9. Pensions

(a) Defined benefit pension scheme

The Group operates defined benefit pension schemes in Coillte Teoranta and Medite Europe Limited for the majority of employees with assets held in separately administered funds.

Actuarial valuation
The pension costs relating to the Group’s defined benefit schemes are assessed in accordance with the advice of independent qualified actuaries. The valuations were based on the attained age and the projected unit credit method and the last full valuations were carried out on 1 January 2009 (Medite Europe Limited) and 31 December 2008 (Coillte Teoranta).

The assumptions which have the most significant effect on the results of the actuarial valuations are those relating to the rate of return on investments and the rates of increase in remuneration and pensions. It was assumed that the rate of return on investments would on average exceed annual remuneration by 3% (Coillte Teoranta) and 2% (Medite Europe Limited) in the last full valuations and pension increases by 3% in Coillte Teoranta. No provision was made for future pension increases in Medite Europe Limited.

The market value of the assets in the Group’s defined benefit schemes at the respective valuation dates was €113.2m (Coillte Teoranta — 31 December 2008) and €10.7m (Medite Europe Limited — 1 January 2009) and the deficiency in both schemes at those dates were €89.4m (Coillte Teoranta) and €8.9m (Medite Europe Limited).

The valuations indicated that the actuarial value of the total scheme assets was sufficient to cover 56% of the benefits that had accrued to the members of the combined scheme as at the valuation dates. Coillte Teoranta and Medite Europe Limited contribute to their respective scheme at a rate of 25% and 15.4% respectively. The actuarial reports of both schemes are available to scheme members, but not for public inspection.

A funding proposal in respect of the Coillte Teoranta scheme has been approved by the Pensions Board. The funding proposal has the objective of returning the scheme to full solvency on a Minimum Funding Standard basis by 31 December 2020. The agreement requires Coillte to make significant additional contributions and has also increased employee contributions.

(b) Financial Reporting Standard 17 (FRS 17)

     
  2011 2010
€'000 €'000
The amounts recognised in the balance sheet are as follows:
Present value of funded obligations (306,410) (263,200)
Fair value of plan assets 171,443 174,030
Pension Liability (134,967) (89,170)
Related deferred tax asset (note 20) 4,442 2,788
Net pension liability
(130,525) (86,382)
     
The amounts recognised in the profit and loss account are as follows:
2011 2010
€'000 €'000
Current service cost 4,196 3,685
Past service cost 8,400 -
Capitalised costs (1,004) (875)
Net operating cost 11,592 2,810
 
Expected return on scheme assets (10,554) (10,554)
Interest on liability 14,556 13,919
Capitalised cost (1,029) (857)
Net finance cost 2,973 2,508
Total profit and loss account charge
14,565 5,318
 
The amounts recognised in the statement of total recognised gains and losses are as follows:
   2011 2010
€'000 €'000
Actual return less expected return on pension scheme assets (14,817) 129
Experience gains and losses arising on the scheme liabilities 2,290 2,739
Changes in assumptions underlying the present value of scheme liabilities (24,153) (20,218)
Actuarial loss recognised (36,680) (17,350) 


The cumulative actuarial loss recognised in the statement of total recognised gains and losses up to and including the financial year ended 31 December 2011 is €42,046,000 (2010: loss €5,366,000).

The actual return on plan assets was:

     
  2011 2010
€'000 €'000
Actual return on plan assets (4,263) 10,683

 

Expected contributions for the year ended 31 December 2012 are €7,914,000.

     
Movement in scheme assets and liabilities    
  Pension Pension Pension
Assets Liabilities Deficit
€'000 €'000 €'000
At 31 December 2010 174,030 (263,200) (89,170)
Current service cost - (4,196) (4,196)
Interest on scheme liabilities - (14,556) (14,556)
Expected return on scheme assets 10,554 - 10,554
Actual less expected return on scheme assets (14,817) - (14,817)
Experience gains on liabilities - 2,290 2,290
Changes in assumptions - (24,153) (24,153)
Contributions by plan participants 1,925 (1,925) -
Past service cost - (8,400) (8,400)
Benefits paid from plan assets (7,730) 7,730 -
Employer Contributions paid 7,481 - 7,481
As at 31 December 2011 171,443 (306,410) (134,967)
       
  Pension Pension Pension
Assets Liabilities Deficit
€'000 €'000 €'000

At 31 December 2009 161,475 (233,847) (72,372)
Current service cost - (3,685) (3,685)
Interest on scheme liabilities - (13,919) (13,919)
Expected return on scheme assets 10,554 - 10,554
Actual less expected return on scheme assets 129 - 129
Experience losses on liabilities - 2,739 2,739
Changes in assumptions - (20,218) (20,218)
Past service cost - - -
Contributions by plan participants 1,970 (1,970) -
Benefits paid from plan assets (7,700) 7,700 -
Employer contributions paid 7,602 - 7,602
As at 31 December 2010 174,030 (263,200) (89,170)

The following amounts were measured in accordance with the requirements of FRS 17 at 31 December 2007-2011 inclusive.

