Pick n Pay Annual Report 2009 - Notes - Pick n Pay Stores Limited

Pick n Pay Stores Limited and its subsidiaries

23.

RETIREMENT BENEFITS

The Group has four retirement schemes, covering:
Score Supermarkets Trading (Pty) Limited
Boxer Superstores (Pty) Limited
InterFrank Group Holdings Pty Limited
Pick n Pay Retailers (Pty) Limited

23.1

Score Supermarkets Trading (Pty) Limited

Score Supermarkets has its own defined-contribution provident funds, one for Botswana employees and the South African fund for all other employees. Employees who are union members have the choice to join the SACCAWU National Provident Fund.

Membership of Score provident funds	1 258
Membership of SACCAWU National Provident Fund	286

The Score provident funds are administered by Alexander Forbes Consultants and Actuaries, who also provide consulting and actuarial services. All the Score South African fund assets are managed by Investment Solutions and the Botswana assets by Investec Asset Management (Botswana).
All funds are defined-contribution funds.
As the stores are either converted to Pick n Pay franchises or Boxer stores or sold to independent operators, the members of the Score funds are transferred to the appropriate fund operated by their new employer. To date, 61 of the 125 stores have transferred, sold or closed and it is expected that by the end of 2010 no members will remain on the Score funds.

23.2

Boxer Superstores (Pty) Limited

Employees of Boxer are members of their own provident funds.

A	Name of fund	Boxer Superstores (Pty) Limited Provident Fund
	Number of members	3 966
	Administrator	Old Mutual

This is the main Boxer retirement plan and is a defined-contribution contributory provident fund. There are eight Trustees and two alternate Trustees. Members elect half the Trustees with the Company appointing the other half. Trustee meetings are held quarterly. Benefits from the fund include Group Life and Disability cover.

B	Name of fund	SACCAWU National Provident Fund
	Number of members	649
	Administrator	Old Mutual

This is a defined-contribution contributory provident fund. Union members may elect to join this fund on commencement of employment at Boxer. The company does not play any role in the running or administration of this fund, or the election of Trustees.

C	Name of fund	Personal Provident Fund
	Number of members	52
	Administrator	Momentum Administration Services

This is a defined-contribution contributory provident fund for senior management of the company. This is an umbrella fund with independently appointed Trustees. An internal advisory committee made up of two members elected and two company appointed participants deals with matters pertaining to the Boxer members.

23.3

InterFrank Group Holdings Pty Limited (Franklins)

In terms of Australian legislation employers are required to contribute 9% of employees’ gross salaries to a superannuation fund of each employee’s choice. If employees do not specify a superannuation fund of choice, contributions must be made on behalf of the employee to a fund selected by the company. Franklins provides its employees with a choice of two funds:

A	The InterFrank Superannuation Fund

This fund is for all corporate, head office and other non-retail employees. It is underwritten by AMP Life Limited as part of their Custom Super Plan. Approximately 224 employees are members of this Scheme.

B	The Retail Industry Superannuation Fund

This fund is for all employees covered by the Enterprise Bargaining Agreement. Approximately 4 267 employees are members of this fund.
Both funds are defined-contribution and non-contributory.
Nine employees have opted for their contributions to be made by Franklins on their behalf to complying superannuation funds of their choice.
Franklins has no other liability as regards retirement funding and there is no medical aid nor post-retirement medical aid liability.
Medical aid is taken care of by the Federal Government Medicare Scheme and personal compulsory top-up arrangements.

23.4

Pick n Pay Retailers (Pty) Limited (Pick n Pay)

The Pick n Pay Retirement Scheme comprises two separate funds, the Pick n Pay Non-contributory Provident Fund and the Pick n Pay Paid-up Pension Fund.

