2018
Rm
  2017
Rm
 
24. OTHER NON-CURRENT LIABILITIES        
  Retirement benefit obligation 1 753   2 236  
  Deferred income maintenance contract 340   333  
  Other payables 150   103  
  Total per statement of financial position 2 243   2 672  
 

Retirement benefit information

It is the policy of the group to encourage, facilitate and contribute to the provision of retirement benefits for all permanent employees. To this end the groupís permanent employees are usually required to be members of either a pension or provident fund, depending on their preference and local legal requirements.

Altogether 74% of employees belong to one defined benefit and nine defined contribution retirement funds in which group employment is a prerequisite for membership. Of these, the defined benefit and five defined contribution funds are located outside of South Africa and accordingly are not subject to the provisions of the Pension Funds Act of 1956. A total of 21% of employees belong to defined contribution funds associated with industry or employee organisations.

Defined contribution plans

The total cost charged to profit or loss of R861 million (2017: R856 million) represents contributions payable to these schemes by the group at rates specified in the rules of the schemes (note 3).

Defined benefit plans

The group sponsors a funded defined benefit scheme for qualifying employees in the United Kingdom.

The UK defined benefit scheme is administered by a board of trustees which manages the assets held in trust for the benefit of the scheme members. The trustee board of the pension scheme is composed of one employer representative, one member nominated representative and one independent professional trustee. The trustee board is required by the trust deed and rules, pension law and by its articles of association to act in the interests of all relevant stakeholders in the scheme, ie, current employees, former employees, retirees and dependants. The scheme closed to future accrual on 31 December 2016.

The scheme exposes the company to a number of risks, the most significant of which are:

Changes in bond yields A decrease in corporate bond yields will increase the value placed on the schemeís liabilities, although this will be partially offset by an increase in the value of the schemeís bond holdings.
Asset volatility The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a deficit. The scheme holds a significant proportion of growth assets (equities and absolute return funds) which, though expected to outperform corporate bonds in the long term, create volatility risk in the short term. The allocation to growth assets is monitored to ensure it remains appropriate given the schemeís long-term objectives.
Inflation risk A significant proportion of the schemeís benefit obligations is linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.
Life expectancy The majority of the schemeís obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities.

As the scheme is closed to future accrual, future contributions into the scheme comprise solely recovery plan contributions if considered necessary. Following the latest triennial valuation at 1 April 2017 the deficit is planned to be funded via recovery plan contributions and investment returns from return-seeking assets. In terms of the recently agreed recovery plan nine instalments of £13 million will be paid starting from 1 April 2018 to 1 April 2026. This plan will be re-assessed as at April 2020.

  2018
Rm
  2017
Rm
 
Amounts recognised in the income statement in respect of defined benefit schemes are as follows:        
Current service cost     1  
Plan administration expenses 14   11  
Net loss recognised in profit or loss (note 3) 14   12  
Net interest expenses 57   65  
Components of defined benefit costs recognised in profit or loss 71   77  
Actual return on plan assets 314   340  

The schemeís IAS 19 accounting valuation at 30 September 2018 reflected a deficit of £95 million (R1 753 million) which represents a decrease compared to the deficit in 2017 of £123 million (R2 236 million). The discount rate increased from 2.7% in 2017 to 2.9% in 2018. The increased discount rate together with asset returns and the recovery plan contribution of £10 million (R240 million), contributed to the lower deficit.

The trustee board carry out a strategic investment review following completion of each triennial valuation to ensure that the assets are managed in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the scheme.

The trustee board and the group are actively considering mechanisms to reduce risk in the scheme. During 2016 the trustee secured a further insurance policy (buy-in) for some pensioner liabilities, bringing the total buy-ins up to a value of £120 million. The trustee intends to continue to seek risk mitigation opportunities to reduce scheme volatility and match liabilities as far as possible. The interest rate hedging is in the process of being increased from 33% to 50%, through use of bonds which match the duration of the liabilities.

The schemeís assets consist primarily of equities (local and offshore), corporate bonds and insurance policies. The markets performed well resulting in strong returns from the equity and bond markets, which resulted in returns being £4 million (R74 million) higher than projected.

The amount included in the balance sheet arising from the groupís obligations in respect of the defined benefit scheme is set out below:

  2018 
Rm 
  2017 
Rm 
 
Present value of funded obligation  10 533     11 123    
Fair value of plan assets  8 780     8 886    
Net liability per statement of financial position  1 753     2 236    
Movement in present value of funded obligation:             
At beginning of year  11 123     11 864    
Current service cost          
Interest cost  281     269    
Actuarial gains arising from changes in demographic assumptions  (69)    (183)   
Actuarial gains arising from changes in financial assumptions  (367)    (263)   
Actuarial losses/(gains) arising from experience  107     (104)   
Benefits paid  (732)    (641)   
Exchange differences  190     180    
At end of year  10 533     11 123    

  2018 
Rm 
  2017 
Rm 
 
Movement in fair value of plan assets:        
At beginning of year  8 886     8 980    
Interest income  224     204    
Actuarial gains recognised in the statement of comprehensive income  86     128    
Plan administration expenses  14     10    
Contributions  183     91    
Benefits paid  (732)    (641)   
Exchange differences  119     114    
At end of year  8 780     8 886    
Cumulative actuarial losses  3 358     3 601    
Plan assets consist of the following:             
– Equity instruments (%) 51     53    
– Bonds (%) 45     43    
– Cash (%) 4       

The defined benefit funds was valued by an independent actuary as follows:

  Valuation
interval
  Latest
statutory
valuation
 
Barloworld UK Pension Scheme Triennial   2017  

  2018   2017  
Key assumptions used:        
Discount rate (%) 2.9   2.7  
Expected rate of salary increases (%) 3.2   3.2  
Future pension increases (%) 3.1      
Mortality (table using year of birth) S2PA   S2PA  

  Operating
expenses
Net
interest
Total
income
statement
expense
Scheme
assets
Defined 
benefit 
obligation 
Deficit   
Sensitivity to key assumptions £000 £000 £000 £000 £000  £000   
Current values 795 2 576 3 371 475 453 (570 761) (95 308)  
Following a 0.2% p.a. increase in the discount rate 795 2 213 3 008 473 302 (551 160) (77 858)  
Following a 0.2% p.a. increase in the inflation assumption 795 3 039 3 834 477 591 (588 881) (111 290)  
Following a 0.25% increase in the long-term rate of improvement for post-retirement mortality 795 2 710 3 505 476 095 (574 040) (97 945)  

In assessing the groupís post-retirement liabilities, the group, following actuarial advice, has used standard mortality tables adjusted to reflect the mortality experience of the defined benefit scheme. The mortality assumption remained consistent with the prior year.