BP 2013 Annual Report Download - page 234

6. Pensions
The primary pension arrangement in the UK is a funded final salary pension plan under which retired employees draw the majority of their benefit as an
annuity. The UK plan is closed to new joiners but remains open to ongoing accrual for current members. New joiners in the UK are eligible for
membership of a defined contribution plan.
The obligation and cost of providing the pension benefits is assessed annually using the projected unit credit method. The date of the most recent
actuarial review was 31 December 2013. The principal plans are subject to a formal actuarial valuation every three years in the UK. The most recent
formal actuarial valuation of the main UK pension plan was as at 31 December 2011.
The material financial assumptions used for estimating the benefit obligations of the plans are set out below. The assumptions are reviewed by
management at the end of each year, and are used to evaluate accrued pension and other post-retirement benefits at 31 December and pension
expense for the following year.
Financial assumptions used to determine benefit obligation %
2013 2012 2011
Expected long-term rate of return 6.9 6.9 7.0
Discount rate for pension plan liabilities 4.6 4.4 4.8
Rate of increase in salaries 5.1 4.9 5.1
Rate of increase for pensions in payment 3.3 3.1 3.2
Rate of increase in deferred pensions 3.3 3.1 3.2
Inflation for pension plan liabilities 3.3 3.1 3.2
Financial assumptions used to determine benefit expense %
2013 2012 2011
Discount rate for pension plan service costs 4.4 4.8 5.5
Discount rate for pension plan other finance expense 4.4 4.8 5.5
Inflation for pension plan service costs 3.1 3.2 3.5
Our discount rate assumption is based on third-party AA corporate bond indices and we use yields that reflect the maturity profile of the expected
benefit payments. The inflation rate assumption is based on the difference between the yields on index-linked and fixed-interest long-term government
bonds. The inflation assumptions are used to determine the rate of increase for pensions in payment and the rate of increase in deferred pensions.
Our assumption for the rate of increase in salaries is based on our inflation assumption plus an allowance for expected long-term real salary growth.
This includes allowance for promotion-related salary growth of 0.7%.
In addition to the financial assumptions, we regularly review the demographic and mortality assumptions. The mortality assumptions reflect best
practice in the UK, and have been chosen with regard to the latest available published tables adjusted where appropriate to reflect the experience of
the group and an extrapolation of past longevity improvements into the future.
Mortality assumptions
2013 2012 2011
Life expectancy at age 60 for a male currently aged 60 27.8 27.7 27.6
Life expectancy at age 60 for a male currently aged 40 30.7 30.6 30.5
Life expectancy at age 60 for a female currently aged 60 29.5 29.4 29.3
Life expectancy at age 60 for a female currently aged 40 32.2 32.1 32.0
The fair values of the various categories of asset held by the pension plan at 31 December are set out below.
$ million
2013 2012 2011
Expected
long-term
rate of
return
%
Market
value
$ million
Expected
long-term
rate of
return
%
Market
value
$ million
Expected
long-term
rate of
return
%
Market
value
$ million
Listed equity – developed 8.0 17,341 8.0 15,659 8.0 13,622
– emerging 8.0 2,290 8.0 1,074 8.0 890
Private equity 8.0 2,907 8.0 2,879 8.0 2,690
Government issued nominal bondsa3.8 549 2.8 544 3.0 513
Index-linked bondsa3.6 787 2.6 491 2.8 390
Corporate bondsa4.6 4,427 4.2 3,850 4.9 3,238
Propertyb6.5 2,200 6.5 1,783 6.5 1,710
Cash 0.8 855 0.9 1,000 1.7 470
Other 0.8 160 0.9 66 1.7 64
6.9 31,516 6.9 27,346 7.0 23,587
Present value of plan liabilities 30,496 29,259 25,675
Surplus (deficit) in the plan 1,020 (1,913) (2,088)
aBonds held are typically denominated in sterling.
bProperty held is all located in the United Kingdom.
The parent company financial statements of BP p.l.c. on pages 224-234 do not form part of BP’s Annual Report on Form 20-F as filed with the SEC.
230 BP Annual Report and Form 20-F 2013