The Group operates defined contribution pension schemes in all of its main operating locations. The Group also has defined benefit obligations as set out below. Scheme assets are held in separate trustee administered funds.
Defined Contribution Scheme
The Group operates a defined contribution pension scheme, which provides retirement and death benefits for all recently hired employees. The total cost charged in the Consolidated Income Statement of €0.4 million (2021: €0.3 million) represents employer contributions payable to the externally administered defined contribution pension scheme at rates specified in the rules of the scheme. There was €nil in outstanding contributions included in trade and other payables at 31 December 2022 (2021: €nil).
Defined Benefit Obligations
i) Group sponsored schemes
The Group operates contributory defined benefit obligations, which provide retirement and death benefits for other employees who are not members of the defined contribution pension scheme. The defined benefit obligations provide benefits to members in the form of a guaranteed level of pension payable for life, the level of the benefits depend on the member’s length of service and salary.
The assets of these schemes are held separately from those of the Group in schemes under the control of trustees. The trustees are responsible for ensuring the schemes are run in accordance with the applicable trust deed and the pension laws of the relevant jurisdiction. The trustees invest the funds in a range of assets with the objective of maximising the fund return whilst minimising the cost of funding the scheme at an acceptable risk profile. In assessing the risk profile, the trustees take account of the nature and duration of the liabilities and review investment strategy regularly.
The pension charges and payments in respect of the schemes are in accordance with the advice of professionally qualified actuaries. The latest actuarial valuation reports for these schemes, which are not available for public inspection, are dated between 31 March 2021 and 31 October 2021. The valuations employed for disclosure purposes have been based on the most recent funding valuations for each scheme adjusted by the independent actuaries to allow for the accrual of liabilities up to 31 December 2022 and to take account of financial conditions at this date. The present value of the defined benefit obligation, and the related current service cost and past service credit, were measured using the projected unit credit method and assets have been valued at bid value.
The pension contributions paid in the year ended 31 December 2022 amounted to €0.6 million (2021: €1.1 million) while the current service cost charged to the Consolidated Income Statement amounted to €1.7 million (2021: €1.7 million).
The profile of membership across all schemes at 31 December was as follows;
|
2022 |
2021 |
Current employees |
130 |
145 |
Members with deferred benefits |
476 |
500 |
Pensioners |
163 |
134 |
Total |
769 |
779 |
Buyout transaction
On 9 December 2020, the Trustee of the Group’s principal defined benefit pension scheme entered into an irrevocable agreement whereby the liabilities relating to pensions in payment at the transaction date were transferred to a third-party insurer on payment of an initial premium of €160.6 million. This gave rise to a non-cash settlement loss of €9.3 million being the difference between the present value of the transferred liabilities discounted at the AA corporate bond rate used for IAS 19 valuation purposes at the transaction date and the premium paid. A further premium of €8.5 million was paid to the insurer during 2021 on completion of a data verification exercise. The obligations associated with this payment had been included in the pension scheme obligations as at 31 December 2020 and no additional settlement gain or loss arose on payment of this further premium.
The Trustee, in agreement with the Company, also augmented pension benefits of certain members resulting in an augmentation cost of €1.1 million being the present value of the future benefit changes, which was recognised in the Income Statement for the year ended 31 December 2020.
In conjunction with the 9 December 2020 transaction, the Group concluded a new deficit funding agreement with the trustee replacing the previous deficit funding agreement agreed in 2014. Under the new agreement, the Group retained the obligation to make deficit payments to the scheme of €1.5 million per annum, adjusted for inflation, for a projected period up to 2023, or until the deficit is eliminated if earlier. During 2021, the Trustee confirmed that the Scheme met the minimum funding standard including risk reserves as set out in Irish pensions legislation leading to a cessation of the requirement to continue making the deficit funding payments. The Trustee continues to retain a charge over the escrow deposit created and funded under the former funding agreement until 31 December 2023, with the balance payable to the scheme in certain circumstances. The balance held in the escrow account at 31 December 2022 was €3.5 million (note 18).
Netherlands Scheme
The Group operates a defined benefit pension scheme for certain employees based in The Netherlands. All the liabilities of this scheme are matched by insurance contracts other than for inflation adjustment to accrued benefits for current employees.
ii) Merchant Navy Officers Pension Fund (MNOPF)
In addition to the pension schemes operated by the Group, the Group has obligations in respect of past service of certain former employees who are members of the MNOPF, an industry wide multi-employer scheme and which is closed to future accrual. The latest actuarial valuation of the scheme, which is available for public inspection, is dated 31 March 2021 and disclosed a net past service surplus of £55.0 million, equivalent to a gross funding level of 102%. The Group’s share of the MNOPF obligations, as most recently advised by the trustees, is 1.04% (2021: 1.53%). The obligation valuation in these financial statements at 31 December 2022 is based on the actuarial deficit contribution demands notified to the Group and which remain outstanding at the reporting date. The last deficit demand received by the Group was dated May 2013 and has been fully paid.
