47153 AG Barr Annual Report 2025 AW4 SQ WEB - Flipbook - Page 188
A.G. BARR p.l.c. Annual Report and Accounts 2025
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26. Retirement benefit obligations continued
Methods and assumptions used in preparing the sensitivity analyses
The sensitivities disclosed were calculated using approximate methods taking into account the duration of the 2008 Scheme’s liabilities. They have been calculated consistently
with last period’s disclosures, however, these change over time with financial conditions and assumptions.
Risks to which the 2008 Scheme exposes the Company
The nature of the 2008 Scheme exposes the Company to the risk of paying unanticipated additional contributions to the 2008 Scheme in times of adverse experience.
The most financially significant risks are likely to be:
- Asset volatility
The 2008 Scheme’s liabilities are calculated using a discount rate set with reference to corporate bond yields in line with the requirements of IAS 19R. If the 2008 Scheme
assets underperform this yield, this will create a deficit. The plan holds investments in a diversified portfolio, primarily bonds as part of a Liability Driven Investment (LDI)
solution, which are designed to match the current and future liabilities of the 2008 Scheme.
The Board of Pension Trustees have made a number of steps to control the level of investment risk within the 2008 Scheme. The Trustee and the Company agreed to purchase
an annuity policy with Canada Life in April 2016 to cover all future pension payments to certain members of the 2008 Scheme. This policy was purchased at a cost of £34.7m
and secures the total amount of future pension payments for 100 of the 2008 Scheme’s pensioner members. A second annuity contract was purchased with Canada Life in
September 2019 at a cost of £22.7m and secures the total amount of future pension payments for 82 of the 2008 Scheme’s pensioner members. In preparation for a further
potential buy-in during 2025, the asset allocation to growth and income assets were sold in order to reduce the risk within the 2008 Scheme and to reinvest the proceeds in
a buy-in ready portfolio. The Board of Pension Trustees will continue to review the risk exposures in light of the longer-term objectives of the 2008 Scheme.
- Changes in bond yields
A decrease in corporate bond yields will increase the 2008 Scheme’s liabilities. In the event of a reduction in the corporate bond yields, there will be an increase in the value
of the 2008 Scheme’s bond holdings.
- Inflation risk
The Group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. A large proportion of the 2008 Scheme’s assets are invested in an LDI
solution which hedges exposure to changes in inflation rates.
- Life expectancy
The 2008 Scheme’s obligation is to provide benefits for the life of the members. An increase in life expectancy will result in an increase in the 2008 Scheme’s liabilities.
In June 2023, the UK High Court issued a ruling in the case of Virgin Media Limited V NTL Pension Trustees II Limited (the Virgin Media case) relating to the validity of certain
historical pension changes. The ruling was upheld at the Court of Appeal in July 2024. After seeking external advice, the Group has concluded that they are not aware of
any material issues which would require any adjustment to the defined benefit obligation and no further action is required at this stage.
Policy for recognising gains and losses
The Company recognises actuarial gains and losses immediately, through the remeasurement of the net defined benefit liability.
Asset-liability matching strategies used by the 2008 Scheme or the Company
Excluding insurance policies held within the 2008 Scheme the Trustee targets a strategic asset allocation which is designed to broadly match the cost of insurer pricing
for the Scheme’s remaining non-insured liabilities and minimise risk ahead of a potential insurance transaction.
The Trustee has entered into an LDI mandate with Legal & General Investment Management. This has resulted in the Trustee agreeing to implement a strategy which looks
to hedge 100% of the Scheme’s interest rate and inflation hedging levels in respect of its liabilities (excluding insurance policies and the asset-backed funding arrangement).
The LDI funds are invested in a mix of gilt based LDI funds, corporate bonds and cash, with the aim of matching, as closely as possible, the 2008 Scheme’s liability cashflows.
Description of funding arrangements and funding policy that affect future contributions
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The most recent Schedule of Contributions dated February 2024 set out the contributions payable by the Company to the 2008 Scheme during the year to 25 January 2025
to eliminate the Scheme deficit. This was in addition to the rental income stream from the asset-backed funding arrangement, that is a commitment which will offset the
requirement for future deficit contributions.
