while the date of the most recent actuarial valuation of the NI defined benefit pension scheme was 31 December 2017. The actuarial valuations are not available for public inspection; however the results of the valuations are advised to members of the various schemes.

The funding requirements in relation to the Group’s ROI staff defined benefit pension schemes are assessed at each valuation date and are implemented in accordance with the advice of the actuaries. Arising from the formal actuarial valuations of the Group’s staff defined benefit pension scheme, the Group has committed to contributions of 27.5% of pensionable salaries. There is no funding requirement with respect to the Group’s ROI executive defined benefit pension scheme or the Group’s NI defined benefit pension scheme, both of which are in surplus. The Group has an unconditional right to any surplus remaining in these schemes in the event the scheme concludes.

The Group is exposed to a number of risks in relation to the funding position of these schemes, namely:-

Asset volatility: It is the Group’s intention to pursue a long-term investment policy that emphasises investment in secure monetary assets to provide for the contractual benefits payable to members. The investment portfolio has exposure to equities, other growth assets and fixed interest investments, the returns from which are uncertain and may fluctuate significantly in line with market movements. Assets held are valued at fair value using bid prices where relevant.

Discount rate: The discount rate is the rate of interest used to discount post-employment benefit obligations and is determined by reference to market yields at the balance sheet date on high quality corporate bonds with a currency and term consistent with the currency and estimated term of the Group’s post employment benefit obligations. Movements in discount rates have a significant impact on the value of the schemes’ liabilities.

Longevity: The value of the defined benefit obligations is influenced by demographic factors such as mortality experience and retirement patterns. Changes to life expectancy have a significant impact on the value of the schemes’ liabilities.

Method and assumptions

The schemes’ independent actuary, Mercer (Ireland) Limited, has employed the projected unit credit method to determine the present value of the defined benefit obligations arising and the related current service cost.

The financial assumptions that have the most significant impact on the results of the actuarial valuations are those relating to the discount rate used to convert future pension liabilities to current values and the rate of inflation/salary increase. These and other assumptions used to determine the retirement benefits and current service cost under IAS19(R) Employee Benefits are set out below.

Mortality rates also have a significant impact on the actuarial valuations, as the number of deaths within the scheme have been too small to analyse and produce any meaningful scheme-specific estimates of future levels of mortality, the rates used have been based on the most up-to-date mortality tables, (the S2PMA CMI 2016 (males) and S2PFA CMI 2016 (females) for the ROI schemes and S2PA CMI 2016 for the NI scheme) with age ratings and loading factors to allow for future mortality improvements. These tables conform to best practice. The growing trend for people to live longer and the expectation that this will continue has been reflected in the mortality assumptions used for this valuation as indicated below. This assumption will continue to be monitored in light of general trends in mortality experience. Based on these tables, the assumed life expectations on retirement are:-

		ROI		NI
		2020	2019	2020	2019
Future life expectations at age 65		No. of years	No. of years	No. of years	No. of years
Current retirees – no allowance for future improvements	Male	22.5-23.4	22.5-23.3	22.5	22.4
	Female	24.4-25.3	24.4-25.2	24.2	24.3
Future retirees – with allowance for future improvements	Male	23.4-24.2	23.3-24.2	24.3	24.2
	Female	25.4-26.2	25.3-26.2	26.2	26.1

Scheme liabilities

The average age of active members is 50 years (2019: 48 and 53 years) for the ROI Staff and the NI defined benefit pension schemes respectively (the executive defined benefit pension scheme has no active members), while the average duration of liabilities ranges from 14 to 24 years (2019: 14 to 25 years).

The principal long-term financial assumptions used by the Group’s actuaries in the computation of the defined benefit liabilities arising on pension schemes as at 29 February 2020 and 28 February 2019 are as follows:-

	2020		2019
	ROI	NI	ROI	NI
Salary increases	0.0%-2.0%	3.3%	0.0%-2.5%	3.6%
Increases to pensions in payment	1.3%-1.4%	1.6%	1.6%-1.7%	1.7%
Discount rate	0.8%-1.0%	1.7%	1.8%-2.1%	2.8%
Inflation rate	1.3%-1.4%	2.9%	1.6%-1.7%	3.2%

A reduction in discount rate used to value the schemes’ liabilities by 0.25% would increase the valuation of liabilities by €10.7m while an increase in inflation/salary increase expectations of 0.25% would increase the valuation of liabilities by €10.6m. The sensitivity is calculated by changing the individual assumption while holding all other assumptions constant.

The pension assets and liabilities have been prepared in accordance with IAS19(R) Employee Benefits.

