Notes to the consolidated financial statements
Year ended 31 July 2009

32. Retirement benefit obligations

(i) Description of plans

United Kingdom

The principal scheme operated for UK employees is the Wolseley Group Retirement Benefits Plan which provides benefits based on final pensionable salaries. The assets are held in separate trustee administered funds. The scheme’s retirement benefits are funded by a salary sacrifice arrangement from employees with the balance being paid by Group companies. Employees salary sacrifice either 5 per cent or 8 per cent of earnings depending on the level of benefits accruing. The Group contribution rate is calculated on the Projected Unit Method and agreed with an independent consulting actuary. During the year, this scheme was closed to new members and a defined contribution plan was established. However employees in the eligibility period on 31 May 2009 are still able to join when they reach the end of their eligibility period.

Outside the United Kingdom

North America

The principal schemes operated for US employees are defined contribution schemes, which are established in accordance with US 401k rules. Companies contribute to both employee compensation deferral and profit sharing plans. Contributions are charged to the income statement in the period in which they fall due. In the year to 31 July 2009 the cost of defined contribution plans of continuing operations charged to the income statement was £21 million (2008: £17 million).

In addition, the Group operates two defined benefit schemes in the United States. In Canada, a defined benefit scheme and a defined contribution scheme are operated. One of the US schemes and the Canadian scheme are funded; two plans are closed to new entrants. The majority of assets are held in trustee administered funds independent of the assets of the companies. The closed plans now provide a minimum pension guarantee in conjunction with a defined contribution scheme. The remaining schemes provide benefits based on final pensionable salaries. The contribution rate is calculated on the Projected Unit (credit) Method as agreed with independent consulting actuaries.

Europe

Both defined contribution and defined benefit schemes are operated. Liabilities arising under defined benefit schemes are calculated in accordance with actuarial advice. Contributions to defined contribution schemes are accounted for in the period in which they fall due. In the year to 31 July 2009 the cost of defined contribution schemes charged to the income statement was £22 million (2008: £20 million).

Post-retirement healthcare

There are no material obligations to provide post-retirement healthcare benefits.

The Group expects to contribute £40 million to the UK defined benefit schemes in the year ending 31 July 2010 and £11 million to the non-UK defined benefit schemes.

(ii) Financial impact of plans

As disclosed in the balance sheet	2009 £m	2008 £m
Current liability	(33)	(22)
Non-current liability	(308)	(214)
Total liability	(341)	(236)

Analysis of balance sheet liability	2009 £m	2009 £m	2008 £m	2008 £m
Fair value of plan assets:
UK	511		542
Non-UK	129		130
		640		672
Present value of defined benefit obligation:
UK	(737)		(693)
Non-UK	(244)		(215)
		(981)		(908)
Net deficit recognised in balance sheet		(341)		(236)

Analysis of total expense recognised in income statement	2009 £m	2008 £m
Current service cost	34	27
Curtailment	(2)	–
Charged to administrative expenses	32	27
Interest on pension liabilities	57	47
Expected return on scheme assets	(47)	(50)
Charged/(credited) to finance costs	10	(3)
Total expense recognised in income statement	42	24

Analysis of amount recognised in the statement of recognised income and expense	2009 £m	2008 £m
Actuarial loss	(115)	(140)
Unrecognised surplus	–	5
	(115)	(135)
Deferred tax thereon	36	37
Total amount recognised in the statement of recognised income and expense	(79)	(98)

The cumulative amount of actuarial losses recognised in the statement of recognised income and expense was a loss of £177 million (2008: loss of £62 million).

The assets in the UK schemes and the expected rates of return were:

		2009 UK			2008 UK
	Long-term rate of return expected at 31 July 2009	Value at 31 July 2009 £m		Long-term rate of return expected at 31 July 2008	Value at 31 July 2008 £m
Equities	8.0%	350		8.2%	348
Bonds	5.0%	141		5.2%	174
Other	4.7%	20		4.6%	20
Total market value of assets	7.1%	511		7.1%	542

The assets in the non-UK schemes and the expected rates of return were:

		2009 Non-UK			2008 Non-UK
	Long-term rate of return expected at 31 July 2009	Value at 31 July 2009 £m		Long-term rate of return expected at 31 July 2008	Value at 31 July 2008 £m
Equities	7.6%	59		7.6%	63
Bonds	4.6%	52		5.0%	53
Property	4.7%	6		5.3%	12
Other	3.9%	12		2.1%	2
Total market value of assets	6.0%	129		6.2%	130

Fair value of plan assets	UK 2009 £m	Non-UK 2009 £m	Total 2009 £m	UK 2008 £m	Non-UK 2008 £m	Total 2008 £m
At 1 August	542	130	672	588	123	711
Expected return on plan assets	38	9	47	41	9	50
Actuarial loss	(87)	(26)	(113)	(103)	(14)	(117)
Employer’s contributions	42	5	47	30	4	34
Participants’ contributions	1	2	3	8	5	13
Transfers	–	2	2	–	–	–
Settlements	–	(1)	(1)	–	(1)	(1)
Benefits paid	(25)	(10)	(35)	(22)	(7)	(29)
Currency translation	–	18	18	–	11	11
At 31 July	511	129	640	542	130	672
Actual return on plan assets	(48)	(17)	(65)	(62)	(5)	(67)

