Notes on the Accounts

for the year ended 31st March 2012

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 £6.9 million (2011 £6.0 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 2011 for the US pension plans and the valuations of all of the UK and US plans were updated to 31st March 2012 by qualified independent actuaries.

The main assumptions were:

  2012
UK plans
%
2012
US plans
%
2012
Other plans
%
2011
UK plans
%
2011
US plans
%
2011
Other plans
%
First 3 years rate of increase in salaries 3.40 3.40 3.21 4.50 3.75 3.17
Ultimate rate of increase in salaries 4.15 3.40 3.21 4.50 3.75 3.17
Rate of increase in pensions in payment 3.40 1.57 3.50 2.44
Discount rate 5.10 4.80 4.78 5.50 5.70 5.57
Inflation   2.75 1.76   2.75 2.06
– UK RPI 3.40     3.50    
– UK CPI 2.70     3.00    
Current medical benefits cost trend rate 5.40 7.78 7.70 8.06
Ultimate medical benefits cost trend rate 5.40 4.50 6.00 4.50

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 group’s largest plan is in the UK and for the purposes of calculating that plan’s pension liabilities as at 31st March 2012, the group has used SAPS S1 mortality tables based on year of birth (as published by the Institute of Actuaries) for both pensioner and non-pensioner members in conjunction with the results of an investigation into the actual mortality experience of plan members. In addition, to allow for future improvements in longevity, the CMI 2011 tables (published by the Institute of Actuaries) have been used, with an assumed long term rate of future annual mortality improvement of 1.25%.

The mortality tables used for the UK pension plan have been updated since 31st March 2011 following a mortality investigation. Last year the group used PA92 mortality tables projected to calendar year 2009 (as published by the Institute of Actuaries) for both pensioner and non-pensioner members. In addition, allowance for future improvements in longevity was made using the medium cohort projections with a 1% underpin.

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

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
  UK plan US plans UK plan US plans
Male 22.0 18.0 24.2 18.0
Female 24.8 19.9 27.2 19.9

A 1% point change in the assumed medical cost trend rates would have the following effects on:

  1% point increase 1% point decrease
  UK plan
£ million
US plan
£ million
UK plan
£ million
US plan
£ million
Post-retirement medical plan expense 0.1 0.4 (0.1) (0.3)
Post-retirement medical plan defined benefit obligation 1.6 4.6 (1.3) (3.7)

A 0.1% change in the discount rate and rate of increase in salaries would have the following increases / (decreases) on the pension plans’ defined benefit obligations at 31st March 2012:

  0.1% point increase 0.1% point decrease
  UK plan
£ million
US plans
£ million
UK plan
£ million
US plans
£ million
Effect of discount rate (24.7) (3.0) 24.1 3.1
Effect of rate of increase in salaries 7.3 0.9 (7.3) (0.9)

A one year increase in life expectancy would have the following increase on:

  UK plan
£ million
US plans
£ million
Pension defined benefit obligation 28.9 5.1

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 2012            
Equities 7.10 430.7 7.70 86.3 8.57 5.7
Bonds 4.24 550.5 3.70 70.7 4.90 11.0
Property 5.40 47.4
Insurance policies 4.36 24.0
  5.49 1,028.6 5.90 157.0 5.09 40.7
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

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 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 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
Expected return on plan assets 64.3 8.6 2.0 74.9
Settlement gains 0.9 0.9
Actuarial (loss) / gain (11.4) 10.2 3.1 1.9
Employee contributions 0.3 0.3
Company contributions 44.7 0.5 8.5 0.7 2.1 56.5
Benefits paid (35.8) (0.5) (4.7) (0.7) (1.5) (43.2)
Exchange adjustments 0.4 (2.0) (1.6)
At 31st March 2012 1,028.6 157.0 40.7 1,226.3

The actual return on plan assets for UK plans was £52.9 million (2011 £68.3 million) and for US plans was £18.8 million (2011 £16.8 million). It is estimated that the group will contribute about £58 million to the post-employment defined benefits plans during the year ending 31st March 2013. The latest actuarial valuation of the group’s UK pension plan as at 1st April 2012 is underway and additional cash contributions may be required once the valuation is complete.

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 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)
Current service cost – in operating profit (23.0) (0.1) (6.9) (0.8) (1.7) (32.5)
Current service cost – capitalised (0.1) (0.1)
Past service cost – vested (0.2) (0.1) (0.3)
Interest cost (55.5) (0.7) (8.5) (1.5) (2.6) (68.8)
Curtailment gains 0.2 0.2
Settlement losses (0.9) (0.9)
Employee contributions (0.3) (0.3)
Actuarial (loss) / gain (43.0) 1.1 (19.7) (3.3) (8.6) (73.5)
Benefits paid 35.8 0.5 4.7 0.7 1.5 43.2
Exchange adjustments (0.5) (0.1) 2.8 2.2
At 31st March 2012 (1,113.4) (11.7) (183.0) (30.8) (59.3) (1,398.2)

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 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
Expected return 0.5 0.5
Actuarial gain 1.0 1.0
At 31st March 2012 6.4 0.7 7.1

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 2012            
Current service cost (23.0) (0.1) (6.9) (0.8) (1.7) (32.5)
Interest on plan liabilities (55.5) (0.7) (8.5) (1.5) (2.6) (68.8)
Expected return on plan assets 64.3 8.6 2.0 74.9
Expected return on reimbursement rights 0.5 0.5
Curtailment gains 0.2 0.2
Past service cost – vested (0.2) (0.1) (0.3)
Past service cost – non-vested 0.6 0.6
Charge to income (14.4) (0.8) (6.8) (1.2) (2.2) (25.4)
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)

Of the total charge for the year, £15.3 million (2011 £20.7 million) has been included within cost of sales, £3.0 million (2011 £4.9 million) in distribution costs, £7.1 million (2011 £5.9 million) in administrative expenses and a credit of £ nil (2011 £3.2 million) in major impairment and restructuring charges.

