Notes on the Accounts.

for the year ended 31st March 2011

14 Post-employment benefits

14a Group

The group operates a number of post-employment benefits plans around the world, the forms and benefits of which vary with conditions and practices in the countries concerned. The majority of the plans are defined benefit which require contributions to be made into separately administered funds and retirement benefits are based on factors such as employees’ pensionable salary and length of service. Some of the plans are defined contribution, where the retirement benefits are determined by the value of funds arising from contributions paid in respect of each employee. The group also makes payments to employees’ personal pension plans. The amount recognised as an expense for defined contribution plans was £6.0 million (2010 £2.9 million).

The major defined benefit plans are pension plans and post-retirement medical plans in the UK and the US. The UK pension plan is a career average salary plan with a final salary section which was closed to future accrual of benefits from 1st April 2010. The US hourly pension plan is a fixed benefit plan based upon years of service. The US salaried pension plan is a final salary plan. Full actuarial valuations were carried out at 1st April 2009 for the UK pension plan and 30th June 2010 for the US pension plans and the valuations of all of the UK and US plans were updated to 31st March 2011 by qualified independent actuaries.

The main assumptions were:

  2011
UK plans
%
  2011
US plans
%
  2011
Other plans
%
  2010
UK plans
%
  2010
US plans
%
  2010
Other plans
%
Rate of increase in salaries 4.50   3.75   3.17   4.70   3.75   2.90
Rate of increase in pensions in payment 3.50     2.44   3.70     2.08
Discount rate 5.50   5.70   5.57   5.50   5.70   5.49
Inflation     2.75   2.06       2.75   2.06
– UK RPI 3.50           3.70  
– UK CPI 3.00  
Current medical benefits cost trend rate 7.70   8.06     7.70   8.35   4.00
Ultimate medical benefits cost trend rate 6.00   4.50     7.70   4.50   4.00

The group uses certain mortality assumptions when calculating plan obligations. The current mortality assumptions for all major plans retain prudent allowance for future improvements in longevity and take account of experience.

The mortality tables used for the group’s largest plan, which is in the UK, at its last full actuarial valuation were PMA92C2009 for male members retiring in normal health and PFA92C2009 for female members retiring in normal health. Allowance for future mortality improvements was made in line with the medium cohort versions of these tables with an underpin of 1% p.a. Shorter longevity assumptions are used for members who retire on grounds of ill-health. These tables have been carried through into the balance sheet calculations at 31st March 2010 and 2011 and the income statement for the year ended 31st March 2011, allowing for the expected improvements over the intervening years. The mortality tables used for the income statement for the year ended 31st March 2010 were PMA92C2006 for male members retiring in normal health and PFA92C2006 for female members retiring in normal health. Allowance for future mortality improvements was made in line with the medium cohort versions of these tables and expected improvements over the intervening years was also allowed for. The expected future lifetime of average members currently at age 65 and average members at age 65 in 25 years time (i.e. members who are currently aged 40 years) is respectively:

  Currently
age 65
  Age 65
in 25 years
Male 20.6   23.0
Female 23.9   26.6

The mortality tables used for the other larger plans were:

US RP2000 projected to 2017 using Scale AA
Netherlands AG Prognosetafel 2005-2050 with one year age set back
Canada UP 94 generational (including allowance for future mortality improvements)
Germany RT2005 G
South Africa PA(90), rated down by two years

A one percentage point change in the assumed medical cost trend rates would have the following effects on:

  One percentage point increase   One percentage point decrease
  UK plan
£ million
  US plan
£ million
  UK plan
£ million
  US plan
£ million
At 31st March 2011  
Post-retirement medical plan expense 0.1   0.4   (0.1)   (0.3)
Post-retirement medical plan defined benefit obligation 1.7   3.7   (1.4)   (3.0)
At 31st March 2010  
Post-retirement medical plan expense 0.1   0.4   (0.1)   (0.3)
Post-retirement medical plan defined benefit obligation 2.4   4.1   (1.9)   (4.3)

A 0.1% change in the discount rate and rate of increase in salaries would have the following increase / (decrease) on the UK pension plan’s defined benefit obligation at 31st March 2011:

  0.1%
increase
£ million
  0.1%
decrease
£ million
Effect of discount rate (21.4)   22.0
Effect of rate of increase in salaries 4.3   (4.3)

The fair values and expected rates of return for plan assets were:

