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Notes 26-30

26. Post employment benefits

Background

At 31 March 2009, the Group operated a number of pension plans for the benefit of its employees throughout the world, which vary depending on the conditions and practices in the countries concerned. The Group’s pension plans are provided through both defined benefit and defined contribution arrangements. Defined benefit schemes provide benefits based on the employees’ length of pensionable service and their final pensionable salary or other criteria. Defined contribution schemes offer employees individual funds that are converted into benefits at the time of retirement.

The principal defined benefit pension scheme of the Group is in the United Kingdom. This tax approved final salary scheme was closed to new entrants from 1 January 2006. The assets of the scheme are held in an external trustee administered fund. In addition, the Group operates defined benefit schemes in Germany, Ghana, Greece, India, Ireland, Italy, Turkey and the United States. Defined contribution pension schemes are currently provided in Australia, Egypt, Greece, Hungary, Ireland, Italy, Kenya, Malta, the Netherlands, New Zealand, Portugal, South Africa, Spain and the United Kingdom.

Income statement expense


2009
£m
2008
£m
2007
£m
Defined contribution schemes 73 63 32
Defined benefit schemes 40 28 62
Total amount charged to the
income statement (note 36)
113 91 94

Defined benefit schemes

The principal actuarial assumptions used for estimating the Group’s benefit obligations are set out below:

  2009(1) 2008(1) 2007(1)
Weighted average actuarial assumptions used at 31 March:      
Rate of inflation 2.6% 3.1% 2.7%
Rate of increase in salaries 3.7% 4.3% 4.4%
Rate of increase in pensions in
payment and deferred pensions
2.6% 3.1% 2.7%
Discount rate 6.3% 6.1% 5.1%
Expected rates of return:      
Equities 8.4% 8.0% 7.8%
Bonds(2) 5.7% 4.4% 4.8%
Other assets 3.7% 1.3% 5.3%

Notes:

(1)
Figures shown represent a weighted average assumption of the individual schemes.
(2)
For the year ended 31 March 2009 the expected rate of return for bonds consisted of a 6.1% rate of return for corporate bonds (2008: 4.7%, 2007: 5.1%) and a 4.0% rate of return for government bonds (2008: 3.5%, 2007: 4.0%).

The expected return on assets assumptions are derived by considering the expected long term rates of return on plan investments. The overall rate of return is a weighted average of the expected returns of the individual investments made in the group plans. The long term rates of return on equities and property are derived from considering current risk free rates of return with the addition of an appropriate future risk premium from an analysis of historic returns in various countries. The long term rates of return on bonds and cash investments are set in line with market yields currently available at the balance sheet date.

Mortality assumptions used are consistent with those recommended by the individual scheme actuaries and reflect the latest available tables, adjusted for the experience of the Group where appropriate. The largest scheme in the Group is the UK scheme and the tables used for this scheme indicate a further life expectancy for a male/female pensioner currently aged 65 of 22.0/24.8 years (2008: 22.0/24.8 years, 2007: 19.4/22.4 years) and a further life expectancy from age 65 for a male/female non-pensioner member currently aged 40 of 23.2/26.0 years (2008: 23.2/26.0 years, 2007: 22.1/25.1 years).

Measurement of the Group’s defined benefit retirement obligations are particularly sensitive to changes in certain key assumptions, including the discount rate. An increase or decrease in the discount rate of 0.5% would result in a £119 million decrease or a £128 million increase in the defined benefit obligation, respectively.

Charges made to the consolidated income statement and consolidated statement of recognised income and expense (‘SORIE’) on the basis of the assumptions stated above are:


 
2009
£m
2008
£m
2007
£m
Current service cost 46 53 74
Interest cost 83 69 61
Expected return on pension assets (92) (89) (73)
Curtailment 3 (5)
Total included within staff costs 40 28 62
       
Actuarial losses /(gains) recognised
in the consolidated SORIE

220

47

(65)
Cumulative actuarial losses recognised
in the consolidated SORIE
347 127 80

Fair value of the assets and present value of the liabilities of the schemes

The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit schemes is as follows:


 
2009
£m
2008
£m
2007
£m
Movement in pension assets:      
1 April 1,271 1,251 1,123
Exchange rate movements 50 50 (7)
Expected return on pension assets 92 89 73
Actuarial (losses)/gains (381) (176) 26
Employer cash contributions 98 86 55
Member cash contributions 15 13 13
Benefits paid (45) (42) (32)
31 March 1,100 1,271 1,251
       
Movement in pension liabilities:      
1 April 1,310 1,292 1,224
Exchange rate movements 69 60 (13)
Arising on acquisition 33
Current service cost 46 53 74
Interest cost 83 69 61
Member cash contributions 15 13 13
Actuarial gains (161) (129) (39)
Benefits paid (45) (42) (32)
Other movements (18) (6) 4
31 March 1,332 1,310 1,292

An analysis of net assets/(deficits) is provided below for the Group’s principal defined benefit pension scheme in the UK and for the Group as a whole.

  UK   Group

 
2009
£m
2008
£m
2007
£m
2006
£m
2005
£m
  2009
£m
2008
£m
2007
£m
2006
£m
2005
£m
Analysis of net assets/(deficits):                      
Total fair value of scheme assets 755 934 954 835 628   1,100 1,271 1,251 1,123 874
Present value of funded scheme liabilities (815) (902) (901) (847) (619)   (1,196) (1,217) (1,194) (1,128) (918)
Net (deficit)/assets for funded schemes (60) 32 53 (12) 9   (96) 54 57 (5) (44)
Present value of unfunded scheme liabilities (8)   (136) (93) (98) (96) (80)
Net (deficit)/assets (68) 32 53 (12) 9   (232) (39) (41) (101) (124)
Net assets/(deficit) are analysed as:                      
Assets 32 53 9   8 65 82 19 12
Liabilities (68) (12)   (240) (104) (123) (120) (136)

It is expected that contributions of £88 million will be paid into the Group’s defined benefit retirement schemes during the year ending 31 March 2010.

Actual return on pension assets

  2009
£m
2008
£m
2007
£m
Actual return on pension assets (289) (87) 99
       
Analysis of pension assets at 31 March is as follows: % % %
Equities 55.6 68.5 72.1
Bonds 41.9 17.7 27.5
Property 0.4 0.3 0.4
Other 2.1 13.5
  100.0 100.0 100.0

The schemes have no direct investments in the Group’s equity securities or in property currently used by the Group.

History of experience adjustments


 
2009
£m
2008
£m
2007
£m
2006
£m
2005
£m
Experience adjustments on pension liabilities:          
Amount 6 (5) (2) (4) (60)
Percentage of pension liabilities 6%
           
Experience adjustments on pension assets:          
Amount (381) (176) 26 121 24
Percentage of pension assets (35%) (14%) 2% 11% 3%