IAS 19, increase in pension liabilities following High Court ruling on equalisation of benefits between men and women

Stagecoach Group plc – Half year report – 27 October 2018

Industry: transportation

Interim management report (extract 1)

Exceptional items (extract)

Guaranteed minimum pension equalisation

A pre-tax exceptional expense of £24.2m has been recorded in the half-year ended 27 October 2018 as a past service cost in respect of the equalisation of guaranteed minimum pension (“GMP”) benefits.

On 26 October 2018, the High Court handed down a judgement involving Lloyds Banking Group defined benefit pension schemes. The judgement concluded that the schemes should equalise pension benefits for men and women in relation to GMP benefits. The judgement has implications for many defined benefit schemes, including those in which the Stagecoach Group participates. We have worked with our actuarial advisors to understand the implications of the judgement for the schemes in which the Group participates and the £24.2m pre-tax exceptional expense reflects our best estimate of the effect on our reported pension liabilities.

Interim management report (extract 2)

Retirement benefits

The reported net assets of £179.3m (28 April 2018: £181.7m), that are shown on the consolidated balance sheet are after taking account of net pre-tax retirement benefit liabilities of £151.5m (28 April 2018: £142.2m), and associated deferred tax assets of £26.0m (28 April 2018: £24.9m). The increase reflects the £24.2m exceptional pre-tax expense referred to earlier in respect of the equalisation of Guaranteed Minimum Pensions (“GMP”).

We are pleased that, excluding the change in respect of GMP equalisation, our net retirement benefit obligations would have reduced in the half-year, reflecting good investment returns on pension scheme assets. The Group recognised pre-tax actuarial gains of £15.2m in the half-year ended 27 October 2018 (H1 2018: pre-tax actuarial gains of £184.6m) on Group defined benefit schemes.

NOTES (extract)

5 EXCEPTIONAL ITEMS AND INTANGIBLE ASSET AMORTISATION (extract)

(c) Guaranteed minimum pension equalisation

On 26 October 2018, the High Court handed down a judgement involving Lloyds Banking Group defined benefit pension schemes. The judgement concluded that the schemes should equalise pension benefits for men and women in relation to guaranteed minimum pension (“GMP”) benefits. The judgement has implications for many defined benefit schemes, including those in which the Stagecoach Group participates.

We have worked with our actuarial advisors to understand the implications of the High Court judgement for the schemes in which the Group participates and have recorded a £24.2m pre-tax exceptional expense to reflect our best estimate of the effect on our reported pension liabilities.

The change in pension liabilities recognised in relation to GMP equalisation involves estimation uncertainty. It is expected that there will be follow-on court hearings to further clarify the application of GMP equalisation in practice. Also, it is not yet known whether Lloyds Banking Group will appeal the High Court judgement. The judgement was made one day prior to the Group’s balance sheet date of 27 October 2018 and the Group is one of the first companies to publish financial statements with a balance sheet date after the date of the judgement. Accordingly, the Directors have had limited time to consider the full implications of the judgement and while the financial statements reflect the best estimate of the impact on pension liabilities, that estimate reflects a number of assumptions. As the outcome of future court hearings cannot be reliably predicted, it is not practical to quantify the extent of the estimation uncertainty but the best estimate reflects the information currently available. The Directors will continue to monitor any further clarifications or court hearings arising from the Lloyds case and consider the impact on pension liabilities accordingly.

The Directors have made the judgement that the estimated effect of GMP equalisation on the Group’s pension liabilities is a past service cost that should be reflected through the consolidated income statement and that any subsequent change in the estimate of that should be recognised in other comprehensive income. The judgement is based on the fact that the reported pension liabilities for the Stagecoach Group Pension Scheme as at 28 April 2018 did not include any amount in respect of GMP equalisation.

 

 

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