Pensions

From January 1, 2003, a number of non-U.S. Belmond employees participated in a funded defined benefit pension plan in the United Kingdom called the Belmond (UK) Ltd. 2003 Pension Scheme. On May 31, 2006, the plan was closed for future benefit accruals.

The significant weighted-average assumptions used to determine net periodic costs of the plan during the year were as follows:



	2017	2016	2015
Year ended December 31,	%	%	%

Discount rate	2.70	3.85	3.70
Expected long-term rate of return on plan assets	3.87	4.90	4.10

The significant weighted-average assumptions used to determine benefit obligations of the plan at year end were as follows:



	2017	2016
December 31,	%	%

Discount rate	2.50	2.70

The discount rate effectively represents the average rate of return on high quality corporate bonds at the end of the year in the country in which the benefit obligations arise.

The expected rate of return on the pension fund assets, net of expenses has been determined by considering the actual asset classes held by the plan at December 31, 2017 and the yields available on U.K. government bonds at that date.

For equities and corporate bonds, management has assumed that long-term returns will exceed those expected on U.K. government bonds by a risk premium. This is based on historical equity and bond returns over the long term. As these returns are long-term expected returns, the total returns on equities and corporate bonds only vary in line with the U.K. government bond yields and are not further adjusted for current market trends.

The expected returns on annuities are set equal to the end of year discount rate as the value of annuities is tied to that rate.

The fair value of Belmond’s pension plan assets at December 31, 2017 and 2016 by asset category is as follows:



	Total	Level 1	Level 2	Level 3
December 31, 2017	$’000	$’000	$’000	$’000

Cash	1,908	1,908	—	—
Equity securities:
U.K. managed funds	4,529	4,529	—	—
Overseas managed funds	8,486	8,486	—	—
Fixed income securities:
U.K. government bonds	3,058	3,058	—	—
Corporate bonds	3,437	3,437	—	—
Other types of investments:
Quoted hedge funds	4,635	4,635	—	—
Annuities	2,179	—	—	2,179

	28,232	26,053	—	2,179



	Total	Level 1	Level 2	Level 3
December 31, 2016	$’000	$’000	$’000	$’000

Cash	2,840	2,840	—	—
Equity securities:
U.K. managed funds	4,461	4,461	—	—
Overseas managed funds	5,667	5,667	—	—
Fixed income securities:
U.K. government bonds	2,774	2,774	—	—
Corporate bonds	2,004	2,004	—	—
Other types of investments:
Quoted hedge funds	4,330	4,330	—	—
Annuities	1,942	—	—	1,942

	24,018	22,076	—	1,942

The value of the annuities is the present value at the measurement date of the expected future cashflows under the annuity policy in which significant unobservable inputs were used. Therefore, we have classified the annuities as Level 3 assets.

All other assets are valued using quoted market prices in active markets or other observable inputs.

Reconciliations of fair value measurements using significant unobservable inputs (Level 3) at December 31, 2017 and 2016 are as follows:



	Annuities
Year ended December 31, 2017	$’000

Beginning balance at January 1, 2017	1,942
Foreign exchange	190
Actual return on plan assets:
Assets still held at the reporting date	120
Purchases, sales and settlements, net	(73	)

Ending balance at December 31, 2017	2,179



	Annuities
Year ended December 31, 2016	$’000

Beginning balance at January 1, 2016	2,026
Foreign exchange	(342	)
Actual return on plan assets:
Assets still held at the reporting date	321
Purchases, sales and settlements, net	(63	)

Ending balance at December 31, 2016	1,942

The allocation of the assets was in compliance with the target allocation set out in the plan investment policy, the principal objectives of which are to deliver returns above those of government and corporate bonds and to minimize the cost of providing pension benefits.

