BT 2013 Annual Report Download - page 53

Performance 51
Performance
Pensions
Overview
We provide retirement plans for employees. The largest of these plans
is the BT Pension Scheme (BTPS), a defined benefit plan in the UK.
Although closed to new members, the BTPS still has around 44,000
contributing members, 193,000 pensioners and 80,500 deferred
members. The BT Retirement Saving Scheme (BTRSS) is the current
arrangement for UK employees who joined the group after 1 April 2001.
It has around 22,000 active members.
The BTPS and BTRSS are not controlled by the Board. The BTPS is
managed by a separate and independent corporate trustee. The BTRSS
is a contract-based, defined contribution arrangement provided by
Standard Life under which members choose their own investments and
receive benefits at retirement that are linked to the performance of
those investments.
We maintain similar arrangements in most other countries with a focus
on these being appropriate for the local market and culture.
More information on our pension arrangements and on funding and
accounting valuations is given in note 19 to the consolidated financial
statements. The funding of the BTPS is also discussed further under
Ourrisks on page 25.
BTPS funding valuation and future funding
obligations
The funding of our main defined benefit pension plan, the BTPS, is
subject to legal agreement between BT and the Trustee of the BTPS
which is determined at the conclusion of each triennial funding
valuation. The most recent triennial funding valuation at 30 June 2011
and the associated recovery plan was agreed with the BTPS Trustee in
May2012.
Under this prudent funding basis, at 30 June 2011 the market value
of the assets was £36.9bn and the funding deficit was £3.9bn. If the
valuation had used our ‘median estimate’ approach, we estimate that
the scheme had a surplus of £2.5bn at 30 June 2011. This approach
reflects how investments might on average be expected to perform over
time and the use of other assumptions with no allowance for prudence.
Under the recovery plan, we made deficit payments of £2.0bn in
March2012 and £325m in March 2013. The plan also includes
payments of £325m in March2014, followed by seven annual payments
of £295m through toMarch 2021. Further details on the funding are
included in note 19 to the consolidated financial statements. The next
funding valuation is due to be carried out as at 30 June 2014.
IAS 19 accounting position
The accounting deficit, net of tax, has increased from £1.9bn to £4.5bn.
The movements in the deficit are shown below.
(1,000)
0
1,000
3,000
2,000
5,000
4,000
7,000
6,000
Movements on IAS 19 deficit
At 1 April 2012
Deficit
contributions
Service cost
Actuarial gains
on assets
Interest on liability
Actuarial losses
on liabilities
Expected return
on assets
Regular
contributions
At 31 March 2013
225
575
1,975
2,006
6,258
325
217
4,543 1,313
Income statement
Cash
contributions
Actuarial
movements
2,503
£m
1,873
Net of deferred tax Deferred tax asset
Actuarial gains on plan assets reflect the strong investment returns in the
year of around 12%, which was more than double the expected return,
and BTPS plan assets reached a record high of £41.3bn.
Actuarial losses on plan liabilities have arisen primarily as a result of
a lower discount rate assumption, driven by low real corporate bond
yields, partly reflecting the impact of quantitative easing and higher
expectations for future inflation. As a result the real discount rate,
relative to RPI, is exceptionally low at 0.87%.
The International Accounting Standards Board has published a revision
to IAS 19 which will be mandatory in 2013/14. Details of this and its
impact are set out on page 115 of the consolidated financial statements.