Money Matters
£ 250 million additional funding
Last year, when
Kingfisher announced changes being made to the Company’s
pension arrangements, it also advised that the Scheme was to have
a formal valuation to identify the impact on the Scheme’s
finances of both the recent stock market falls and the closure
of the scheme to new entrants.
The valuation, beginning in April last year was recently completed
and, during the period, the Trustees and the Company consulted
over the levels of future employer contributions to be made. (Further
information about the valuation is provided below.)
Agreement has now been reached, with the participating companies
committing to contribute an additional £250million in three
instalments of
£ 130 million, £60 million and £60
million in each of the three years ending on 31 January 2008 to
significantly improve the resources of the Scheme.
This, together with a review of the Scheme’s Investment
Strategy, designed to reduce risk in the Scheme (see below for
further details), will provide significantly more protection for
members’ benefits.
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“I
believe that in agreeing these significant additional
contributions,we clearly demonstrate the Company’s
continuing commitment to the pension arrangements’.
Duncan
Tatton-Brown – Kingfisher
Group Finance Director
“At a time
when the only pensions stories in the news seen to
be all doom and gloom, this is great news for all members
of the
Scheme”.
Colin
Hately – Head of Pensions |
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Investment of assets
One of the Trustees’ principal responsibilities
is the investment of the schemes’ assets. For each scheme,
they draw up a Statement of Investment Principles which is reviewed
regularly, and sets out details of the investment objectives and
the investment process. For the Retirement Trust, all of the assets
(other than cash required for transaction purposes) are presently
invested in the range of funds managed by Eagle Star, while for
the money purchase section of the Pension Scheme they are invested
in a range of funds managed by Standard Life. Although the general
comments about scheme investments apply to all of our pension arrangements,
the more specific comments about funding and investment returns
apply mainly to the final salary section of the Pension Scheme.
For many years, the investment objectives could be described briefly
as being to achieve a return on the Scheme’s assets over
the longer term that exceeds the growth of the Scheme’s liabilities
consistent with an acceptable degree of risk. However, the closure
of the final salary section of the Scheme to new entrants introduced
for the first time a definite time horizon for its existence (there
will eventually be only one pensioner left to pay!) and as such
the investment objectives need to change. The Trustees are currently
reviewing the investment objectives of the final salary section
and the investment strategy required to achieve those objectives,
with a stated desire to reduce risk over a period of time.This
will be achieved by switching to less volatile assets (such as
Government gilts) which will be purchased to match the movement
in the final salary section’s liabilities and provide the
greatest security for members.
To date, the Trustees have agreed
high level funding targets with the Company and are developing
strategies designed to meet the objective of being “fully
funded” on a least risk basis within twenty years.The strategy
will involve selling more volatile assets such as equities and
gradually buying more bonds which better match the pensions provided
by the Scheme.
The strategy will, as before, involve the Scheme’s
assets being spread across a number of asset classes and geographic
areas, with the Investment Committee selecting appropriate managers
for each particular asset class, who are then given specific objectives
to achieve.The type of managers employed include both “passive” (index-tracking)
managers as well as active managers (who are expected to produce
higher investment performance than the index-tracking managers
over the longer-term, but with greater fluctuations in their returns
over the shorter term)
Taking all portfolios together, the return
achieved by the Scheme during the year to 31 March 2005 was 10.8%.
Over three and five year periods, the annualised returns were 3.2%
and 0.7% respectively.
A copy of the Statement of Investment Principles
can be obtained by writing to the Kingfisher Pensions Department
at the address shown here.
Accounts
Another of the Trustees’ principal responsibilities
is to keep accounts for the pension schemes. We show opposite a
summary of the Annual Accounts of the Pension Scheme which have
been audited by KPMG.
Actuarial Review
The financing of the Pension Scheme (but not
the Retirement Trust) is subject to regular review by the Scheme
Actuary.The main purpose of the review (also known as an actuarial
valuation) is to assess the adequacy of the fund and the level
of contributions necessary to maintain the financial soundness
of the Scheme in relation to benefits that have accrued and will
accrue to members and their dependants. These reviews normally
occur every three years.
As described above, an actuarial valuation,
beginning in April last year was recently completed and, during
the period, the Trustees and the Company consulted over the levels
of future employer contributions to be made.
The main ongoing funding target is that at any time the Scheme
should have sufficient assets to meet its accrued liabilities.
Although the Actuary concluded that, based on the on-going funding
level set by the Government, the Scheme’s assets represented
a surplus of 10% over its liabilities, he also concluded that,
based on stronger long-term assumptions, the assets could be expected
to cover only 81% of the benefits for service to 31 March 2004.
If the Scheme were discontinued, then the cover would be less.
The Company and the Trustees considered these results very carefully
and took positive action to significantly rectify the funding position.
In addition to the £250 million special payment (see above
for further details), the employers will also pay normal (monthly)
contributions of £40 million a year to the pension scheme
(subject to review at the next actuarial valuation in three years’ time).
Click a graph to view a larger image.
Click a graph to view a larger image. 
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