Annual Report and Accounts 2015
John Lewis Partnership plc
153
22 Derivative financial instruments and financial liabilities (continued)
22.3 Fair value of financial assets and liabilities held at amortised cost The following table compares the Partnership’s liabilities held at amortised cost, where there is a difference between Carrying Value (CV) and Fair Value (FV):
2015 £m
CV
Financial liabilities Listed bonds
Preference stock
(864.5) (4.6)
For other financial assets and liabilities, there are no material differences between carrying value and fair value.
23 Retirement benefit obligations We operate a defined benefit pension scheme, open to all Partners, subject to length of service, providing benefits based on final pensionable pay. The consolidated balance sheet includes a retirement benefit obligation which is the expected obligations of the scheme, offset by assets held by the scheme to meet these obligations. The expected obligations are calculated by an actuary using a number of financial assumptions whilst the assets are held at fair value.
This note details the financial assumptions used, together with amounts recorded in the consolidated balance sheet and income statement in relation to the pension scheme.
The principal pension scheme operated by the Partnership is the John Lewis Partnership Trust for Pensions. The scheme is a funded final salary defined benefit pension scheme, providing pensions and death benefits to members, and is open to new members. All contributions to the scheme are funded by the Partnership.
The scheme is governed by a Trustee which is independent of the Partnership. The Trustee is responsible for the operation and governance of the scheme, including making decisions regarding the scheme’s investment strategy.
In January 2015, the Partnership Council of John Lewis Partnership plc approved changes to the level and form of future provision of pension benefits to Partners. This was the output of the Pension Benefit Review which commenced in 2013. The changes will take place in two stages. From 1 April 2015 the waiting period to join the Defined Benefit section of the scheme will increase from 3 to 5 years. Then from 1 April 2016, the principal changes are to reduce the defined benefit accrual rate from 1/60th to 1/120th of final salary, and to provide an enhanced level of Defined Contribution pension for those Partners who have completed the waiting period. Other changes, applying only to any pension built up after 1 April 2016, include linking the Partnership normal retirement age to the State Pension Age, and a change in the rate of pension increases in payment.
The scheme is subject to a full actuarial valuation every three years using assumptions agreed between the Trustee and the Partnership. The most recent valuation was carried out by an independent professionally qualified actuary as at 31 March 2013 and resulted in a funding deficit of £840.0m. The market value of the assets of the scheme as at 31 March 2013 was £3,169.0m. The actuarial valuation showed that these assets were sufficient to cover 79% of the benefits which had accrued to members.
Following this valuation, the Partnership and the Trustee agreed to increase the normal future annual contribution rate to 16.4% of gross taxable pay of members and put in place a plan to eliminate the deficit over a 10 year period through deficit reduction contributions of £44.3m per year, increasing on 31 March each year by 3%, in addition to a one-off contribution of £85.0m made in January 2014. In December 2014, the Partnership agreed to prepay the scheduled deficit reduction contributions up to July 2021 by making a payment of £294.1m.
The balance of the deficit is expected to be met by investment returns on the scheme assets. Total contributions to the scheme in 2016 under this agreement are expected to be £167.7m.
The next triennial actuarial valuation of the scheme will take place as at 31 March 2016. FV
(1,031.2) (3.9)
CV
(569.8) (4.6)
2014 £m
FV
(695.4) (3.9)
The fair values of the Partnership’s listed bonds and preference stock have been determined by reference to market price quotations and are classified as Level 1 under the IFRS 13 fair value hierarchy.
Introduction
Partnership difference
Principles
Strategy
Performance
Governance
Financial statements
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