  UK pension   US pensions   Other
  Expected rate
of return
%
  Value
£ million
  Expected rate
of return
%
  Value
£ million
  Expected rate
of return
%
  Value
£ million
At 31st March 2011  
Equities 8.10   456.6   7.70   71.0   7.70   10.0
Bonds 5.20   472.6   5.00   63.0   5.19   7.5
Property 6.60   37.6        
Insurance policies         5.28   18.3
  6.62   966.8   6.43   134.0   5.94   35.8
At 31st March 2010  
Equities 8.25   456.1   8.30   67.4   8.42   9.7
Bonds 5.00   394.6   5.30   55.1   5.25   7.3
Property 6.75   36.0        
Insurance policies         4.83   19.0
  6.74   886.7   6.95   122.5   5.88   36.0

The defined benefit pension plans do not invest directly in Johnson Matthey Plc shares and no property or other assets owned by the pension plans are used by the group. The overall expected rate of return is determined on a country by country basis by reference to market expectations for each class of asset. It is based upon the forecasts of actuaries and market professionals.

Movements in the defined benefit obligation during the year were:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
At 1st April 2009 (715.6)   (12.0)   (128.3)   (26.7)   (45.3)   (927.9)
Current service cost – in operating profit (15.5)   (0.1)   (5.3)   (0.7)   (2.3)   (23.9)
Current service cost – capitalised (0.1)     (0.1)       (0.2)
Past service cost – vested (0.4)         (0.2)   (0.6)
Past service cost – non-vested       0.8     0.8
Interest cost (45.5)   (0.8)   (7.3)   (1.5)   (2.5)   (57.6)
Employee contributions (5.2)         (0.3)   (5.5)
Actuarial loss (293.5)   (1.9)   (18.2)   (2.2)   (4.8)   (320.6)
Benefits paid 32.2   0.4   3.8   0.5   2.1   39.0
Exchange adjustments     5.8   1.3   (0.9)   6.2
At 31st March 2010 (1,043.6)   (14.4)   (149.6)   (28.5)   (54.2)   (1,290.3)
Current service cost – in operating profit (22.8)   (0.1)   (6.8)   (0.9)   (2.1)   (32.7)
Current service cost – capitalised (0.1)           (0.1)
Past service cost – vested (1.9)           (1.9)
Past service cost – non-vested       0.4     0.4
Interest cost (56.5)   (0.8)   (8.2)   (1.6)   (2.7)   (69.8)
Curtailment gains         4.4   4.4
Settlement gains         3.5   3.5
Employee contributions         (0.3)   (0.3)
Actuarial gain / (loss) 64.2   2.5   (0.2)   2.6   (0.9)   68.2
Benefits paid 33.3   0.3   4.4   0.6   2.0   40.6
Exchange adjustments     8.3   1.6   0.7   10.6
At 31st March 2011 (1,027.4)   (12.5)   (152.1)   (25.8)   (49.6)   (1,267.4)

Movements in the fair value of the plan assets during the year were:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
At 1st April 2009 670.4     77.9     29.4   777.7
Expected return on plan assets 46.8     5.4     1.7   53.9
Actuarial gain 173.4     19.8     1.9   195.1
Employee contributions 5.2         0.3   5.5
Company contributions 23.1   0.4   25.1   0.5   2.7   51.8
Benefits paid (32.2)   (0.4)   (3.8)   (0.5)   (2.1)   (39.0)
Exchange adjustments     (1.9)     2.1   0.2
At 31st March 2010 886.7     122.5     36.0   1,045.2
Expected return on plan assets 60.2     8.3     1.9   70.4
Settlement losses         (3.5)   (3.5)
Actuarial gain 8.1     8.5     1.4   18.0
Employee contributions         0.3   0.3
Company contributions 45.1   0.3   6.2   0.6   1.9   54.1
Benefits paid (33.3)   (0.3)   (4.4)   (0.6)   (2.0)   (40.6)
Exchange adjustments     (7.1)     (0.2)   (7.3)
At 31st March 2011 966.8     134.0     35.8   1,136.6

The actual return on plan assets for UK plans was £68.3 million (2010 £220.2 million) and for US plans was £16.8 million (2010 £25.2 million).

