Annual Report and Accounts 2008

Notes to the accounts

for the year ended 31 December 2008

5. Retirement benefit obligations

The principal scheme in the UK is the Schroders Retirement Benefits Scheme (the 'Scheme') which is non-contributory and administered by the Trustee. It is a funded scheme comprising a defined benefits section and a defined contribution section. It is open to new entrants and has 299 active members in the defined benefits section and 878 active members in the defined contribution section at 31 December 2008 (2007: 313 and 871 respectively). The most recent triennial valuation of the Scheme was carried out as at 1 January 2006 and disclosed that the market value of the assets of the Scheme represented 98 per cent. of the liability, calculated on the funding ratio basis applicable to the Scheme, for the benefits that had accrued to members at that date allowing for future increases in earnings and pensions. A triennial valuation as at 1 January 2009 is currently underway.

The Company paid effective contributions to the defined benefit section in 2008 of 35.8 per cent. of pensionable salaries to cover the accrual of ongoing benefits. For joiners on or after 1 June 1989, pensionable salaries for this purpose were subject to the statutory earnings cap which was in force until April 2006, after which this cap was replaced by a notional earnings cap.

The pension cost under IAS 19 for the defined benefit section of the Scheme has been determined by independent qualified actuaries, Hewitt Associates Limited, and is based on an assessment of the Scheme as at 1 January 2009. This assessment was carried out using the projected unit method and the principal financial assumptions set out below. Assets were taken at bid value and are held by an independent custodian.

The Group has not materially changed any of the principal financial assumptions underlying the calculation of the Scheme's net financial position, although such assumptions have been amended where applicable to reflect current market conditions and expectations.

Over the year, the contributions to the defined benefits section of the Scheme totalled £12.4 million (2007: £18.9 million). The balance sheet asset at 31 December 2008 was £22.4 million (2007: £42.5 million). This asset is included within the consolidated balance sheet as the Group, via the employing companies of the Scheme, has an unconditional right to a refund of surplus assets once all members have left the Scheme.

Administration expenses and the levy payable to the Pensions Protection Fund are met directly by the Group. The actual return on Scheme assets was £(5.1) million (2007: £33.9 million).

The Group operates a number of smaller pension schemes around the world, some of which are funded defined benefit schemes with valuations performed regularly by qualified actuaries. Actuarial assumptions vary according to the economic conditions of the countries in which the funds are situated. In addition, there are several defined contribution schemes.

The additional disclosures required by IAS 19 are set out below. Figures shown are for the defined benefits section of the Scheme only.

Scheme assets do not include any of the Company's shares (2007: £nil) or buildings occupied by the Group (2007: £nil).

The cumulative amount of actuarial gains and losses recognised in respect of the Scheme in the statement of recognised income and expense is a £21.3 million loss (2007: £9.3 million gain).

The expected rates of return on individual categories of Scheme assets (net of investment expenses only) are determined by reference to the following:

Bonds - based on an outperformance of 0.6 per cent. (2007: 0.1 per cent.) per annum above the yield on long-dated government bonds at the balance sheet date.

Equities - based on an outperformance of 3.9 per cent. (2007: 3.3 per cent.) per annum above the yield on long-dated government bonds at the balance sheet date.

Liability-matching - based on an outperformance of 1.8 per cent. (2007: 0.4 per cent.) per annum above the yield on long-dated government bonds at the balance sheet date.

Other - based on the long-term expected return on cash implied by swaps yields, together with an expected return on hedge funds based on outperformance of 1.0 per cent. per annum above the yield on long-dated government bonds at the balance sheet date (2007: based on the long-term expected return on cash implied by swaps yields).

The movement in the present value of the defined benefits obligation during the year is as follows:

The movement in the fair value of Scheme assets during the year is as follows:

The fair value of Scheme assets at the balance sheet date is analysed as follows:

¹Includes property.

²Includes hedge funds.

During 2005, the Scheme's investment policy was reviewed so that the Group's ability to meet its benefit payments could be better matched to its assets, both currently and in the future.

A new investment strategy was implemented in March 2006 by putting 35 per cent. of the Scheme's assets into liability-driven investments (including bonds and derivatives such as interest rate and inflation swaps and cash) so as to match the profile of the Scheme's liabilities. The remaining 65 per cent. is invested in a diversified portfolio of growth assets with an allocation of approximately 45 per cent. to equities and 20 per cent. to a range of other asset classes, including property, private equity, hedge funds, currency, high yield and emerging market bonds. The combination and the spread across the different asset classes has been designed to reduce risk while still generating an expected return in excess of the cost of meeting the Scheme's liabilities.

The principal financial assumptions used were as follows:

The history of the Scheme is as follows:

The amounts under IAS 19 that have been recognised in the statement of recognised income and expense ('SORIE') are set out below:

The sensitivity of the 2008 pension liabilities to changes in assumptions are as follows:

Membership details as at 31 December 2008 are as follows:

The Group currently expects to make contributions totalling approximately £8.5 million to the Scheme in 2009. Contributions to cover the accrual of ongoing benefits in the Scheme are made on a monthly basis.