BT 2014 Annual Report Download - page 159

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156 Financial statements
19. Retirement beneƬt plans continued
BTPS liabilities under IAS 19 (Revised 2011)
Valuation methodology
The liabilities of the BTPS are measured as the present value of the estimated future benet cash ows to be paid by the scheme, calculated using the
projected unit credit method. These calculations are performed for the company by a professionally qualied independent actuary.
The expected future benet payments are based on a number of assumptions including future ination, retirement ages, benet options chosen and
life expectancy and are therefore inherently uncertain. Actual benet payments in a given year may be higher or lower, for example if members retire
sooner or later than assumed, or take a greater or lesser cash lump sum at retirement. The estimated duration of BTPS liabilities, which is an indicator
of the weighted average term of the liabilities, is 15 years (2012/13 15 years) although the benets payable by the BTPS are expected to be paid
over more than 80 years as shown in the graph below. Whilst benet payments are expected to increase over the earlier years, the expected value of
the liabilities will reduce.
a Based on accrued benefits to date.
Forecast benefits payable by the BTPS at 31 March 2014 (unaudited)
£m £m
0
1,000
500
1,500
3,000
2,500
2,000
0
20,000
10,000
30,000
60,000
50,000
40,000
2014 2034 2054 2074 2094
Forecast benefits payable by the BTPSa
Liabilitiesa
Forecast benefit payments (Left axis) Liabilities (Right axis)
Key assumptions – IAS 19 (Revised 2011)
The key nancial assumptions used to measure the liabilities of the BTPS under IAS 19 (Revised 2011) are shown below.
Nominal rates (per year) Real rates (per year)a
At 31 March
2014
%
2013
%
2012
%
2014
%
2013
%
2012
%
Rate used to discount liabilities 4.25 4.20 4.95 0.97 0.87 1.84
Ination – increase in RPI 3.25 3.30 3.05 – – –
Ination – increase in CPI 2.50b2.55b2.30c (0.75)b(0.75)b(0.75)c
a The real rate is calculated relative to RPI inƮation and is shown as a comparator.
b Assumed to be 0.45% lower after 31 March 2016.
c Assumed to be 0.45% lower after 31 March 2015.
Rate used to discount liabilities
IAS 19 (Revised 2011) requires that the discount rate is determined by reference to market yields at the reporting date on high quality corporate
bonds. The currency and term of these should be consistent with the currency and estimated term of the pension obligations. The discount rate at
31March 2014 and 31March 2013 is based on a market-based AA corporate bond yield curve allowing for the future expected benet payments
from the BTPS.