- Part I: Summary
- Part II: Risk Factors
- Part III: The Scheme of Arrangement and Share Capital Consolidation
- Part IV: Directors, Company Secretary, Registered Office and Advisers
- Part V: Presentation of Statisical Data and Other Information
- Part VI: Information on The Group
- Part VII: Directors and Corporate Governance
- Part VIII: Selected Financial Information
- Part IX: Operating and Financial Review
- Part X: Accountant's Reports and Financial Information
- Part XI: Interim Financial Information of The Group for The 26 Week Period Ended 2 August 2008
- Part XII: Additional Information
- Responsibility
- Incorporation and Registered Office
- Organisational Structure
- Main Investments
- Share Capital
- Memorandum of Association and Bye-Laws
- Mandatory Takeover Bids, Squeeze-out and Sell-out Rules
- Directors' Interests
- Summary of Remuneration and Benefits
- Director's Terms and Conditions
- Employees
- Employee Share Plans
- Pensions
- Significant Shareholders
- No Significant Change
- Related Party Transactions
- Material Contracts
- Taxation
- Litigation
- Property, Plant and Equipment
- Depositary Interests and Terms of the Deed Poll
- Auditors
- Consents
- General
- Documents available for Inspection
- Part XIII: Definitions
13. PENSIONS
13.1 Employee pension schemes
The Group has one defined benefit plan (the "Group Scheme") for UK based staff, which was closed to new members in 2004. All other pension arrangements consist of defined contribution plans. The SFAS 158 present value of obligations of the Group Scheme decreased by $4.2 million (2006/07: increase of $6.9 million) the largest movement being an actuarial gain of $16.6 million (2006/07: actuarial gain of $33.4 million). The market value of the Group Scheme's assets decreased by $13.5 million (2006/07: increased by $38.0 million). As a result there was a retirement benefit deficit on the balance sheet of $5.6 million (3 February 2007: $3.7 million asset) before a related deferred tax asset of $1.6 million (3 February 2007: $1.2 million liability). The latest triennial actuarial valuation was carried out as at 5 April 2006. There was a surplus and as a result no additional contributions were required as part of a recovery plan to eliminate a deficit. The cash contribution to the Group Scheme in 2007/08 was $7.2 million (2006/07: $6.8 million), and the Group expects to contribute some $7.4 million in 2008/09.
The valuation of the Group Scheme's assets and liabilities partly depends on assumptions based on the financial markets as well as longevity and staff retention rates. This valuation is particularly sensitive to material changes in the value of equity investments held by the Group Scheme, changes in the UK AA rated corporate bond yields which are used in the measurement of the liabilities, changes in market expectations for long term price inflation and new evidence on projected longevity rates. Funding requirements and income statement items relating to this closed Group Scheme are also influenced by these factors.
Under the Pensions Act 2004, the Pensions Regulator has powers to vary and impose funding arrangements which could be more onerous than may be agreed with or proposed to the trustees. In addition, the provisions of the Pensions Act 2004 may restrict the freedom of the Group to undertake certain re-organisation steps or to effect returns on capital or unusual dividends without the prior agreement of the Group Scheme trustees, in consultation with the Pensions Regulator. Following the closure to new entrants of the Group Scheme in 2004, a defined contribution plan was set up for new UK employees of the Group.
The US division also operates defined contribution plans in the form of the 401(k) Plan and an nonqualified deferred compensation plan.
13.2 UK executive directors' pension schemes
The Group Finance Director is a member of the UK Group Scheme, which is a funded, HMRC registered, final salary, occupational pension scheme with a separate category of membership for directors. Pensionable salary is the member's base salary, excluding all bonuses. The main features of the directors' category are:
- a normal pension age of 60;
- pension at normal pension age of two-thirds of final pensionable salary, subject to completion of 20 years' service;
- life assurance cover of four times pensionable salary; and
- spouse's pension on death.
All UK Group Scheme benefits were, until 5 April 2006, subject to Inland Revenue limits. Where such limitation was due to the Inland Revenue earnings cap the Signet Group Funded Unapproved Retirement Benefit Scheme (the "FURBS") was, until April 2006, used to supplement pension benefits. This was a defined contribution arrangement. As a result of the changes to pension taxation in the UK from 6 April 2006, the Remuneration Committee agreed that pension provision through the UK Group Scheme should continue broadly as before. However, members should not benefit from a windfall gain through the removal of existing limits, and therefore a scheme specific earnings cap was maintained equivalent to the previous earnings cap, increased by RPI annually. As the tax treatment of the FURBS and the other advantages of such a funding scheme have been eroded, the Group has ceased paying contributions to the FURBS. In substitution a supplement is paid to the member on the same basis as with other elements of remuneration: on an individual basis and in accordance with the remuneration principles. After review the Remuneration Committee agreed that it was necessary to increase the supplement paid to executive directors in order to achieve the appropriate positioning within the percentile ranges forming part of the remuneration principles. The Remuneration Committee has therefore taken the first steps to redress that balance during 2007/08. The Group will not compensate members for any increase in taxation that they may face as a result of the changes and members will not be protected by the Group from the consequences of the changes in taxation, but will be provided with a cash supplement in lieu of pension accrual once members reach the lifetime allowance limit set by the new legislation if they choose to exercise this option. The UK Group Scheme does allow for the new range of flexibility in pension arrangements without additional cost or administrative burden and for example, the new flexibility on tax-free cash has been incorporated.
13.3 US executive directors' pension schemes
In the US there are two savings vehicles by which provision for pension payments is made: the Sterling Jewelers Inc. 401(k) retirement savings plan (the "401(k) Plan") and the Deferred Compensation Plan (the "DCP"). These are defined contribution arrangements.
In the US division the primary retirement vehicle is the US company sponsored 401(k) Plan which is a qualified plan under Federal guidelines. The company matches employee contributions to the 401(k) Plan at 25 per cent of an employee's contribution up to a maximum of 6 per cent of an employee's basic salary. Under Federal guidelines the 401(k) Plan contributions by senior management may be reduced based on the participation levels of lower paid employees. Consequently, in a similar way to other US companies, a supplemental plan, the DCP, has been established for senior management to assist with pre-tax retirement savings. The DCP was originally established in 1996. In response to changes in US law, the original DCP was frozen and a new DCP was adopted. The new DCP is similar to the old DCP, with changes primarily intended to comply with Section 409A of the US Internal Revenue Code of 1986, as amended, including that it imposes additional restrictions on the timing of elections and distributions as required by law. The DCPs are unfunded nonqualified plans under Federal guidelines and therefore considered to be an important savings vehicle in addition to the 401(k) Plan. The employer makes a matched contribution to the DCP equal to 50 per cent of an employee's contribution up to a maximum of 10 per cent of the individual's basic salary and bonus. The Group Chief Executive has pension benefits provided via the 401(k) Plan and the DCP. The DCP rules allow for individual contractual matching arrangements without any effect to its tax beneficial status and at present the only contractual contribution matching arrangement is with the Group Chief Executive which provides for a contribution equal to 20 per cent of basic salary without any deferral being required. The Chief Executive of the US division is a member of the 401(k) Plan and the DCP. The DCP provides a contribution on a matched basis equal to 50 per cent of the maximum of 10 per cent of base salary and bonus.