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 2012            
Present value of funded obligations (1,113.4) (183.0) (45.0) (1,341.4)
Present value of unfunded obligations (11.7) (30.8) (14.3) (56.8)
Defined benefit obligation (1,113.4) (11.7) (183.0) (30.8) (59.3) (1,398.2)
Fair value of plan assets 1,028.6 157.0 40.7 1,226.3
Reimbursement rights 6.4 0.7 7.1
Unrecognised past service credit − non-vested (2.3) (2.3)
Net post-employment benefits assets and liabilities (84.8) (11.7) (26.0) (26.7) (17.9) (167.1)
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)

These are included in the balance sheet as:

  2012
Post-
employment
benefits
net assets
£ million
2012

Employee
benefits
obligations
£ million
2012



Total
£ million
2011
Post-
employment
benefits
net assets
£ million
2011

Employee
benefits
obligations
£ million
2011



Total
£ million
UK pension plan (84.8) (84.8) (60.6) (60.6)
UK post-retirement medical benefits plan (11.7) (11.7) (12.5) (12.5)
US pension plans (26.0) (26.0) (18.1) (18.1)
US post-retirement medical benefits plan (26.7) (26.7) (23.8) (23.8)
Other plans 2.0 (19.9) (17.9) 3.8 (16.9) (13.1)
Total post-employment plans 2.0 (169.1) (167.1) 3.8 (131.9) (128.1)
Other long term employee benefits   (2.3)     (2.3)  
Total long term employee benefits obligations   (171.4)     (134.2)  

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 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)
Recognised in year (54.4) 1.1 (9.5) (2.3) (5.5) (70.6)
At 31st March 2012 (231.1) 1.4 (35.9) (3.7) (9.8) (279.1)

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 2012            
Present value of defined benefit obligation (1,113.4) (11.7) (183.0) (30.8) (59.3) (1,398.2)
Fair value of plan assets 1,028.6 157.0 40.7 1,226.3
Reimbursement rights 6.4 0.7 7.1
Deficit in the plan (84.8) (11.7) (26.0) (24.4) (17.9) (164.8)
Experience adjustments arising on plan liabilities 0.3 0.7 (3.3) (3.0) (5.3)
Experience adjustments arising on plan assets (11.4) 10.2 3.1 1.9
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)

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:

  2012
Expected rate
of return
%
2012

Value
£ million
2011
Expected rate
of return
%
2011

Value
£ million
Equities 7.10 430.7 8.10 456.6
Bonds 4.24 550.5 5.20 472.6
Property 5.40 47.4 6.60 37.6
  5.49 1,028.6 6.62 966.8

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 fair value of the plan assets during the year were:

  2012



Pension
£ million
2012
Post-
retirement
medical
benefits
£ million
2011



Pension
£ million
2011
Post-
retirement
medical
benefits
£ million
At beginning of year 966.8 886.7
Expected return on plan assets 64.3 60.2
Actuarial (loss) / gain (11.4) 8.1
Company contributions 44.7 0.5 45.1 0.3
Benefits paid (35.8) (0.5) (33.3) (0.3)
At end of year 1,028.6 966.8

The actual return on plan assets was £52.9 million (2011 £68.3 million). It is estimated that the company will contribute about £42 million (and its subsidiaries will also contribute about £6 million) to the company’s post-employment defined benefits plans during the year ending 31st March 2013. The latest actuarial valuation of the company’s pension plan as at 1st April 2012 is underway and additional cash contributions may be required once the valuation is complete.

Movements in the defined benefit obligation during the year were:

  2012



Pension
£ million
2012
Post-
retirement
medical
benefits
£ million
2011



Pension
£ million
2011
Post-
retirement
medical
benefits
£ million
At beginning of year (1,027.4) (12.5) (1,043.6) (14.4)
Current service cost – in operating profit (23.0) (0.1) (22.8) (0.1)
Current service cost – capitalised (0.1) (0.1)
Past service cost – vested (0.2) (1.9)
Interest cost (55.5) (0.7) (56.5) (0.8)
Actuarial (loss) / gain (43.0) 1.1 64.2 2.5
Benefits paid 35.8 0.5 33.3 0.3
At end of year (1,113.4) (11.7) (1,027.4) (12.5)

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

  2012



Pension
£ million
2012
Post-
retirement
medical
benefits
£ million
2011



Pension
£ million
2011
Post-
retirement
medical
benefits
£ million
Present value of funded obligations (1,113.4) (1,027.4)
Present value of unfunded obligations (11.7) (12.5)
Defined benefit obligation (1,113.4) (11.7) (1,027.4) (12.5)
Fair value of plan assets 1,028.6 966.8
Net retirement benefits assets and liabilities (84.8) (11.7) (60.6) (12.5)

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

  2012
£ million
2011
£ million
Pension plan (84.8) (60.6)
Post-retirement medical benefits plan (11.7) (12.5)
Total post-employment plans (96.5) (73.1)
Other long term employee benefits (0.1) (0.1)
Total long term employee benefits obligations (96.6) (73.2)

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

  2012



Pension
£ million
2012
Post-
retirement
medical
benefits
£ million
2011



Pension
£ million
2011
Post-
retirement
medical
benefits
£ million
At beginning of year (178.1) 0.3 (250.4) (2.2)
Recognised in year (54.4) 1.1 72.3 2.5
At end of year (232.5) 1.4 (178.1) 0.3

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 2012          
Pension (1,113.4) 1,028.6 (84.8) (11.4)
Post-retirement medical benefits (11.7) (11.7) 0.3
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)
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