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Notes to the financial statements year ended 31 March 2010

39. Retirement benefit schemes

Defined contribution schemes

The Group operates a defined contribution retirement benefit scheme for all qualifying employees. The assets of the scheme are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the scheme prior to the contributions fully vesting, the contributions paid by the Group are forfeited by the employee.

The total cost charged to income of £2,484,000 (2009: £2,890,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. At 31 March 2010, contributions of £nil (2009: £nil) due in respect of the current reporting period had not been paid over to the schemes.

Defined benefit scheme

The Group participates in a defined benefit scheme, the Water Companies Pension Scheme, for qualifying employees. This is a sectionalised final salary scheme and the Group participates in the HomeServe plc Section of the Scheme. The Section funds are administered by the trustees and are independent of the Group's finances. Contributions are paid to the Section in accordance with the recommendations of an independent actuarial adviser. The Section has a history of raising pensions in line with price inflation, and these increases are reflected in the measurement of the obligation.

The results of the actuarial valuation as at 31 March 2008 were updated to the accounting date by an independent qualified actuary in accordance with IAS 19. As required by IAS 19, the value of the defined benefit obligation and the current service cost have been measured using the projected unit credit method.

	Valuation at
	2010 £000	2009 £000
Key assumptions used:
Discount rate at 31 March	5.6%	6.9%
Retail price inflation	3.9%	3.4%
Expected rate of salary increases	5.4%	4.9%
Future pension increases	3.9%	3.4%
Expected rate of return on scheme assets at 31 March	8.0%	8.0%
Life expectancy of male aged 60 at balance sheet date	26.4 years	26.3 years

Amounts recognised in income in respect of the defined benefit scheme are as follows:

	2010 £000	2009 £000
Current service cost	263	430
Interest cost	861	874
Expected return on scheme assets	(820)	(1,033)
Past service cost	316	108
Recognised in operating costs	620	379

Actuarial gains and losses have been reported in the statement of comprehensive income.

The actual return on scheme assets was a gain of £4,807,000 (2009: loss of £3,410,000).

The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit retirement scheme is as follows:

	2010 £000	2009 £000
Present value of defined benefit obligations	(20,422)	(12,363)
Fair value of scheme assets	16,174	10,444
Deficit in scheme recognised in the balance sheet in non-current liabilities	(4,248)	(1,919)

Movements in the present value of defined benefit obligations in the current year were as follows:

	2010 £000	2009 £000
At 1 April	12,363	13,283
Employer’s part of the current service cost	263	430
Interest cost	861	874
Contributions from scheme members	57	73
Actuarial losses/(gains)	6,651	(2,219)
Benefits paid	(89)	(186)
Past service cost	316	108
At 31 March	20,422	12,363

Movements in the fair value of scheme assets in the current year were as follows:

	2010 £000	2009 £000
At 1 April	10,444	13,458
Expected return on scheme assets	820	1,033
Actuarial gains/(losses)	3,987	(4,443)
Contributions from the sponsoring companies	955	509
Contributions from scheme members	57	73
Benefits paid	(89)	(186)
At 31 March	16,174	10,444

Note - 'benefits paid' represents an inflow into the Section as a result of transfer payments received.

The amount recognised outside the income statement in the statement of comprehensive income for 2010 is a loss of £2,664,000 (2009: loss of £2,049,000). The cumulative amount recognised outside profit and loss at 31 March 2010 is a loss of £4,314,000.

The analysis of the scheme assets and the expected rate of return at the balance sheet date was as follows:

	Expected return		Fair value of assets
	2010 %	2009 %	2010 £000	2009 £000
Equity instruments	8.0	8.0	15,326	10,439
Other assets	4.5	4.2	848	5
			16,174	10,444

The overall expected rate of return on assets for the financial year ending 31 March 2010 was 8.0% per annum (2009: 8.0% per annum). This rate is derived by taking the weighted average of the long-term expected rate of return on each of the asset classes that the Section was invested in at 31 March 2009.

The history of experience adjustments is as follows:

	2010 £000	2009 £000	2008 £000	2007 £000	2006 £000
Present value of defined benefit obligations	(20,422)	(12,363)	(13,283)	(14,535)	(13,200)
Fair value of scheme assets	16,174	10,444	13,458	13,888	12,044
(Deficit)/surplus in scheme	(4,248)	(1,919)	175	(647)	(1,156)
Experience adjustments on scheme liabilities
Amount of (gain)/loss (£000)	(238)	807	(164)	144	95
Percentage of scheme liabilities (%)	(1)	7	(1)	1	1
Experience adjustments on scheme assets
Amount of (gain)/loss (£000)	(3,987)	4,443	1,961	(420)	(1,628)
Percentage of scheme assets (%)	(25)	43	15	(3)	(14)

The estimated amounts of contributions expected to be paid to the scheme during the current financial year is £500,000 (2009: £800,000) plus any Pension Protection Fund levy payable.