(a) Impact on Group Income Statement

	2020			2019
	ROI	NI	Total	ROI	NI	Total
	€m	€m	€m	€m	€m	€m
Analysis of defined benefit pension expense:
Current service cost	(0.6)	-	(0.6)	(0.9)	-	(0.9)
Past service gain	-	-	-	0.1	(0.1)	-
Interest cost on scheme liabilities	(3.6)	(0.2)	(3.8)	(3.9)	(0.2)	(4.1)
Interest income on scheme assets	3.4	0.3	3.7	3.8	0.3	4.1
Total (expense)/income recognised in Income Statement	(0.8)	0.1	(0.7)	(0.9)	-	(0.9)

Analysis of amount recognised in Other Comprehensive Income:

	2020			2019
	ROI	NI	Total	ROI	NI	Total
	€m	€m	€m	€m	€m	€m
Actual return on scheme assets	18.8	1.9	20.7	4.3	0.3	4.6
Expected interest income on scheme assets	(3.4)	(0.3)	(3.7)	(3.8)	(0.3)	(4.1)
Experience gains and losses on scheme liabilities	2.2	-	2.2	2.9	0.3	3.2
Effect on changes in financial assumptions	(26.3)	(1.7)	(28.0)	(7.6)	0.1	(7.5)
Effect of changes in demographic assumptions	4.4	-	4.4	-	0.2	0.2
Total (expense)/income	(4.3)	(0.1)	(4.4)	(4.2)	0.6	(3.6)
Scheme assets	186.8	14.1	200.9	173.5	12.3	185.8
Scheme liabilities	(200.2)	(8.6)	(208.8)	(182.2)	(6.8)	(189.0)
Deficit in scheme	(16.7)	-	(16.7)	(12.2)	-	(12.2)
Surplus in scheme	3.3	5.5	8.8	3.5	5.5	9.0

(b) Impact on Group Balance Sheet

The retirement benefits (deficit)/surplus at 29 February 2020 and 28 February 2019 is analysed as follows:-

Analysis of net pension deficit:

	2020			2019
	ROI	NI	Total	ROI	NI	Total
	€m	€m	€m	€m	€m	€m
Investments quoted in active markets
Bid value of assets at end of year:
Equity*	35.1	2.6	37.7	33.9	2.5	36.4
Bonds	113.4	11.5	124.9	102.1	9.8	111.9
Alternatives	24.9	-	24.9	24.2	-	24.2
Cash	0.2	-	0.2	0.5	-	0.5
Investments unquoted
Property	13.2	-	13.2	12.8	-	12.8
	186.8	14.1	200.9	173.5	12.3	185.8
Actuarial value of scheme liabilities	(200.2)	(8.6)	(208.8)	(182.2)	(6.8)	(189.0)
Deficit in the scheme	(16.7)	-	(16.7)	(12.2)	-	(12.2)
Surplus in the scheme	3.3	5.5	8.8	3.5	5.5	9.0
(Deficit)/surplus in the scheme	(13.4)	5.5	(7.9)	(8.7)	5.5	(3.2)
Related deferred tax asset	2.1	-	2.1	1.5	-	1.5
Related deferred tax liability	(0.4)	(1.9)	(2.3)	(0.4)	(2.0)	(2.4)
Net pension (deficit)/surplus	(11.7)	3.6	(8.1)	(7.6)	3.5	(4.1)

* The defined benefit pension schemes have a passive self investment in C&C Group plc of €nil (2019: €nil).

The alternative investment category includes investments in various asset classes including equities, commodities, currencies and funds. The investments are managed by fund managers.

Reconciliation of scheme assets

	2020			2019
	ROI	NI	Total	ROI	NI	Total
	€m	€m	€m	€m	€m	€m
Assets at beginning of year	173.5	12.3	185.8	175.6	11.8	187.4
Movement in year:
Translation adjustment	-	-	-	-	0.3	0.3
Expected interest income on scheme assets, net of pension levy	3.4	0.3	3.7	3.8	0.3	4.1
Actual return less interest income on scheme assets	15.4	1.6	17.0	0.5	-	0.5
Employer contributions	0.4	-	0.4	0.2	-	0.2
Member contributions	0.1	-	0.1	0.2	-	0.2
Benefit payments	(6.0)	(0.1)	(6.1)	(6.8)	(0.1)	(6.9)
Assets at end of year	186.8	14.1	200.9	173.5	12.3	185.8

The expected employer contributions to fund defined benefit scheme obligations for year ending 28 February 2021 is €0.4m.

The scheme assets had the following investment profile at the year end:-

	2020		2019
	ROI	NI	ROI	NI
Investments quoted in active markets
Equities	19%	18%	20%	20%
Bonds	61%	82%	59%	80%
Alternatives	13%	-	14%	-
Cash	-	-	-	-
Investments unquoted
Property	7%	-	7%	-
	100%	100%	100%	100%

Reconciliation of actuarial value of scheme liabilities

	2020			2019
	ROI	NI	Total	ROI	NI	Total
	€m	€m	€m	€m	€m	€m
Liabilities at beginning of year	182.2	6.8	189.0	179.4	7.0	186.4
Movement in year:
Translation adjustment	-	-	-	-	0.2	0.2
Current service cost	0.6	-	0.6	0.9	-	0.9
Past service gain	-	-	-	(0.1)	0.1	-
Interest cost on scheme liabilities	3.6	0.2	3.8	3.9	0.2	4.1
Member contributions	0.1	-	0.1	0.2	-	0.2
Actuarial loss/(gain) immediately recognised in equity	19.7	1.7	21.4	4.7	(0.6)	4.1
Benefit payments	(6.0)	(0.1)	(6.1)	(6.8)	(0.1)	(6.9)
Liabilities at end of year	200.2	8.6	208.8	182.2	6.8	189.0