The changes in the benefit obligation, the plan assets and the funded status for the plan were as follows:



	2017		2016		2015
Year ended December 31,	$’000		$’000		$’000

Change in benefit obligation:
Benefit obligation at beginning of year	25,465		24,556		27,353
Interest cost	713		861		984
Actuarial loss/(gain)	663		5,259		(702	)
Benefits paid	(485	)	(529	)	(1,723	)
Foreign currency translation	2,526		(4,682	)	(1,356	)

Benefit obligation at end of year	28,882		25,465		24,556

Change in plan assets:
Fair value of plan assets at beginning of year	24,018		24,202		24,968
Actual return on plan assets	1,264		3,116		309
Employer contributions	1,009		1,730		1,946
Benefits paid	(485	)	(529	)	(1,723	)
Foreign currency translation	2,426		(4,501	)	(1,298	)

Fair value of plan assets at end of year	28,232		24,018		24,202

Funded status at end of year	(650	)	(1,447	)	(354	)

Net actuarial (gain)/loss recognized in other comprehensive loss	(383	)	2,649		(727	)

Amounts recognized in the consolidated balance sheets consist of the following:

Amounts recognized in accumulated other comprehensive loss gross of tax consist of the following:



	2017		2016
December 31,	$’000		$’000

Net loss	(12,200	)	(12,583	)
Prior service cost	—		—
Net transitional obligation	—		—

Total amount recognized in accumulated other comprehensive loss	(12,200	)	(12,583	)

The following table details certain information with respect to Belmond’s U.K. defined benefit pension plan:



	2017	2016
Year ended December 31,	$’000	$’000

Projected benefit obligation	28,882	25,465

Accumulated benefit obligation	28,882	25,465

Fair value of plan assets	28,232	24,018

Components of net periodic benefit cost are as follows:



	2017		2016		2015
Year ended December 31,	$’000		$’000		$’000

Service cost	—		—		—
Interest cost on projected benefit obligation	713		861		984
Expected return on assets	(997	)	(1,121	)	(1,034	)
Net amortization and deferrals	780		615		750

Net periodic benefit cost	496		355		700

Belmond (UK) Ltd., the plan sponsor and a wholly owned subsidiary of the Company ("Belmond UK"), was previously obligated to pay £1,272,000 (equivalent to $1,717,000 at December 31, 2017) annually to the plan under the U.K. statutorily-mandated triennial negotiation with the plan's trustees. With a new triennial arrangement that came into effect in June 2017, the funding obligation was reduced from £106,000 to £24,000 (equivalent to $143,000 and $33,000 as at December 31, 2017) per month. Under the prior contribution level, the plan's funding deficit was projected to be fully funded by the end of 2017. With the current funding level, Belmond UK is obligated to continue funding until the audited financials of the plan for the year ended December 31, 2018 are available. If no unfunded balance remains, Belmond UK shall be able to suspend further payments, but otherwise it will be expected to continue paying its monthly contribution, subject to any subsequent triennial negotiation with the plan's trustees. However, once the plan is fully funded, Belmond UK will remain obliged to restore the plan to a fully funded balance over the remainder of the period through December 31, 2021 should its position deteriorate.

In May 2014, Belmond Ltd. guaranteed the payment obligations of Belmond UK through 2023, subject to a cap of £8,200,000 (equivalent to $11,070,000 at December 31, 2017), which reduces commensurately with every payment made to the plan since December 31, 2012. As part of the recent triennial negotiation referred to above, Belmond has reinstated this guarantee effective July 1, 2017, for the period through 2026 and reset the cap from December 31, 2015 at £8,200,000, which as before will reduce with each payment made to the plan over the period.

The following benefit payments, which reflect assumed future service, are expected to be paid:



Year ended December 31,		$’000

2018		483
2019		668
2020		536
2021		689
2022		583
Next five years		5,112

The estimated net loss amortized from accumulated other comprehensive income/(loss) into net periodic pension cost in the next fiscal year is $768,000.

Certain employees of Belmond were members of defined contribution pension plans. Total contributions to the plans were as follows:



	2017	2016	2015
Year ended December 31,	$’000	$’000	$’000

Employers’ contributions	2,030	2,052	2,199

December 31,

Non-current liabilities