IAS 19 para 110, loss on settlement following buyout of pension scheme

Cineworld Group plc – Annual report – 31 December 2016

Industry: leisure

  1. Employee Benefits (extract)

Pension Plans

The Group operates two externally funded defined benefit pension schemes, one in the United Kingdom, the MGM Pension Scheme, and one in Ireland, the Adelphi-Carlton Limited Contributory Pension Plan.

MGM Scheme

The Scheme is a funded scheme of the defined benefit type, providing retirement benefits based on final salary. The Scheme closed to future accrual from 31 May 2009, though the link to final pay at retirement was retained.

On 15 December 2016 the scheme was bought out by Aviva Annuity UK Limited, with all risks in relation to the scheme passing to Aviva Annuity UK Limited as of the buyout date. This transition was treated as a settlement occurring on 15 December 2016 (the inception date). Following this transaction, all members of the Scheme have had their benefits secured with Aviva Annuity UK Limited, discharging the Group’s legal and constructive obligations for the scheme. The past service liabilities at 31 December 2016 are therefore shown as nil.

The Group has engaged its actuary’s assistance in measuring the defined benefit asset for the purposes of IAS19 revised for the year ended 31 December 2016 as well as at the buyout date.

The valuation used for IAS19 disclosures has been based on a full assessment of the liabilities of the Scheme as at 5 April 2015. The present values of the defined benefit obligation, the related current service cost and any past service costs were measured using the projected unit credit method.

Actuarial gains and losses up to the date of the buyout were recognised in the year in which they occurred, but outside the Statement of Profit or Loss, through Other Comprehensive Income.

The Group made contributions of £0.8m during 2016 (2015: £1.6m).

The net surplus/(deficit) in the pension scheme is:

cine1

Following the buyout transaction there is no asset or liability recognised in respect of the fair value of the scheme, £1.6m is recognised within other receivables in respect of the amount due to the Group from the settlement of the scheme.

Profile of the Scheme

The defined benefit obligation includes benefits for current employees, former employees and current pensioners.

cine2

Following the buyout transaction, all members of the scheme have had their benefits secured with Aviva Annuity UK Limited, there is no longer any obligation by the Group to the members of the scheme.

Funding Requirements

UK legislation requires that pension schemes are funded prudently. The last funding valuation of the Scheme was carried out by a qualified actuary as at 5 April 2015 and showed a surplus of £1.7m. The Group paid deficit contributions of £0.8m in 2016 to support the scheme, following the buyout transaction no further contribution in respect of the scheme are expected.

Risks Associated with the Scheme

Following the buyout transaction all of the risks in respect of the scheme have been transferred to Aviva Annuity UK Limited. Prior to settlement, the Scheme exposed the Group to a number of risks, the most significant of which are:

cine3

A contingent liability previously existed in relation to the equalisation of Guaranteed Minimum Pension (“GMP”). The UK Government intends to implement legislation which could result in an increase in the value of GMP for males. This would increase the defined benefit obligation of the plan. At this stage, it is not possible to quantify the impact of this change. The buyout premium paid includes an estimated additional cost for GMP equalisation and this cost is therefore included in the settlement recorded through the Statement of Profit or Loss.

The amounts recognised on the Balance Sheet are set out below:

cine4

When the members’ benefits have been fully paid, the rules of the scheme permit any surplus to revert to the employer (the Group). Therefore the surplus on the scheme has been recognised as an asset. The fair value of plan asset remaining at 31 December 2016 represent the residual balance following settlement of the scheme and all risks and obligations transferring to Aviva Annuity UK Limited, it is expected that these assets will transfer to the Group on completion of the buyout process.

Movements in present value of defined benefit obligation:

cine5

Movements in fair value of plan assets:

cine6

(Expense)/income recognised in the Consolidated Statement of Comprehensive Income:

cine7

The income is recognised in the following line items in the Consolidated Statement of Profit or Loss:

cine8

Analysis of amounts recognised in Other Comprehensive Income:

cine9

The Scheme assets are invested in the following asset classes (all assets have a quoted market value in an active market):

cine10

The principal actuarial assumptions used to calculate the liabilities under IAS 19 are set out below:

cine11

The financial assumptions reflect the nature and term of the Scheme’s liabilities.

cine12

The mortality assumptions are based on the recent actual mortality experience of scheme members, and allow for expected future improvement in mortality rates.

History of Plans

The history of the plans for the current and prior years is as follows:

cine13

Sensitivity to Key Assumptions

No sensitivity analysis has been performed given there remains no liability on the Group’s Balance Sheet at the 31 December 2016.

cine14

Advertisements