The expected long-term rates of return for equities are long-term assumptions and were set after taking actuarial advice. The expected equity returns can be considered as a risk free rate of return (determined by reference to government bond rates in the countries in which the plans are based) plus a risk premium to reflect the additional risks associated with equities. For the UK scheme the expected return implies a premium of 3.2 per cent per year as at 31 July 2009 (2008: 3.4 per cent) over the expected return from government bonds. For the principal overseas schemes in USA, Canada and Switzerland a similar approach was adopted with returns set by reference to long-term bond rates after taking actuarial advice.

The Group’s investment strategy for its funded post employment plans is decided locally by the Group and, if relevant, the trustees of the plan, and takes account of the relevant statutory requirements. The Group’s objective for the investment strategy is to achieve a target rate of return in excess of the increase in the liabilities, while taking an acceptable amount of investment risk relative to the liabilities.

This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return. Most investment strategies have significant allocations to equities, with the intention that this will result in the ongoing cost to the Group of the post-employment plans being lower over the long term and within acceptable boundaries of risk.

For the UK scheme, the policy is to invest approximately 75 per cent of the assets in equities and 25 per cent in other asset classes, principally bonds. The investment strategy is subject to regular review by the scheme trustees in consultation with the Group. For the overseas schemes the investment strategy involves the investment in defined levels of predominantly equities with the remainder of the assets being invested in cash and bonds.

Present value of defined benefit obligation	UK 2009 £m	Non-UK 2009 £m	Total 2009 £m	UK 2008 £m	Non-UK 2008 £m	Total 2008 £m
At 1 August	693	215	908	630	188	818
Current service cost	28	6	34	22	5	27
Curtailment and settlement	(2)	(1)	(3)	–	(2)	(2)
Interest cost	44	13	57	36	11	47
Participants’ contributions	1	2	3	8	4	12
Benefits paid	(26)	(20)	(46)	(22)	(14)	(36)
Transfers	–	2	2	–	–	–
Actuarial gain/(loss)	(1)	3	2	19	4	23
Currency translation	–	24	24	–	19	19
At 31 July	737	244	981	693	215	908

Analysis of present value of defined benefit obligation	2009 £m	2008 £m
Amounts arising from wholly unfunded plans	61	63
Amounts arising from plans that are wholly or partly funded	920	845
	981	908

(iii) Valuation assumptions

The financial assumptions used to estimate defined benefit obligations are:

		2009			2008
	UK	Non-UK		UK	Non-UK
Discount rate	6.0%	5.3%		6.3%	5.4%
Inflation rate	3.7%	1.6%		4.0%	2.1%
Increase to deferred benefits during deferment	3.7%	0.5%		4.0%	2.4%
Increases to pensions in payment	3.6%	1.0%		3.9%	2.3%
Salary increases	4.7%	1.9%		5.0%	3.0%

The life expectancy assumptions used to estimate defined benefit obligations at 31 July 2009 are:

		2009			2008
	UK	Non-UK		UK	Non-UK
Current pensioners (at age 65) – male	20.0	19.6		20.1	19.3
Current pensioners (at age 65) – female	23.0	22.0		22.8	21.7
Future pensioners (at age 65) – male	21.1	19.8		20.8	19.3
Future pensioners (at age 65) – female	24.1	22.1		23.5	21.9

History of experience gains and losses – UK schemes	2009 £m	2008 £m	2007 £m	2006 £m	2005 £m
Fair value of plan assets	511	542	588	501	404
Present value of defined benefit obligation	(737)	(693)	(630)	(619)	(527)
Deficit in the plan	(226)	(151)	(42)	(118)	(123)
Experience adjustments to scheme assets
Amount	(87)	(103)	40	36	46
Percentage of scheme assets	(17)%	(19)%	7%	7%	11%
Experience adjustments on scheme liabilities
Amount	–	–	(8)	–	–
Percentage of the present value of scheme liabilities	–	–	1%	–	–

History of experience gains and losses – non-UK schemes	2009 £m	2008 £m	2007 £m	2006 £m	2005 £m
Fair value of plan assets	129	130	123	112	105
Present value of defined benefit obligation	(244)	(215)	(188)	(182)	(180)
Deficit in the plan	(115)	(85)	(65)	(70)	(75)
Experience adjustments to scheme assets
Amount	(26)	(14)	5	–	4
Percentage of scheme assets	(20)%	(11)%	4%	–	4%
Experience adjustments on scheme liabilities
Amount	1	6	3	(2)	–
Percentage of the present value of scheme liabilities	0%	3%	2%	1%	–

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