Aviva 2013 Annual Report Download - page 208

Aviva plc
Annual report and accounts 2013
206
Notes to the consolidated financial statements continued
49 – Pension obligations continued
Plan assets include investments in Group-managed funds in the consolidated statement of financial position of £868 million (2012:
£616 million) and transferrable insurance policies with other Group companies of £177 million (2012: £179 million) in ASPS.
Where the investment and insurance policies are in segregated funds with specific asset allocations, they are included in the
appropriate line in the table above, otherwise they appear in ‘Other’.
(iii) Assumptions on scheme liabilities
The valuations used for accounting under IAS 19 have been based on the most recent full actuarial valuations, updated to take
account of the standard’s requirements in order to assess the liabilities of the material schemes at 31 December 2013.
The projected unit credit method
The inherent uncertainties affecting the measurement of scheme liabilities require these to be measured on an actuarial basis. This
involves discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit credit method.
This is an accrued benefits valuation method which calculates the past service liability to members and makes allowance for their
projected future earnings. It is based on a number of actuarial assumptions, which vary according to the economic conditions of
the countries in which the relevant businesses are situated, and changes in these assumptions can materially affect the
measurement of the pension obligations.
Financial assumptions
The main financial assumptions used to calculate scheme liabilities under IAS 19 are:
UK Ireland Canada
2013 2012 2013 2012 2013 2012
Inflation rate1 3.4%/2.3% 3.0%
/
2.2% 2.0% 2.0% 2.5% 2.5%
General salary increases2 5.2% 4.8% 3.5% 3.5% 3.0% 3.0%
Pension increases1 3.4%/2.3% 3.0%
/
2.2% 0.5% 2.0% 1.25% 1.25%
Deferred pension increases1 3.4%/2.3% 3.0%
/
2.2% 2.0% 2.0% — —
Discount rate 4.4% 4.5% 3.6% 3.5% 4.75% 3.75%
Basis of discount rate AA-rated corporate bonds AA-rated corporate bonds AA-rated corporate bonds
1 For UK schemes, assumption provided for RPI/CPI.
2 In the UK, the only remaining linkage between pension benefits and general salary increases is in respect of a small amount of Guaranteed Minimum Pensions benefits that increases, in line with National Average Earnings.
The discount rate and pension increase rate are the two assumptions that have the largest impact on the value of the liabilities,
with the difference between them being known as the net discount rate. For each country, the discount rate is based on current
average yields of high-quality debt instruments taking account of the maturities of the defined benefit obligations.
Mortality assumptions
Mortality assumptions are significant in measuring the Group’s obligations under its defined benefit schemes, particularly given the
maturity of these obligations in the material schemes. The assumptions used are summarised in the table below and have been
selected to reflect the characteristics and experience of the membership of these schemes.
The mortality tables, average life expectancy and pension duration used at 31 December 2013 for scheme members are
as follows:
Life expectancy/(pension
duration) at NRA of a male
Life expectancy/(pension
duration) at NRA of a female
Mortality table
Normal
retirement
age (NRA)
Currently
aged NR
A
20 years
younger
than NR
A
Currently
aged NR
A
20 years
younger
than NR
A
UK
–
ASPS Club Vita pooled experience, including an allowance for future improvements 60 89.6 91.5 90.8 92.6
(29.6) (31.5) (30.8) (32.6)
–
RAC SAPS series 1, including allowances for future improvement 65 88.0 90.6 89.8 92.2
(23.0) (25.6) (24.8) (27.2)
Ireland 89% PNA00 with allowance for future improvements 61 87.6 90.8 90.5 93.6
(26.6) (29.8) (29.5) (32.6)
Canada Canadian Pensioner Mortality
–
RPP2014 65 87.5 89.0 89.5 90.5
(22.5) (24.0) (24.5) (25.5)
The assumptions above are based on commonly used mortality tables. The tables make allowance for observed variations in such
factors as age, gender, pension amount, salary and postcode-based lifestyle group, and have been adjusted to reflect recent
research into mortality experience. However, the extent of future improvements in longevity is subject to considerable uncertainty
and judgment is required in setting this assumption. In the UK schemes, which are the most material to the Group, the allowance
for future mortality improvement is per the actuarial professions CMI 2012 model, with assumed long term rates of improvement
of 1.75% p.a. for males, and 1.50% p.a. for females.