| 10. |
Employee benefit obligations |
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| 10.1 |
Employee benefits – surplus |
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The Company operates a defined benefit pension fund (“the
Fund”). The Fund is governed by the Pension Funds Act,1965. The Fund has
297 (2007: 309) members. |
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The latest actuarial valuation in respect of the Fund was carried
out at 31 December 2008. The next actuarial valuation will take place as at 31 December 2009. |
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The amounts recognised in the balance sheet in respect of the
Fund are as follows: |
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2008 |
2007 |
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R’000 |
R’000 |
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Fair value of plan assets |
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471,073 |
600,752 |
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Present value of funded obligations |
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(272,772) |
(264,172) |
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Discretionary surplus apportionment |
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(126,261) |
(240,384) |
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Asset in the balance sheet |
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72,040 |
96,196 |
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As a result of the approval of the Fund’s surplus apportionment
exercise, the Company accounts for the amount allocated to the Employer Surplus
Account in terms of this apportionment exercise. In terms of the Act, the surplus
may not be returned to the Company, but may be used to meet any post-retirement
employee obligation. |
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Changes in the present value of the defined benefit obligation
are as follows: |
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2008 |
2007 |
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R’000 |
R’000 |
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At beginning of the year |
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273,912 |
649,530 |
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Benefit payments |
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(22,112) |
(111,518) |
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Interest cost |
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22,247 |
56,616 |
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Contributions by plan participants |
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– |
6,703 |
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Current service costs |
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– |
22,408 |
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Plan amendments |
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– |
161,373 |
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Payments on conversion to defined contribution (DC) |
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– |
(505,628) |
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Actuarial gains |
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(1,275) |
(5,572) |
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At end of the year |
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272,772 |
273,912 |
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Discretionary surplus apportionment |
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At beginning of the year |
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230,644 |
129,753 |
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Fair value movement of assets backing liability |
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(104,383) |
100,891 |
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At end of the year |
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126,261 |
230,644 |
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Changes in the fair value of defined benefit plan assets are as
follows: |
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At beginning of the year |
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600,752 |
1,062,558 |
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Benefit payments |
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(22,112) |
(111,518) |
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Funding for defined contribution scheme |
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(25,200) |
(4,501) |
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Expected return |
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51,406 |
85,569 |
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Payments on conversion to DC |
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– |
(505,628) |
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Contributions to employer |
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– |
10,744 |
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Contributions by plan participants |
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– |
6,703 |
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Actuarial (loss)/gain |
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(133,773) |
56,825 |
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At end of the year |
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471,073 |
600,752 |
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Detailed below is a statement of net assets: |
2008 |
% |
2007 |
% |
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Equity |
261,858 |
56 |
369,809 |
62 |
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Debt instruments |
29,642 |
6 |
54,530 |
9 |
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Property |
10,117 |
2 |
– |
– |
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Other |
54,593 |
12 |
55,234 |
9 |
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Cash |
114,863 |
24 |
121,179 |
20 |
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|
471,073 |
|
600,752 |
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The amounts recognised in the income statement in respect of the
defined benefit plan are as follows: |
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2008 |
2007 |
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R’000 |
R’000 |
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Current service cost |
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– |
7,163 |
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Interest cost |
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40,979 |
43,436 |
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Expected return on plan assets |
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(51,406) |
(59,848) |
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Actuarial gains and losses |
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9,383 |
28,654 |
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Contribution expenses |
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25,200 |
4,501 |
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Other adjustments |
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– |
(43,659) |
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Net deficit/(surplus) for the year per the income statement |
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24,156 |
(19,753) |
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The following principal actuarial assumptions were used in the
valuation performed by the actuaries: |
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2008 |
2007 |
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% |
% |
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Discount rate |
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8.3 |
8.3 |
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Inflation |
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5.0 |
5.0 |
