BT 2009 Annual Report Download - page 126

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
124 BT GROUP PLC ANNUAL REPORT & FORM 20-F
29. Retirement benefit plans continued
The BTPS assets are invested in UK and overseas equities, UK and overseas properties, fixed interest and index linked securities, deposits
and short-term investments. At 31 March 2009, the scheme’s assets did not include any ordinary shares of the company. At 31 March
2008, 10m ordinary shares of the company were included within the scheme’s assets, with a market value of £22m. The group occupies
two properties owned by the BTPS scheme on which an annual rental of £0.1m is payable (2008: £0.1m).
The expected long-term rate of return and fair values of the assets of the BTPS at 31 March were:
2009 2008
Expected Expected
long-term long-term
rate of return rate of return
(per annum) Asset fair value Target (per annum) Asset fair value Target
% £bn % % % £bn % %
UK equities 8.5 3.2 11 11 8.5 6.2 17 23
Non-UK equities 8.5 5.9 20 22 8.5 10.5 28 28
Fixed-interest securities 5.9 6.6 22 20 5.7 7.1 19 15
Index-linked securities 4.0 4.4 15 15 4.6 3.6 10 10
Property 7.0 3.2 11 12 7.0 5.2 14 13
Alternative assets 7.0 5.2 18 20 7.2 2.9 8 11
Cash and other 3.5 0.8 3 – 5.0 1.8 4 –
6.7 29.3 100 100 7.1 37.3 100 100
The assumption for the expected return on scheme assets is a weighted average based on the assumed expected return for each asset class
and the proportions held of each asset class at the beginning of the year. The expected returns on fixed interest and index-linked securities
are based on the gross redemption yields at the start of the year. Expected returns on equities, property and alternative asset classes are
based on a combination of an estimate of the risk premium above yields on government bonds, consensus economic forecasts of future
returns and historical returns. Alternative asset classes include commodities and hedge funds. The long-term expected rate of return on
investments does not affect the level of the obligation but does affect the expected return on pension scheme assets within the net finance
income.
The history of experience gains and losses are as follows:
2009 2008 2007 2006 2005
£m £m £m £m £m
Present value of defined benefit obligation (33,326) (34,669) (38,779) (38,187) (34,435)
Fair value of plan assets 29,353 37,448 38,390 35,640 29,628
Net pension (obligation) asset (3,973) 2,779 (389) (2,547) (4,807)
Experience adjustment on defined benefit obligation – (loss) gain (238) (22) 190 (527) (437)
Percentage of the present value of the defined benefit obligation 0.7% 0.1% 0.5% 1.4% 1.3%
Experience adjustment on plan assets – (loss) gain (9,451) (2,572) 993 4,855 1,664
Percentage of the plan assets 32.2% 6.9% 2.6% 13.6% 5.6%
The group expects to contribute approximately £775m to the BTPS in 2010, including deficiency contributions of £525m.
Sensitivity analysis of the principal assumptions used to measure BTPS scheme liabilities
The assumed discount rate, mortality rates and salary increases all have a significant effect on the measurement of scheme liabilities. The
following table shows the sensitivity of the valuation to changes in these assumptions:
Impact on liability
Decrease/
(increase)
£bn
0.25 percentage point increase to:
– discount rate 1.2
– salary increases (0.3)
Additional 1 year increase to life expectancy (1.3)
FINANCIAL STATEMENTS