Defined contribution schemes
The Group operates two defined contribution retirement benefit schemes. The assets of the schemes are held separately from those of the Group in funds under the control of trustees.
The total cost charged to income of £4,307,000 (2021: £3,203,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 26 March 2022, contributions of £519,000 (2021: £447,000) due in respect of the current reporting period had not been paid over to the schemes.
Defined benefit schemes
The Group has a defined benefit scheme which is now closed to new members and no defined benefit membership rights will accrue under the scheme.
The scheme exposes the Group to actuarial and other risks, the most significant of which are considered to be:
| Investment risk | The present values of the scheme liabilities are calculated using a discount rate determined by reference to corporate bond yields; if the return on scheme assets is below this rate, it will create a plan deficit. The Group holds a significant proportion of growth assets (bonds, gilts and equities) to leverage the return generated by the scheme. |
| Interest risk | A decrease in the corporate bond interest rate will increase the scheme liabilities, although this will be partially offset by an increase in the return on the scheme's assets. |
| Longevity risk | The present values of the scheme liabilities are calculated by reference to the best estimate of the mortality of scheme participants which reflect continuing improvements in life expectancy. An increase in the life expectancy of the scheme participants will increase the scheme's liabilities. |
| Salary risk | The present values of the defined benefit scheme liabilities are calculated by reference to the future salaries of scheme participants. As such, an increase in the salary of the scheme participants will increase the scheme's liabilities. |
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation was carried out at 5 April 2020 by Mr Alex Pearse, Fellow of the Institute of Actuaries. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method.
| 2022
% | 2021
% |
| Key assumptions used: | | |
| Discount rate | 2.9 | 1.9 |
| Inflation (RPI) | 3.6 | 3.4 |
| Future pension increases | 3.3 | 3.2 |
When considering mortality assumptions, a life expectancy to 86 at age 65 has been used for the year ended 26 March 2022 (2021: 86). For the year ended 27 March 2021, the Group updated the mortality assumption following analysis undertaken by the Scheme actuary for the triennial funding valuation of the scheme as at 5 April 2020 from 100 per cent of the SAPS Series 3 Base Tables with a +2 year age rating to 120 per cent of the SAPS Series 3 Base Tables. This update is based on analysis of the membership by pension amounts carried out for the 5 April 2020 Scheme funding valuation and allowing for occupational factors. In addition, the allowance for future improvement has been updated for the CMI 2018 model to the CMI 2019 model. The Group has updated its long-term rate of mortality improvements assumption from 1.50 per cent for males and 1.25 per cent for females to 1.25 per cent per annum for both males and females as improvement in life expectancies have continued to slow in recent years, even before allowing for the impact of the COVID-19 pandemic. No adjustment has been made for the impact of COVID-19 on mortality assumptions as it is too early to conclude on any evidence to support the impact.
The RPI inflation for the 2022 disclosures in this note has been calculated using a cash flow weighted single-equivalent rate based on the Bank of England's inflation yield curve. This is a change in methodology from the prior year, which is estimated to reduce the balance sheet liability by c.£1,700,000 at 26 March 2022.
Impact on scheme liabilities of changes to key assumptions:
| Assumption | Change in assumption | Impact on scheme liabilities |
| Discount rate | Increase/decrease by 0.25% | Decrease/increase by 4.4% |
| Rate of mortality | Reducing by 10% | Increase by 3.0% |
| Price inflation | Increase/decrease by 0.25% | Increase/decrease by 3.2% |
Amounts recognised in income in respect of these defined benefit schemes are as follows:
| 2022
£000 | 2021
£000 |
| Interest cost | 940 | 989 |
| Interest income | (538) | (578) |
| 402 | 411 |
The charge for the year has been included in operating costs. Actuarial gains and losses have been reported in the statement of comprehensive income. The cumulative actuarial gains and losses recognised amount to a loss of £18,899,000 (2021: £24,837,000).
The actual return on scheme assets were a gain of £478,000 (2021: £2,800,000).
The amount included in the balance sheet arising from the Group's obligations in respect of the defined benefit retirement scheme is as follows:
| 2022
£000 | 2021
£000 |
| Present value of defined benefit obligations | (43,562) | (50,316) |
| Fair value of scheme assets | 29,166 | 27,937 |
| (14,396) | (22,379) |
The major categories of scheme assets as a percentage of the total scheme assets are as follows:
| 2022
% | 2021
% |
| Equities | 20.3 | 24.9 |
| Bonds and gilts | 22.0 | 22.8 |
| Cash | 15.1 | 8.7 |
| Property | 10.6 | 7.7 |
| LDI funds | 23.8 | 26.0 |
| Other | 8.2 | 9.9 |
| 100.0 | 100.0 |
Bonds and gilts include a mixture of corporate and government bonds and fixed and index-linked gilts. Approximately nine per cent of bonds have a sub-investment grade credit rating (BB+ or lower) and approximately 72 per cent of gilts are index-linked, with 28 per cent being fixed.
Movements in the present value of defined benefit obligations were as follows:
| 2022
£000 | 2021
£000 |
| At start of year | (50,316) | (43,843) |
| Interest cost | (940) | (989) |
| Actuarial gains/(losses) | 5,998 | (7,128) |
| Benefits paid | 1,696 | 1,644 |
| At end of year | (43,562) | (50,316) |
Actuarial losses arising from changes in demographic assumptions, changes in financial assumptions and gains or losses arising from experience were gains of £43,000 (2021: losses of £1,230,000), gains of £6,112,000 (2021: losses of £6,317,000) and losses of £157,000 (2021: gains of £419,000) respectively.
The present value of defined benefit obligations at the year end is as follows:
| 2022
£000 |
| Liability in respect of deferred members | (26,163) |
| Liability in respect of pensioner members | (17,399) |
| (43,562) |
Movements in the fair value of scheme assets were as follows:
| 2022
£000 | 2021
£000 |
| At start of year | 27,937 | 25,155 |
| Interest income | 538 | 578 |
| Actuarial (losses)/gains | (60) | 2,222 |
| Employer contributions | 2,447 | 1,626 |
| Benefits paid | (1,696) | (1,644) |
| At end of year | 29,166 | 27,937 |
The Group expects to contribute £210,000 (2021: £210,000) per month to its defined benefit pension scheme in the year to 25 March 2023.
History of experience of gains and losses:
| 2022 | 2021 | 2020 | 2019 | 2018 |
| Experience (losses)/gains on scheme assets (£000) | (60) | 2,222 | (1,093) | 651 | (488) |
| Percentage of scheme assets | (0.2%) | 8.0% | (4.3%) | 2.5% | (2.0%) |
| | | | | |
| Experience losses/(gains) on scheme liabilities (£000) | 157 | 419 | (1,007) | 16 | 200 |
| Percentage of the present value of scheme liabilities | 0.4% | 0.8% | (2.2%) | 0.0% | 0.5% |
| | | | | |
| Total amount recognised in the consolidated statement of comprehensive income (£000) | 5,938 | (4,906) | 255 | (3,702) | 3,606 |
| Percentage of the present value of scheme liabilities | 13.6% | (9.8%) | 0.6% | (8.1%) | 8.6% |
The weighted average period over which benefits are expected to be paid, or the duration of the liabilities, is currently 17 years.