On this basis, the share of the overall deficit in the MNOPF estimated to be attributable to the Group at 31 December 2022 is €nil (2021: €nil). During the year, the Group made payments of €nil (2021: €nil) to the trustees.
iii) Principal risks and assumptions
The Group is exposed to a number of actuarial risks as set out below:
Investment risk
The pension schemes hold investments in asset classes such as equities which are expected to provide higher returns than other asset classes over the long term, but may create volatility and risk in the short term. The present value of the defined benefit obligations liability is calculated using a discount rate by reference to high quality corporate bond yields; if the future achieved return on scheme assets is below this rate, it will create a deficit. IAS 19 Employee Benefits provides that the discount rate used to value retirement benefits should be determined by reference to market yields on high quality corporate bonds consistent with the duration of the liabilities. Due to a narrow bond universe, the Group defines high quality bonds in the Eurozone as those rated AA or higher by at least one rating agency. In respect of sterling schemes, corporate bonds must be rated AA, or higher, by at least two rating agencies.
Salary risk
The present value of the defined benefit liability is calculated by reference to the projected salaries of scheme participants at retirement based on salary inflation assumptions. As such, any variation in salary versus assumption will vary the schemes’ liabilities.
Life expectancy risk
The present value of the defined benefit obligations liability is calculated by reference to the best estimate of the mortality of scheme participants both during and after their employment. An increase in the life expectancy of the scheme participants will change the scheme liabilities.
Inflation risk
A significant proportion of the benefits under the plans are linked to inflation with higher inflation leading to higher liabilities.
The Directors have taken independent actuarial advice on the key judgements used in the estimate of retirement benefit scheme assets and liabilities.
The principal assumptions used for the purpose of the actuarial valuations were as follows:
|
Sterling liabilities |
Euro liabilities |
||
|
2022 |
2021 |
2022 |
2021 |
Discount rate |
4.75% |
1.85% |
3.65% |
1.20% |
Inflation rate |
2.90% |
3.60% |
2.50% |
2.00% |
Rate of annual increase of pensions in payment |
2.20% - 3.30% |
2.20% - 3.40% |
1.50% |
1.00% |
Rate of increase of pensionable salaries |
1.15% |
1.10% |
0.00% - 1.40% |
0.00% - 1.20% |
The euro and sterling discount rates have been determined in consultation with the Group’s independent actuary, who has devised proprietary models referencing market yields at the balance sheet date on high quality corporate bonds consistent with the duration of the liabilities. For 31 December 2022, the high quality corporate bond population include those rated AA or higher by at least two rating agencies.
Sterling obligations include the effects of the UK GMP equalisation court decisions. The estimated effect was to increase the obligations of the UK scheme by 0.1%.
The average life expectancy used in the principal Group schemes at age 60 is as follows:
|
2022 |
|
2021 |
|
|
Male |
Female |
Male |
Female |
Irish Schemes: |
|
|
|
|
Current retirees |
26.7 years |
29.6 years |
26.6 years |
29.5 years |
Future retirees |
29.1 years |
31.6 years |
29.0 years |
31.5 years |
UK Schemes: |
|
|
|
|
Current retirees |
27.7 years |
29.5 years |
27.8 years |
29.4 years |
Future retirees |
29.2 years |
30.9 years |
29.3 years |
30.9 years |
Assumptions regarding life expectancies are set based on actuarial advice in accordance with published statistics and experience in each jurisdiction.
Sensitivity of pension liability judgemental assumptions
The Group’s total obligation in respect of defined benefit obligations is calculated by independent, qualified actuaries, updated at least annually and totals €91.6 million at 31 December 2022 (2021: €140.5 million). At 31 December 2022, the Group also has scheme assets totalling €124.8 million (2021: €145.8 million), giving a net pension surplus of €33.2 million (2021: surplus of €5.3 million). The size of the obligation is sensitive to actuarial assumptions. The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant with the exception of the rate of inflation assumption which impacts other inflation linked assumptions. The sensitivity analysis intends to provide assistance in understanding the sensitivity of the valuation of pension liabilities to market movements on discount rates, inflation rates and mortality assumptions for scheme beneficiaries. The analyses are for illustrative purposes only as in practice assumptions rarely change in isolation.