Movements in the reimbursement rights during the year were:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
At 1st April 2009       4.5     4.5
Expected return       0.4   0.6   1.0
Actuarial gain       0.9     0.9
Exchange adjustments       (0.3)     (0.3)
At 31st March 2010       5.5   0.6   6.1
Expected return       0.5     0.5
Actuarial loss       (0.8)     (0.8)
Company contributions         0.1   0.1
Exchange adjustments       (0.3)     (0.3)
At 31st March 2011       4.9   0.7   5.6

The net post-employment benefits assets and liabilities shown in the balance sheet are analysed as:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
At 31st March 2011  
Present value of funded obligations (1,027.4)     (152.1)     (37.8)   (1,217.3)
Present value of unfunded obligations   (12.5)     (25.8)   (11.8)   (50.1)
Defined benefit obligation (1,027.4)   (12.5)   (152.1)   (25.8)   (49.6)   (1,267.4)
Fair value of plan assets 966.8     134.0     35.8   1,136.6
Reimbursement rights       4.9   0.7   5.6
Unrecognised past service credit – non-vested       (2.9)     (2.9)
Net post-employment benefits assets and liabilities (60.6)   (12.5)   (18.1)   (23.8)   (13.1)   (128.1)
At 31st March 2010  
Present value of funded obligations (1,043.6)     (149.6)     (41.1)   (1,234.3)
Present value of unfunded obligations   (14.4)     (28.5)   (13.1)   (56.0)
Defined benefit obligation (1,043.6)   (14.4)   (149.6)   (28.5)   (54.2)   (1,290.3)
Fair value of plan assets 886.7     122.5     36.0   1,045.2
Reimbursement rights       5.5   0.6   6.1
Unrecognised past service credit – non-vested       (3.5)     (3.5)
Net post-employment benefits assets and liabilities (156.9)   (14.4)   (27.1)   (26.5)   (17.6)   (242.5)

These are included in the balance sheet as:

  2011
Post-
employment
benefits
net assets
£ million
  2011

Employee
benefits
obligations
£ million
  2011



Total
£ million
  2010
Post-
employment
benefits
net assets
£ million
  2010

Employee
benefits
obligations
£ million
  2010



Total
£ million
UK pension plan   (60.6)   (60.6)     (156.9)   (156.9)
UK post-retirement medical benefits plan   (12.5)   (12.5)     (14.4)   (14.4)
US pension plans   (18.1)   (18.1)     (27.1)   (27.1)
US post-retirement medical benefits plan   (23.8)   (23.8)     (26.5)   (26.5)
Other plans 3.8   (16.9)   (13.1)   4.6   (22.2)   (17.6)
Total post-employment plans 3.8   (131.9)   (128.1)   4.6   (247.1)   (242.5)
Other long term employee benefits     (2.3)           (3.2)    
Total long term employee benefits obligations     (134.2)           (250.3)    

Amounts recognised in the income statement in respect of these plans were:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
Year ended 31st March 2011  
Current service cost (22.8)   (0.1)   (6.8)   (0.9)   (2.1)   (32.7)
Interest on plan liabilities (56.5)   (0.8)   (8.2)   (1.6)   (2.7)   (69.8)
Expected return on plan assets 60.2     8.3     1.9   70.4
Expected return on reimbursement rights       0.5     0.5
Curtailment gains         4.4   4.4
Past service cost – vested (1.9)           (1.9)
Past service cost – non-vested       0.8     0.8
Charge to income (21.0)   (0.9)   (6.7)   (1.2)   1.5   (28.3)
Year ended 31st March 2010  
Current service cost (15.5)   (0.1)   (5.3)   (0.7)   (2.3)   (23.9)
Interest on plan liabilities (45.5)   (0.8)   (7.3)   (1.5)   (2.5)   (57.6)
Expected return on plan assets 46.8     5.4     1.7   53.9
Expected return on reimbursement rights       0.4   0.6   1.0
Past service cost – vested (0.4)         (0.2)   (0.6)
Past service cost – non-vested       0.3     0.3
Charge to income (14.6)   (0.9)   (7.2)   (1.5)   (2.7)   (26.9)

Of the total charge for the year, £20.7 million (2010 £17.6 million) has been included within cost of sales, £4.9 million (2010 £3.4 million) in distribution costs, £5.9 million (2010 £5.9 million) in administrative expenses and a credit of £3.2 million (2010 £ nil) in major impairment and restructuring charges.