The Pick n Pay Retirement Scheme is defined-contribution in nature. However, certain members were guaranteed that should their defined-contribution benefit be less than their previous defined-benefit guarantee (under the previous Pick n Pay Retirement Fund) they would retain the former. Due to this guarantee, and the fact that the pensioners are also paid by this scheme, the scheme’s liabilities may be broken down between those which are defined-contribution in nature and those which are defined benefit and for which the employer has an obligation to make additional contributions to ensure this element of the scheme is fully funded.

Pick n Pay contributes a total of 16.48% of salary towards the defined-contribution benefits offered to the members of the scheme. Out of this, 12.77% is allocated towards retirement savings and the balance, 3.71%, is allocated towards the reinsurance of death benefits, disability benefits and fund expenses. A further 0.86% of salary is contributed towards funding the guarantees outlined above.

There are 17 222 members of the Pick n Pay Retirement Scheme and 1 087 pensioners.

Retirement defined-benefit
Executive members of the previous Pick n Pay Retirement Fund are guaranteed that the capital value of their benefit at normal retirement date will not be less than that which they enjoyed under that fund. A defined-benefit obligation arises in this regard.

Post-retirement medical benefits
Members who joined the Pick n Pay Medical Scheme prior to 1 January 1997 will receive an additional pension on retirement to assist with post-retirement medical scheme contributions. Some of the members have already retired and are in receipt of a post-retirement medical pension. The full obligation for both active members and retirees is provided for in the financial statements. There is no subsidy for members who joined the Pick n Pay Medical Scheme after 1 January 1997.

Benefit fund
There was a separate benefit fund to pay any disability benefit sanctioned by the trustees. The fund has been reinsured on a 100% profit share basis and hence the employer is required to make additional contributions to ensure this fund is fully funded at all times. Effective 1 January 2009, the benefit fund has been outsourced to an insurer.

Advisors
The Pick n Pay Retirement Scheme is administered by NMG Consultants and Actuaries Administrators. The consultants and actuaries are NMG Consultants and Actuaries. The investment advisor is Fifth Quadrant Actuaries and Consultants.

SACCAWU National Provident Fund
The SACCAWU Fund is administered by Old Mutual and is currently under curatorship. Employees, who are union members, have a choice of joining this fund instead of the Pick n Pay Retirement Scheme when they commence employment. There are 20 248 employees who have elected to join this fund.

						GROUP
		Pensioners’	Retirement	Post-
		defined-	defined-	retirement		Total	Total
		benefit	benefit	medical	Benefit	obligation	obligation
		guarantee	guarantee	guarantee	fund	2009	2008
		Rm	Rm	Rm	Rm	Rm	Rm
23.5	The Pick n Pay Retirement Scheme Defined-benefit obligations
	The amount recognised in the balance sheet is as follows:
	Present value of funded obligations	302.8	570.2	75.6	26.9	975.5	968.9
	Fair value of assets	(335.6)	(542.9)	(75.6)	(49.9)	(1 004.0)	(945.3)
	Funded position	(32.8)	27.3	—	(23.0)	(28.5)	23.6
	Unrecognised actuarial gain	13.7	—	—	23.0	36.7	25.4
		(19.1)	27.3	—	—	8.2	49.0
	Amounts recognised in the income statement are as follows:
	Current service cost	—	23.9	1.7	5.1	30.7	62.7
	Interest on the obligation	23.4	47.1	11.9	2.4	84.8	75.8
	Expected return on the plan assets	(27.3)	(52.5)	(13.7)	(4.9)	(98.4)	(67.0)
	Net actuarial (gains)/losses recognised	(15.2)	20.5	(0.6)	4.3	9.0	(46.1)
	Total included in employee costs	(19.1)	39.0	(0.7)	6.9	26.1	25.4
	Cumulative unrecognised gains/(losses):
	Net cumulative unrecognised gain/(loss) – 1 March	—	6.2	—	19.2	25.4	9.5
	Actuarial gain/(loss) – obligation	23.7	(9.6)	8.2	2.9	25.2	(57.9)
	Actuarial gain/(loss) – assets	5.2	(17.1)	(7.6)	(3.4)	(22.9)	119.9
	Actuarial gain/(loss) to be recognised	(15.2)	20.5	(0.6)	4.3	9.0	(46.1)
	Net cumulative unrecognised gain – 28 February	13.7	—	—	23.0	36.7	25.4
	In terms of IAS 19, the Group has not recognised the excess assets in the benefit fund.
	Movement in the liability recognised on the balance sheet is as follows:
	Net liability – 1 March	—	49.0	—	—	49.0	129.0
	Net expense in the income statement	(19.1)	39.0	(0.7)	6.9	26.1	25.4
	Contributions	—	(60.7)	0.7	(6.9)	(66.9)	(105.4)
	Net liability – 28 February	(19.1)	27.3	—	—	8.2	49.0

