27. Retirement benefit obligations

(i) Description of plans

United Kingdom

The principal plan 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 plan’s retirement benefits are funded by a contribution from employees with the balance being paid by Group companies. The contribution rates paid by employees at 31 July 2006 are either 5% or 6% of earnings depending on the level of benefits that were accruing at that date. The Group and employee contribution rates are calculated on the Projected Unit Method and agreed with an independent consulting actuary.

Outside the United Kingdom
North America

The principal plans 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 2006 the cost of defined contribution plans charged to the income statement was £23 million (2005: £18 million).

In addition, the Group operates three defined benefit schemes in the United States. In Canada a defined benefit scheme and a defined contribution scheme are operated. Two of the US plans and the Canadian plan 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 plan. The remaining plans 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. The cost of defined contribution schemes charged to the income statement was £5 million (2005: £1 million).

Post retirement health care

There are no material obligations to provide post retirement health care benefits.

The Group expects to contribute £23 million to the UK defined benefit scheme in the year ending 31 July 2007 and £15 million to the non-UK schemes.

(ii) Financial impact of plans

The cumulative amount of actuarial gains recognised in the statement of recognised income and expense was a gain of £3 million (2005: loss of £4 million).

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

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

The expected long-term rates of return for equities have been determined by reference to government bond rates (minimum risk rates) in the countries in which the plans are based. To reflect the additional risks associated with equities, expected long-term rates of return on equities include a risk premium. These risk premiums are long-term assumptions and were set after taking actuarial advice and considering the assumptions used by listed companies. The expected long-term rates of return for other assets are determined in a similar way, i.e. by using an appropriate risk premium relative to government bonds in the relevant country. For the UK scheme a premium of 3.0% per year as at 31 July 2006 (2005: 3.0%) was applied to the expected return from government bonds. For the principal overseas schemes in the 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 being 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% of the assets in equities and 25% 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.

(iii) Valuation assumptions

The financial assumptions used to estimate defined benefit obligations are:

The life expectancy assumptions used to estimate defined benefit obligations at 31 July 2006 are: