Interim results for the 26 weeks ended 30 July 2011

 

15 September 2011

 

Notes to the condensed consolidated financial statements (UNAUDITED)

for the 26 weeks ended 30 July 2011

11. Post employment benefits

£ millions Half year ended
30 July 2011
Half year ended
31 July 2010
Year ended
29 January 2011
Deficit in scheme at beginning of period (58) (198) (198)
Current service cost (14) (14) (27)
Interest on defined benefit obligations (46) (46) (92)
Expected return on pension scheme assets 47 42 85
Actuarial (losses)/gains (19) 67 128
Contributions paid by employer 23 23 46
Exchange differences (1) 1 -
Deficit in scheme at end of period (68) (125) (58)

The assumptions used in calculating the costs and obligations of the Group's defined benefit pension schemes are set by the Directors after consultation with independent professionally qualified actuaries. The assumptions are based on the conditions at the time and changes in these assumptions can lead to significant movements in the estimated obligations, as illustrated in the sensitivity analysis provided in note 27 of the annual financial statements for the year ended 29 January 2011.

A key assumption in valuing the pension obligation is the discount rate. Accounting standards require this to be set based on market yields on high quality bonds at the balance sheet date. The UK scheme discount rate is based on the yield on the iBoxx over 15 year AA-rated Sterling corporate bond index adjusted for the difference in term between iBoxx and scheme liabilities.

The discount rate and price inflation actuarial valuation assumptions for the UK scheme, being the Group's principal defined benefit scheme, are set out below:

Annual % rate At
30 July 2011
At
31 July 2010
At
29 January 2011
Discount rate 5.3 5.4 5.6
Price inflation 3.5 3.2 3.5

Two UK property assets with a market value of £119m were transferred in June 2011 into a property partnership (Kingfisher Scottish Limited Partnership) and leased back to B&Q plc. An investment of £106m was subsequently made by the scheme into the partnership, following a Group contribution of the same amount into the scheme. This follows a similar transaction in January 2011, in which property assets with a value of £83m were transferred into the partnership, followed by a Group contribution (into the scheme) and scheme investment (into the partnership) of £78m. Under IAS 19, 'Employee benefits', the investment held by the scheme in the partnership does not represent a plan asset and accordingly the pension deficit position above does not reflect the amounts invested under this arrangement.