					GROUP
	Pensioners’	Retirement	Post-
	defined-	defined-	retirement		Total	Total
	benefit	benefit	medical	Benefit	obligation	obligation
	guarantee	guarantee	guarantee	fund	2009	2008
	Rm	Rm	Rm	Rm	Rm	Rm
Movement in the fund’s obligations and plan assets recognised on the balance sheet is as follows:
Change in liability
Liability – 1 March	216.9	534.2	191.4	26.4	968.9	850.4
Service cost	—	23.9	1.7	5.1	30.7	62.7
Interest cost	23.4	47.1	11.9	2.4	84.8	75.8
Actuarial (gain)/loss	(23.7)	9.6	(8.2)	(2.9)	(25.2)	57.9
Benefits paid	86.2	(44.6)	(121.2)	(4.1)	(83.7)	(77.9)
Liability – 28 February	302.8	570.2	75.6	26.9	975.5	968.9
Change in plan assets
Plan assets – 1 March	216.9	491.4	191.4	45.6	945.3	730.9
Expected return	27.3	52.5	13.7	4.9	98.4	67.0
Actuarial gain	5.2	(17.1)	(7.6)	(3.4)	(22.9)	119.9
Contributions by employer	—	60.7	(0.7)	6.9	66.9	105.4
Benefits paid	86.2	(44.6)	(121.2)	(4.1)	(83.7)	(77.9)
Plan assets – 28 February	335.6	542.9	75.6	49.9	1 004.0	945.3
	%	%	%	%	%	%
Actuarial return on plan assets	11.8	6.8	4.5	3.1	7.7	35.6
Asset mix
Equity	62.8	62.8	62.8	56.5	62.5	71.0
Fixed interest	32.3	32.3	32.3	43.5	32.9	21.4
Property	4.9	4.9	4.9	—	4.6	7.6
	100.0	100.0	100.0	100.0	100.0	100.0

The principal actuarial assumptions at the last valuation date are:	1 June 2008 % per annum	1 June 2007 % per annum
Discount rate	9.00	9.00
Future salary increases	6.34	6.32
Future pension increases	5.00	5.00
Annual increase in healthcare costs	8.30	8.30
Expected rate of return*	10.50	10.50


	At 28 February 2009, if the discount rate had been 1% higher or 1% lower (with all other variables held constant), the impact on the financial statements would have been as follows:

	As reported
	8%	9%	10%
Income statement
Expense/(income) included in employee costs	R82.6	R26.1m	(R3.3m)
Balance sheet
Obligation/(asset) at 28 February 2009	R64.5m	R8.2m	(R21.4m)


	*	The expected rate of return on plan assets was determined by assuming that the fixed interest assets would earn a return equal to the discount rate of 9.00%, with a further 2.25% risk premium applied to the equities and property, giving a weighted average return of 10.50% based on the current asset allocation.

	GROUP
	Defined-	Defined-
	contribution	contribution
	benefits	benefits
	2009	2008
	Rm	Rm
Current contributions	265.8	250.9
Continuing operations	249.6	222.6
Discontinued operation	16.2	28.3
In the prior year an amount of R33.6 million in respect of risk benefit premium and expenses has now been allocated to defined contribution members. This is in line with current year allocations.

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