|Purpose||–||provision of competitive post-retirement benefits|
|Delivery||–|| British American Tobacco UK Pension Fund and Company supplementary pension arrangements|
|–||monthly pension payment|
|Policy||–||pension accrues at one–fortieth of annual base salary|
|–||Fund normal pensionable age of 60|
|–||maximum pension payable will not exceed two–thirds of base salary averaged over the preceding 12 months|
|–||UK Pension Fund retains a scheme-specific cap following the introduction of the new UK pension regime in 2006|
|–||excess benefits continue to be accrued within an unfunded unapproved retirement benefit scheme|
Executive Directors (with the exception of Nicandro Durante) are, like other UK employees, eligible for membership of the British American Tobacco UK Pension Fund (Pension Fund).
The Pension Fund, for members who joined before 1 April 2005, is a non-contributory defined benefit scheme. The early retirement rules in the Pension Fund permit a member to draw the accrued retirement pension within five years of Fund normal retirement age without actuarial reduction, subject to the employing company's agreement. Alternatively, an Executive Director may choose to leave and take a pension at any time on or after his or her 50th birthday without the employing company's agreement, subject to a reduction as determined by the Pension Fund trustee in conjunction with the Pension Fund actuary. Accrual rates differ according to individual circumstances but do not exceed one-fortieth of pensionable salary for each year of pensionable service.
Pensionable pay covers base salary only and therefore bonus awards and the value of benefits in kind are not pensionable.
The Pension Fund includes provision for spouses' benefits on death in service or after retirement. In the event of death in service, a spouse's pension equal to half of the member's prospective pension at normal retirement age would be payable. A spouse's pension payable in the event of death after retirement is equal to half of the member's full pension, irrespective of any decision to exchange part of the benefit for a lump sum.
Paul Adams, John Daly and Ben Stevens each joined the Pension Fund after 1989. As a result, prior to 6 April 2006, these individuals were subject to the HM Revenue & Customs cap on pensionable earnings (notionally £123,600 for the tax year 2010/11). In addition, each has an unfunded pension promise from the Company in respect of earnings above the cap on an equivalent basis to the benefits provided by the Pension Fund. This is provided through membership of an unfunded unapproved retirement benefit scheme (UURBS).
These unfunded commitments are included in note 12 to the accounts. Members of the Pension Fund are entitled to receive increases in their pensions once in payment in line with price inflation (as measured by the Retail Prices Index) up to 6 per cent per annum.
John Daly was formerly a member of the P J Carroll Directors' Plan in Ireland. He is also entitled to a deferred benefit currently amounting to €105,631 per annum, payable from the age of 60. This benefit is scheduled to increase each year between January 2011 and December 2015 by the lower of 4 per cent or the Irish Consumer Price Index. The increase amount is confirmed each year by the Minister of Social Protection in Ireland (the increase for 2010 was 0 per cent).
Nicandro Durante is a member of the Fundacao Albino Souza Cruz (FASC) in Brazil. This is a non-contributory defined benefit scheme and includes a spouse's death in service benefit equal to 37.5 per cent of the member's prospective pension at normal retirement age. Accrual rates do not exceed 1.85 per cent of basic salary (excluding bonus) averaged over the 12 months to normal retirement age, for each year of pensionable service. Nicandro Durante's Brazilian pensionable salary will be reviewed by the Company annually with reference to the salary of that of a General Manager of Souza Cruz SA which will be adjusted annually in line with local practice and agreed with the Company. Benefits from the FASC remain subject to the rules of that scheme.
In addition, Nicandro Durante accrues a pension of 0.65 per cent for each year of service (the UK Accrual Rate) with effect from 1 March 2006, being the date of his appointment as a member of the Management Board. At retirement the pension will be based on Nicandro Durante's 12 month average UK base salary (excluding bonus) immediately prior to retirement. This accrued pension will be provided through the UURBS. Further, the UK Accrual Rate for the element of the base salary in excess of £670,000 increases from 0.65 per cent as stated above to 2.50 per cent for each year of service and will continue to be provided through the UURBS. The initial base salary level of £670,000 in respect of the 2.50 per cent accrual provided through the UURBS will be adjusted annually by the same percentage as that agreed for Nicandro's Durante's pensionable salary for the purposes of calculating benefits payable from the FASC.