The cumulative amount of actuarial gains / (losses) recognised in the statement of total comprehensive income were:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
At 1st April 2009 (128.9)   (0.3)   (36.3)   (1.9)   (1.9)   (169.3)
Recognised in year (120.1)   (1.9)   1.6   (1.3)   (2.9)   (124.6)
At 31st March 2010 (249.0)   (2.2)   (34.7)   (3.2)   (4.8)   (293.9)
Recognised in year 72.3   2.5   8.3   1.8   0.5   85.4
At 31st March 2011 (176.7)   0.3   (26.4)   (1.4)   (4.3)   (208.5)

It is estimated that the group will contribute about £56 million to the post-employment defined benefits plans during the year ending

31st March 2012.

History of the plans and experience adjustments are:

  UK
pension
£ million
  UK post-
retirement
medical
benefits
£ million
  US
pensions
£ million
  US post-
retirement
medical
benefits
£ million
  Other
£ million
  Total
£ million
Year ended 31st March 2011                      
Present value of defined benefit obligation (1,027.4)   (12.5)   (152.1)   (25.8)   (49.6)   (1,267.4)
Fair value of plan assets 966.8     134.0     35.8   1,136.6
Reimbursement rights       4.9   0.7   5.6
Deficit in the plan (60.6)   (12.5)   (18.1)   (20.9)   (13.1)   (125.2)
Experience adjustments arising on plan liabilities 2.7   (0.2)   (0.2)   3.3   0.6   6.2
Experience adjustments arising on plan assets 8.1     8.5     1.4   18.0
Year ended 31st March 2010  
Present value of defined benefit obligation (1,043.6)   (14.4)   (149.6)   (28.5)   (54.2)   (1,290.3)
Fair value of plan assets 886.7     122.5     36.0   1,045.2
Reimbursement rights       5.5   0.6   6.1
Deficit in the plan (156.9)   (14.4)   (27.1)   (23.0)   (17.6)   (239.0)
Experience adjustments arising on plan liabilities (5.2)   1.2   (2.1)   0.4   (0.2)   (5.9)
Experience adjustments arising on plan assets 173.4     19.8     1.9   195.1
Year ended 31st March 2009  
Present value of defined benefit obligation (715.6)   (12.0)   (128.3)   (26.7)   (45.3)   (927.9)
Fair value of plan assets 670.4     77.9     29.4   777.7
Reimbursement rights       4.5     4.5
Deficit in the plan (45.2)   (12.0)   (50.4)   (22.2)   (15.9)   (145.7)
Experience adjustments arising on plan liabilities 24.4   (0.6)   0.9   (1.0)   0.3   24.0
Experience adjustments arising on plan assets (191.2)     (32.4)     (3.8)   (227.4)
Year ended 31st March 2008  
Present value of defined benefit obligation (744.4)   (10.9)   (86.4)   (15.6)   (39.0)   (896.3)
Fair value of plan assets 809.5     78.5     27.1   915.1
Reimbursement rights       2.6     2.6
Surplus / (deficit) in the plan 65.1   (10.9)   (7.9)   (13.0)   (11.9)   21.4
Experience adjustments arising on plan liabilities (3.0)     5.9   1.8   (0.4)   4.3
Experience adjustments arising on plan assets (87.7)     (6.9)     (2.8)   (97.4)
Year ended 31st March 2007  
Present value of defined benefit obligation (801.0)   (11.6)   (87.4)   (16.5)   (33.5)   (950.0)
Fair value of plan assets 846.5     79.5     26.3   952.3
Reimbursement rights       2.8     2.8
Surplus / (deficit) in the plan 45.5   (11.6)   (7.9)   (13.7)   (7.2)   5.1
Experience adjustments arising on plan liabilities (44.4)   0.5   (1.0)   (0.8)   2.8   (42.9)
Experience adjustments arising on plan assets (8.3)     2.3     0.3   (5.7)

14b Parent Company

The parent company is the sponsoring employer of the group’s UK defined benefit pension plan and the UK post-retirement medical benefits plan. There is no contractual agreement or stated policy for charging the net defined benefit cost for the plan to the individual group entities. The main assumptions used for these plans are disclosed in note 14a.

The fair values and expected rates of return for defined benefit pension plan assets were:

  2011
Expected rate
of return
%
  2011

Value
£ million
  2010
Expected rate
of return
%
  2010

Value
£ million
Equities 8.10   456.6   8.25   456.1
Bonds 5.20   472.6   5.00   394.6
Property 6.60   37.6   6.75   36.0
  6.62   966.8   6.74   886.7

The defined benefit pension plan does not invest directly in Johnson Matthey Plc shares and no property or other assets owned by the pension plan are used by the company. The overall expected rate of return is determined by reference to market expectations for each class of asset. It is based upon the forecasts of actuaries and market professionals.

Movements in the defined benefit obligation during the year were:

  2011



Pension
£ million
  2011
Post-
retirement
medical
benefits
£ million
  2010



Pension
£ million
  2010
Post-
retirement
medical
benefits
£ million
At beginning of year (1,043.6)   (14.4)   (715.6)   (12.0)
Current service cost – in operating profit (22.8)   (0.1)   (15.5)   (0.1)
Current service cost – capitalised (0.1)     (0.1)  
Past service cost – vested (1.9)     (0.4)  
Interest cost (56.5)   (0.8)   (45.5)   (0.8)
Employee contributions     (5.2)  
Actuarial gain / (loss) 64.2   2.5   (293.5)   (1.9)
Benefits paid 33.3   0.3   32.2   0.4
At end of year (1,027.4)   (12.5)   (1,043.6)   (14.4)

Movements in the fair value of the plan assets during the year were:

  2011



Pension
£ million
  2011
Post-
retirement
medical
benefits
£ million
  2010



Pension
£ million
  2010
Post-
retirement
medical
benefits
£ million
At beginning of year 886.7     670.4  
Expected return on plan assets 60.2     46.8  
Actuarial gain 8.1     173.4  
Employee contributions     5.2  
Company contributions 45.1   0.3   23.1   0.4
Benefits paid (33.3)   (0.3)   (32.2)   (0.4)
At end of year 966.8     886.7  

The actual return on plan assets was £68.3 million (2010 £220.2 million). It is estimated that the company will contribute about £41 million (and its subsidiaries will also contribute about £4 million) to the company’s post-employment defined benefits plans during the year ending 31st March 2012.

The net post-employment benefits assets and liabilities shown in the balance sheet are analysed as:

  2011



Pension
£ million
  2011
Post-
retirement
medical
benefits
£ million
  2010



Pension
£ million
  2010
Post-
retirement
medical
benefits
£ million
Present value of funded obligations (1,027.4)     (1,043.6)  
Present value of unfunded obligations   (12.5)     (14.4)
Defined benefit obligation (1,027.4)   (12.5)   (1,043.6)   (14.4)
Fair value of plan assets 966.8     886.7  
Net retirement benefits assets and liabilities (60.6)   (12.5)   (156.9)   (14.4)

These are included in the balance sheet under employee benefits obligations as:

  2011
£ million
  2010
£ million
UK pension plan (60.6)   (156.9)
UK post-retirement medical benefits plan (12.5)   (14.4)
Total post-employment plans (73.1)   (171.3)
Other long term employee benefits (0.1)   (0.2)
Total long term employee benefits obligations (73.2)   (171.5)

The cumulative amount of actuarial gains / (losses) recognised in the statement of changes in equity were:

  2011



Pension
£ million
  2011
Post-
retirement
medical
benefits
£ million
  2010



Pension
£ million
  2010
Post-
retirement
medical
benefits
£ million
At beginning of year (250.4)   (2.2)   (130.3)   (0.3)
Recognised in year 72.3   2.5   (120.1)   (1.9)
At end of year (178.1)   0.3   (250.4)   (2.2)

History of the plans and experience adjustments are:

  Present
value of
defined benefit
obligation
£ million
  Fair value of
plan assets
£ million
  Surplus /
(deficit)
in plan
£ million
  Experience
adjustments
arising on
plan liabilities
£ million
  Experience
adjustments
arising on
plan assets
£ million
Year ended 31st March 2011  
Pension (1,027.4)   966.8   (60.6)   2.7   8.1
Post-retirement medical benefits (12.5)     (12.5)   (0.2)  
Year ended 31st March 2010  
Pension (1,043.6)   886.7   (156.9)   (5.2)   173.4
Post-retirement medical benefits (14.4)     (14.4)   1.2  
Year ended 31st March 2009  
Pension (715.6)   670.4   (45.2)   24.4   (191.2)
Post-retirement medical benefits (12.0)     (12.0)   (0.6)  
Year ended 31st March 2008  
Pension (744.4)   809.5   65.1   (3.0)   (87.7)
Post-retirement medical benefits (10.9)     (10.9)    
Year ended 31st March 2007  
Pension (801.0)   846.5   45.5   (41.0)   (6.5)
Post-retirement medical benefits (11.6)     (11.6)   0.5