           
Expected rate of return: 2011 2010 2009 2008 2007
Equities 7.50% 7.50% 8.00% 8.50% 7.50-8.00%
Bonds 3.20% 3.40% 3.80% 3.75% 4.30-4.40%
Property 5.50% 5.50% 6.00% 6.00% 5.75-5.90%
Other 2.00% 2.00% 2.00% 2.50% 3.00%
           
Market Value: 2011 2010 2009 2008 2007
  €'000 €'000 €'000 €'000 €'000
Equities 114,754 107,007 99,695 70,250 117,429
Bonds 40,624 50,867 40,741 44,482 38,553
Property 13,225 12,357 13,310 8,213 10,075
Other 2,810 3,799 7,729 15,463 13,033
Total market value of assets 171,443 174,030 161,475 138,408 179,090
Present value of scheme liabilities (306,410) (263,200) (233,847) (221,022) (245,436)
Deficit in the scheme (134,967) (89,170) (72,372) (82,614) (66,346)


For the purposes of disclosure under FRS 17 — ‘Retirement Benefits’ the assets and liabilities of the Coillte Teoranta and Medite Europe Limited defined benefit schemes have been combined in 2011. Under FRS 17 the deficit in the Coillte Teoranta scheme net of deferred tax was €122.0m (2010: deficit of €80.9m) and the deficit in the Medite Europe Limited scheme net of deferred tax was €8.5m (2010: deficit of €5.5m).

           
 



The principal actuarial assumptions at the balance sheet date:  
The main financial assumptions used were: 2011 2010 2009 2008 2007
Rate of increase in salaries 3.50% 3.50% 3.50% 3.50% 4.00%
Rate of increase in pension payments          
- Coillte Teoranta 3.50% 3.50% 3.50% 3.50% 4.00% 
- Medite Europe Limited 0.00% 0.00% 0.00% 0.00% 0.00%
Discount rate 5.00% 5.50% 5.90% 5.75% 5.50%
Price inflation 2.00% 2.00% 2.00% 2.00% 2.50%

Assumptions regarding future  mortality are set based on advice from published statistics and experience.  The average life expectancy in years for a pensioner retiring aged 65 is as follows:

     
  2011 2010
Male — current pensioner 23.0 22.80
Female — current pensioner 24.5 24.40
Male — future pensioner (age 45) 25.7 25.60
Female — future pensioner (age 45) 26.7 26.60


           
 5 year analysis 2011 2010 2009 2008 2007
  €'000 €'000 €'000 €'000 €'000
Present value of the defined benefit obligation (306,410) (263,200) (233,847) (221,022) (245,436)
Fair value of plan assets 171,443 174,030 161,475 138,408 179,090
Pension Deficit (134,967) (89,170) (72,372) (82,614) (66,346)
           
           
  2011 2010 2009 2008 2007
Experience adjustment on plan liabilities as a percentage
of scheme liabilities at the balance sheet date
(0.75%) (1.04%) 5.4% (4.14%) 1.44%
Experience adjustment on plan assets as a percentage
of scheme assets at the balance sheet date
(8.64%) 0.07% 1.0% (37.10%) (7.78%)
         

Sensitivity analysis of the scheme liabilities
A decrease of 1% in the discount rate would increase the Coillte defined benefit pension scheme obligation by €52.4m and an increase of 1% in the discount rate would decrease the Coillte defined benefit pension scheme obligation by €42.1. A decrease of 1% in the discount rate would increase the Medite defined benefit obligation by €5.5m and an increase of 1% in the discount rate would decrease the Medite defined benefit pension scheme obligation by €4.2m.

(c) Defined contribution pension scheme

SmartPly Europe Limited and Coillte Panel Products UK Limited contribute to defined contribution pension schemes on behalf of certain employees. The assets of the schemes are held separately from those of the Company in independently administered funds. The pension cost for the period for SmartPly Europe Limited amounted to €357,000 (2010: €363,000) and contributions of €37,000 (2010: €24 ,000) were not transferred to the fund until after the year end. The pension cost for the period for Coillte Panel Products UK Limited amounted to €86,000 (2010: €109,000) and contributions of €3,000 (2010: €3,000) were not transferred to the fund until after the year end.

The Group contributes to a separately funded defined contribution pension scheme on behalf of certain employees in Coillte Teoranta and Medite Europe Limited who are not members of the defined benefit schemes. The assets of these schemes are held separately from those of the Group in an independently administered scheme. The pension cost for the period amounted to €181,000 (2010: €200,000) and contributions of €22,000 (2010: €27,000) were not transferred to the fund until after the year end.