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Expected return on plan assets |
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9.3 |
8.9 |
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Future pension increases |
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4.3 |
4.3 |
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Assumptions regarding post-retirement mortality were based on
PA(90) mortality tables, rated down two years, and adjusted by an appropriate
annual improvement factor. |
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The expected return on defined benefit plan assets was determined
by applying the expected returns available on the constituent major asset classes
to the proportion of the portfolio expected to be invested in each class, and
deducting a provision for expected expenses. |
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The defined benefit plan suffered an actual loss of 14.3% of plan
assets during the year. |
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Pension funds of foreign subsidiaries |
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Foreign subsidiaries have defined contribution plans under which
fixed contributions are paid into a separate entity, and will have no legal or
constructive obligations to pay further contributions if the funds do not hold
sufficient assets to pay all employee benefits relating to employee service in
current or prior periods. The regular contributions constitute net periodic costs
for the year in which they are due and as such are included in staff costs. |
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| 10.2 |
Employee benefits – obligation |
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The Company operates a defined benefit plan for qualifying employees
and pensioners, which is administered by Discovery Health Limited. The nature
of the benefit is to pay 50% of the medical aid contributions in retirement to
members. There are currently 67 members (2007: 69). |
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The latest actuarial valuation was carried out in terms of IAS
19 – Employee Benefits as at 31 December 2008. The next actuarial valuation
will take place as at 31 December 2009. |
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The following principal actuarial assumptions were used: |
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2008 |
2007 |
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% |
% |
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Discount rate |
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9,25 |
8,5 |
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Healthcare inflation rate |
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8,0 |
7,3 |
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Average retirement age |
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63 |
63 |
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Membership discontinued at retirement and death-in-service |
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5 |
5 |
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Assumptions regarding post-retirement mortality were based on
PA(90) mortality tables, rated down two years, and adjusted by an appropriate
annual improvement factor. |
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Sensitivity results |
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It is important to treat the results of the valuation with a degree
of caution, as they are sensitive to the assumptions used.The valuation results
set out above are based on a number of assumptions. The value of the liability
could turn out to beoverstated or understated, depending on the extent to which
actual experience differs from the assumptions adopted. |
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2008 |
2007 |
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Increase |
Decrease |
Increase |
Decrease |
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|
R’000 |
R’000 |
R’000 |
R’000 |
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The effect of a 1% movement in the assumed medical cost trend rate
is as follows: |
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– Effect on the aggregate of the current service cost and
interest |
2,191 |
(1,650) |
1,952 |
(1,461) |
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– Effect on the accrued liability |
20,714 |
(15,943) |
19,963 |
(15,334) |
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The effect of a 1% movement in the discount rate on the accrued
liability |
(15,905) |
20,808 |
(15,297) |
20,055 |
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The effect of a one-year change in the expected retirement age
on the accrued liability |
(17,970) |
18,366 |
(17,238) |
17,605 |
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The amount recognised in the balance sheet in respect of the defined benefit
post-retirement medical aid plan is as follows: |
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Group and Company |
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2008 |
2007 |
2006 |
2005 |
2004 |
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R’000 |
R’000 |
R’000 |
R’000 |
R’000 |
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Present value of funded obligations |
18,060 |
17,388 |
53,418 |
44,928 |
83,121 |
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Fair value of plan assets (included in cash and cash equivalents) |
– |
– |
(11,758) |
(11,758) |
(9,900) |
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Present value of unfunded obligations |
18,060 |
17,388 |
41,660 |
33,170 |
73,221 |
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Unrecognised actuarial (losses)/gains |
– |
– |
(6,015) |
(1,859) |
457 |
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Liability recognised in the balance sheet |
18,060 |
17,388 |
35,645 |
31,311 |
73,678 |
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Changes in the present value of the defined benefit obligation
are as follows: |
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At beginning of the year |
17,388 |
47,403 |
43,069 |
83,578 |
68,941 |
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Current service cost |
236 |
1,759 |
2,696 |
2,584 |
2,417 |
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Interest cost |
1,442 |
2,975 |
3,874 |
9,416 |
6,425 |
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Benefits paid |
(949) |
(897) |
(909) |
– |
(3,276) |
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Actuarial gains/(losses) |
(57) |
262 |
(94) |
– |
(94) |
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Change in subsidy policy |
– |
– |
– |
– |
9,165 |
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Losses on curtailments |
– |
(34,114) |
(1,233) |
(52,509) |
– |
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At end of the year |
18,060 |
17,388 |
47,403 |
43,069 |
83,578 |
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The amounts recognised in the income statement are as follows:
Current service cost |
236 |
1,759 |
2,696 |
2,584 |
2,417 |
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Interest cost |
1,442 |
2,975 |
3,874 |
9,416 |
6,425 |
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Employee benefit payments |
(949) |
(897) |
(909) |
– |
(3,370) |
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Change in subsidy policy |
– |
– |
– |
– |
9,165 |
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Actuarial (losses)/gains |
(57) |
262 |
(94) |
– |
(94) |
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|
672 |
4,099 |
5,567 |
12,000 |
14,543 |
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The charge for the year is included in “Administrative and
other operating expenses” in the income statement as part of staff costs. |
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There is an offer to members to accept a payment in respect of
the future right. It is currently unknown how many members will accept the offer. |
