Aviva 2005 Annual Report Download - page 167

42 – Pension obligations continued
(c) Details of the material defined benefit schemes
(i) The valuation used for accounting under IAS 19 has been based on the most recent full actuarial valuations, updated to take account
of that standard’s requirements in order to assess the liabilities of the material schemes at 31 December 2005. The updating was made by
actuaries in each country who, other than the actuary of the Aviva Staff Pension Scheme and Dutch arrangements, were independent of
the Group. Scheme assets are stated at their market values at 31 December 2005.
The details for the material defined benefit schemes are shown below. Where schemes provide both defined benefit and defined
contribution pensions, the assets and liabilities shown exclude those relating to defined contribution pensions.
UK Netherlands Canada Ireland
2005 2004 2005 2004 2005 2004 2005 2004
Date of most recent actuarial valuation 1.4.05 1.4.04 31.12.05 31.12.03 31.12.04 31.12.03 1.1.04 1.1.04
The main financial assumptions used
to calculate scheme liabilities
under IAS 19 are:
Inflation rate 2.8% 2.7% 1.4% 1.5% 2.5% 2.5% 2.0% 2.5%
General salary increases 4.6% 4.5% 1.4%* 1.5%* 3.75% 3.75% 3.75% 4.25%
Pension increases 2.8% 2.7% 1.4% 1.5% 1.25% 1.25% 1.9% 2.25%
Deferred pension increases 2.8% 2.7% 1.4% 1.5% 0% 0% 1.9% 2.25%
Discount rate 4.8% 5.4% 4.0% 4.5% 5.0% 5.5% 4.2% 4.65%
*Age-related scale increases plus 1.4% (2004: 1.5%).
The discount rate is the assumption that has the largest impact on the value of the liabilities. A 1% increase in this rate would reduce the
liabilities by £1.7 billion.
The UK schemes are by far the most material to the Group. The post-retirement mortality base table used for these schemes is PA92
(calendar year 2006) with a one-year age rating deduction schemes, which is considered appropriate based on the mortality experience of
the schemes. In addition, post-retirement mortality improvements are allowed for through a reduction to the discount rate of 30 basis
points which is considered a best estimate. However, the extent of future improvements in longevity is subject to considerable uncertainty
and judgement is required in setting this assumption. Increasing the allowance by 10 basis points to a 40 basis point reduction to the
discount rate would increase the schemes’ liabilities by £150 million.
(ii) The expected rates of return on the schemes’ assets are:
UK Netherlands Canada Ireland
2006 2005 2006 2005 2006 2005 2006 2005
%%%%%%%%
Equities 8.0% 8.2% 6.3% 7.25% 8.0% 8.25% 7.5% 8.25%
Bonds 4.45% 4.8% 3.6% 4.0% 4.4% 5.0% 3.6% 4.0%
Property 5.95% 6.0% 5.3% 5.5% n/a n/a 5.0% 5.5%
Other 4.1% 4.5% 3.6% 4.0% n/a n/a n/a n/a
The overall rates of return are based on the expected returns within each asset category and on current asset allocations. The expected
returns are developed in conjunction with external advisers and take into account both current market expectations of future returns,
where available, and historical returns.
Financial statements
Aviva plc 2005
165