G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Notes to the consolidated financial statements continued 34 Retirement benefit obligations continued Defined benefit arrangements The group operates a number of defined benefit retirement arrangements where the benefits are based on employees’ length of service. In most cases these are calculated on the basis of final pensionable pay, other than for the smallest of the three sections in the UK and one scheme in the Netherlands where they are based on career average pay. Liabilities under these arrangements are stated at the discounted value of benefits accrued to date, based upon actuarial advice. Under unfunded arrangements, the group does not hold the related assets separate from the group. The amount charged to the income statement in respect of these arrangements in 2011 totalled £3m (2010: £3m). Under funded arrangements, the assets of defined benefit schemes are held in separate trustee-administered funds. The pension costs are assessed on the advice of qualified independent actuaries using the projected unit credit method. The group operates several funded defined retirement benefit schemes. Whilst the group’s primary scheme is in the UK, it also operates other material schemes, primarily in the Netherlands and Canada. The carrying values of retirement benefit obligations at the balance sheet date are presented below: UK 285 256 Rest of World 10 9 Net liability on material funded defined retirement benefit schemes 295 265 Unfunded and other funded defined retirement benefit obligations 49 41 344 306 2011 £m 2010 £m The defined benefit scheme in the UK accounts for 97% of the net balance sheet liability on material funded defined retirement benefit schemes. It comprises three sections: the pension scheme demerged from the former Group 4 Falck A/S with total membership of approximately 8,000; the Securicor scheme, responsibility for which the group assumed on 20 July 2004 with the acquisition of Securicor plc, with total membership of approximately 20,000; and the GSL scheme, responsibility for which the group assumed on 12 May 2008 with the acquisition of GSL, with total membership of approximately 2,000. The UK scheme was formally actuarially assessed at 5 April 2009. Pension obligations stated in the statement of financial position take account of future earnings increases, have been updated to 31 December 2011 and use the valuation methodologies specified in IAS 19 Employee Benefits. During the year the group closed the UK scheme to future accrual. Existing members retained their link to final salary where appropriate and their benefits accrued to-date. Members have been offered the opportunity to move to a new defined contribution scheme for future pension benefits. There has been no curtailment gain or loss. In 2010, the UK government announced that the minimum rates at which pensions will increase will change from using RPI to CPI. This change resulted in a one-off reduction in the liabilities, mainly associated with UK deferred pensioners, by £32m. This was accounted for in 2010 as a credit to reserves in line with UITF48 Accounting implications of the replacement of the Retail Prices Index with the Consumer Prices Index for Retirement Benefits. As at the latest actuarial valuation, the participants of the UK pension scheme sections can be analysed as follows: At 5 April 2009 Group 4 Falck Section GSL Section Securicor Section Total Active participants – Number 618 1,311 1,409 3,338 – Average age 53.2 50.8 51.9 51.7 Deferred participants – Number 4,559 537 10,352 15,448 – Average age 51.3 48.4 50.8 50.9 Pensioner participants – Number 2,607 208 7,878 10,693 – Average age 68.2 61.1 69.9 69.3 110 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information 34 Retirement benefit obligations continued The weighted average principal assumptions used for the purposes of the actuarial valuations were as follows: Key assumptions used at 31 December 2011 Discount rate 5.0% 5.3% Expected return on scheme assets (as at 1 January 2011) 7.0% 5.1% Expected rate of salary increases 3.1% 2.4% Future pension increases (LPI5%) 3.0% 1.5% Inflation 3.1% 2.1% Key assumptions used at 31 December 2010 Discount rate 5.5% 5.6% Expected return on scheme assets (as at 1 January 2010) 6.9% 5.6% Expected rate of salary increases 3.6% 2.3% Future pension increases (LPI5%) 3.3% 1.4% Inflation 3.5% 2.1% UK Rest of World In addition to the above, the group uses appropriate mortality assumptions when calculating the schemes obligations. The mortality tables used for the scheme in the UK are as follows: uu Current and future pensioners Birth year table S1P[M/F]A base allowing for individual scaling factors based on analysis of mortality experienced, medium cohort improvement factors with an underpin of 1.0% per annum. The amounts recognised in the income statement in respect of these defined benefit schemes are as follows: Amounts recognised in income 2011 Current service cost (7) (2) (9) Finance cost on defined retirement benefit obligations (85) (5) (90) Expected return on defined retirement benefit scheme assets 89 4 93 Total amounts recognised in income (3) (3) (6) Amounts recognised in income 2010 Current service cost (11) (4) (15) Settlement and curtailment gains – 9 9 Finance cost on defined retirement benefit obligations (87) (6) (93) Expected return on defined retirement benefit scheme assets 82 5 87 Total amounts recognised in income (16) 4 (12) UK £m Rest of World £m Total £m The amounts recognised in income are included within the following categories in the income statement: Cost of sales (6) (10) Administration expenses (3) 4 Finance income 93 87 Finance costs (90) (93) Total (6) (12) 2011 £m 2010 £m G4S plc Annual Report and Accounts 2011 111
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G4S Annual Report and Accounts 2011

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