There has been no change from the prior year in the methods and assumptions used in preparing the sensitivity analyses below.
2022
Assumption |
Change in assumption |
Impact on euro schemes liabilities |
Impact on sterling scheme liabilities |
Combined impact on liabilities |
Discount rate |
0.5% increase in discount rate |
9.5% decrease in liabilities |
7.2% decrease in liabilities |
9.1% decrease in liabilities |
Rate of inflation* |
0.5% increase in price inflation |
8.5% increase in liabilities |
4.7% increase in liabilities |
7.8% increase in liabilities |
Rate of mortality |
Members assumed to live one year longer |
3.0% increase in liabilities |
3.1% increase in liabilities |
3.0% increase in liabilities |
2021
Assumption |
Change in assumption |
Impact on euro schemes liabilities |
Impact on sterling scheme liabilities |
Combined impact on liabilities |
Discount rate |
0.5% increase in discount rate |
9.5% decrease in liabilities |
8.4% decrease in liabilities |
9.3% decrease in liabilities |
Rate of inflation* |
0.5% increase in price inflation |
10.3% increase in liabilities |
6.0% increase in liabilities |
9.4% increase in liabilities |
Rate of mortality |
Members assumed to live one year longer |
4.0% increase in liabilities |
4.3% increase in liabilities |
4.1% increase in liabilities |
* The rate of inflation sensitivity includes its impact on the rate of annual increase of pensions in payment assumption and the rate of increase of pensionable salaries assumption as they are both inflation linked assumptions.
The size of the scheme assets which are also sensitive to asset return levels and the level of contributions from the Group are analysed by asset class in part (iv) of this note.
iv) Retirement benefit assets and liabilities
The amount recognised in the Consolidated Statement of Financial Position in respect of the Group’s defined benefit obligations is as follows:
|
Scheme with liabilities in sterling |
Schemes with liabilities in euro |
Total |
|||
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
€m |
€m |
€m |
€m |
€m |
€m |
Equities |
10.8 |
13.5 |
63.2 |
68.9 |
74.0 |
82.4 |
Bonds |
14.6 |
15.1 |
22.3 |
27.4 |
36.9 |
42.5 |
Property |
- |
- |
0.1 |
1.0 |
0.1 |
1.0 |
Insurance contracts |
- |
- |
7.4 |
10.9 |
7.4 |
10.9 |
Other |
2.9 |
3.4 |
3.5 |
5.6 |
6.4 |
9.0 |
Fair value of scheme assets |
28.3 |
32.0 |
96.5 |
113.8 |
124.8 |
145.8 |
Present value of scheme liabilities |
(16.5) |
(28.3) |
(75.1) |
(112.2) |
(91.6) |
(140.5) |
Surplus in schemes |
11.8 |
3.7 |
21.4 |
1.6 |
33.2 |
5.3 |
Three of the defined benefit obligation schemes accounted for by the Group are in a net surplus position and are shown in non-current assets in the Consolidated Statement of Financial Position. One of the defined benefit obligation schemes accounted for by the Group is in a net deficit position and is shown in non-current liabilities.
The overall weighted average duration of the Group’s defined benefit obligations is 16.5 years (2021: 19.7 years). The weighted average duration of euro scheme obligations was 17.0 years (2021: 20.1 years) and of sterling scheme obligations was 14.5 years (2021: 17.9 years).
The split between the amounts shown in each category is as follows:
|
2022 |
2021 |
|
€m |
€m |
Non-current assets – retirement benefit surplus |
33.6 |
6.7 |
Non-current liabilities – retirement benefit obligation |
(0.4) |
(1.4) |
Net surplus in pension schemes |
33.2 |
5.3 |
v) Movements in retirement benefit assets
Movements in the fair value of scheme assets in the current year were as follows:
2022 |
Schemes in sterling |
Schemes in euro |
Total |
|
€m |
€m |
€m |
At beginning of the financial year |
32.0 |
113.8 |
145.8 |
Interest income |
0.5 |
1.4 |
1.9 |
Actuarial loss |
(2.2) |
(16.5) |
(18.7) |
Exchange difference |
(1.6) |
- |
(1.6) |
Employer contributions |
0.3 |
0.3 |
0.6 |
Contributions from scheme members |
0.1 |
0.2 |
0.3 |
Benefits paid |
(0.8) |
(2.7) |
(3.5) |
At end of the financial year |
28.3 |
96.5 |
124.8 |
2021 |
Schemes in sterling |
Schemes in euro |
Total |
|
€m |
€m |
€m |
At beginning of the financial year |
27.3 |
112.3 |
139.6 |
Interest income |
0.3 |
0.8 |
1.1 |
Actuarial gains |
3.1 |
12.4 |
15.5 |
Exchange difference |
1.9 |
- |
1.9 |
Employer contributions |
0.3 |
0.8 |
1.1 |
Contributions from scheme members |
0.1 |
0.2 |
0.3 |
Transfer of assets * |
- |
(8.5) |
(8.5) |
Benefits paid |
(1.0) |
(4.2) |
(5.2) |
At end of the financial year |
32.0 |
113.8 |
145.8 |
* The transfer of assets during 2021 relates to the premium paid relating to the buyout transaction concluded on 9 December 2020. Further details are provided at note 31(i) above.
