Annual Report and Accounts 2016


John Lewis Partnership plc


133


6 Pensions


In this section This section sets out our pension liability, which is the current cost of meeting future defined pension payments, offset by assets held by the scheme to meet these liabilities.


6.1 Retirement benefit obligations


The Partnership’s pension scheme is made up of two parts: the defined benefit section and the defined contribution section. The defined benefit section provides a non-contributory pension in retirement based on Partners’ pensionable pay and pensionable service. The defined contribution section is where contributions made by Partners and the Partnership are invested in a choice of funds and then the contributions and investment returns are used to buy benefits on retirement.


The defined contribution section of the scheme is available to all Partners. Once Partners complete five years’ service (three years’ service for those who joined the Partnership before 1 April 2015) with the Partnership, they will automatically join the defined benefit section of the scheme.


The consolidated balance sheet includes a retirement benefit liability which is the expected future cash flows to be paid out by the defined benefit section of the pension scheme, offset by assets held by the scheme to meet these liabilities. The expected liabilities are calculated by an actuary using a number of financial assumptions whilst the assets are held at fair value. Changes arising from the Pension Benefit Review, which principally reduce the rate of defined benefit pension build up, will take effect from 1 April 2016.


The defined contribution section of the pension scheme pays fixed contributions into individual investment funds on Partners’ behalf. There is therefore no further liability on the Partnership balance sheet relating to the defined contribution section of the pension scheme.


This note details the financial assumptions made in estimating the defined benefit obligation, together with an analysis of the components of the pensions liability. It also explains where these amounts have been recorded in the consolidated balance sheet and income statement.


Accounting policy


Employee benefits: The defined benefit section of the scheme is a pension fund with assets held separately from the Partnership. The cost of providing benefits under the defined benefit section of the scheme is determined using the projected unit credit actuarial valuation method, which measures the liability based on service completed and allowing for projected future salary increases.


The current service cost, which is the increase in the present value of the retirement benefit obligation resulting from employee service in the current year, and gains and losses on settlements and curtailments, which arise on transactions that eliminate part or all of the benefits provided or when there are amendments to terms such that a significant element of future service will no longer qualify for benefits or will qualify only for reduced benefits, are included within operating profit in the consolidated income statement. Past service costs are recognised immediately in the consolidated income statement.


Remeasurements of defined pension schemes due to experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.


The Partnership pension scheme also includes a defined contribution section. Contributions are charged in the income statement as they fall due. The Partnership has no further obligations once the contributions have been made.


There are a number of unfunded pension liabilities, where the actuarially assessed costs of providing the benefit are charged to the consolidated income statement. There are no assets supporting these arrangements.


The Partnership also has a scheme to provide up to six months paid leave after 25 years’ service (long leave). The cost of providing the benefits under the scheme is determined using the projected unit credit actuarial valuation method. The current service cost is included within operating profit in the consolidated income statement. The financing elements of long leave are included in finance costs in the consolidated income statement. Long leave is included within Provisions in note 4.4.


Critical accounting estimates and judgements


Retirement benefits: Pension accounting requires certain assumptions to be made in order to value our obligations and to determine the charges to be made to the income statement. These figures are particularly sensitive to assumptions for discount rates, mortality and inflation rates.


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