vi) Movement in retirement benefit liabilities
Movements in the present value of defined benefit obligations in the year were as follows:
2022 |
Schemes in sterling |
Schemes in euro |
Total |
|
€m |
€m |
€m |
At beginning of the financial year |
28.3 |
112.2 |
140.5 |
Service cost |
0.4 |
1.3 |
1.7 |
Interest cost |
0.5 |
1.3 |
1.8 |
Contributions from scheme members |
0.1 |
0.2 |
0.3 |
Actuarial gain |
(10.9) |
(37.2) |
(48.1) |
Exchange difference |
(1.1) |
- |
(1.1) |
Benefits paid |
(0.8) |
(2.7) |
(3.5) |
At end of the financial year |
16.5 |
75.1 |
91.6 |
2021 |
Schemes in sterling |
Schemes in euro |
Total |
|
€m |
€m |
€m |
At beginning of the financial year |
28.0 |
112.8 |
140.8 |
Service cost |
0.4 |
1.3 |
1.7 |
Interest cost |
0.4 |
0.6 |
1.0 |
Contributions from scheme members |
0.1 |
0.2 |
0.3 |
Actuarial (gain) / loss |
(1.6) |
10.0 |
8.4 |
Exchange difference |
2.0 |
- |
2.0 |
Transfer of liabilities * |
- |
(8.5) |
(8.5) |
Benefits paid |
(1.0) |
(4.2) |
(5.2) |
At end of the financial year |
28.3 |
112.2 |
140.5 |
* The transfer of liabilities during 2021 relate to the buyout transaction concluded on 9 December 2020, which also gave rise to the settlement and augmentation losses reported in the year ended 31 December 2020. Further details are provided at note 31(i) above.
vii) Amounts recognised in the Consolidated Income Statement
Amounts recognised in the Consolidated Income Statement in respect of the defined benefit obligations are as follows:
|
2022 |
2021 |
|
€m |
€m |
Charges to employee benefits expense |
|
|
Current service cost |
1.7 |
1.7 |
|
1.7 |
1.7 |
|
|
2022 |
2021 |
|
|
€m |
€m |
Recognised in finance income |
|
|
|
Interest income on scheme assets |
(1.9) |
(1.1) |
|
Interest on scheme liabilities |
1.8 |
1.0 |
|
Net interest income on defined benefit obligations (notes 6 and 7) |
(0.1) |
(0.1) |
|
The estimated amounts of employer contributions expected to be paid to the schemes during 2023 is €0.6 million based on current funding agreements.
viii) Amounts recognised in the Consolidated Statement of Comprehensive Income
Amounts recognised in the Consolidated Statement of Comprehensive Income in respect of the defined benefit obligations are as follows:
|
2022 |
2021 |
|
€m |
€m |
Actuarial gains and losses |
|
|
Actual total return on scheme assets |
(16.8) |
16.6 |
Interest income on scheme assets |
(1.9) |
(1.1) |
Return on scheme assets (excluding amounts included in net interest cost) |
(18.7) |
15.5 |
|
|
|
Remeasurement adjustments on scheme liabilities: |
|
|
Losses arising from changes in demographic assumptions |
- |
(8.6) |
Gains arising from changes in financial assumptions |
46.9 |
0.1 |
Gains arising from experience adjustments |
1.2 |
0.1 |
Actuarial gain recognised in the Consolidated Statement of Comprehensive Income |
29.4 |
7.1 |
|
2022 |
2021 |
|
€m |
€m |
Exchange movement |
|
|
Exchange (loss) / gain on scheme assets |
(1.6) |
1.9 |
Exchange gain / (loss) on scheme liabilities |
1.1 |
(2.0) |
Net exchange loss recognised in the Consolidated Statement of Comprehensive Income |
(0.5) |
(0.1) |