National Grid 2008 Annual Report Download - page 675

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 25332
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 148
Description: EXHIBIT 15.1
0/6344.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/344/6*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 25332
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 148 Description: EXHIBIT 15.1
0/6344.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/344/6*
Table of Contents
156
Notes to the consolidated financial statements continued
National Grid plc
31. Actuarial information on pensions and other post-retirement benefits
UK pension schemes
National Grid’s defined benefit pension schemes are funded with assets held in separate trustee administered funds. The
schemes are subject to independent actuarial valuations at least every three years, on the basis of which the qualified
actuary certifies the rate of employers’ contribution, which, together with the specified contributions payable by the
employees and proceeds from the schemes’ assets, are expected to be sufficient to fund the benefits payable under the
schemes.
National Grid UK Pension Scheme
The National Grid UK Pension Scheme provides final salary defined benefits for employees who joined prior to 31
March 2002 and defined contribution benefits for employees joining from 1 April 2002.
The latest full actuarial valuation was carried out by Watson Wyatt LLP at 31 March 2006. The aggregate market value of
the scheme’s assets was £12,743m and the value of the assets represented 97% of the actuarial value of benefits due to
members, calculated on the basis of pensionable earnings and service at 31 March 2006 on an ongoing basis and allowing
for projected increases in pensionable earnings. There was a funding deficit of £371m on the valuation date.
The results of the actuarial valuation carried out at 31 March 2006 showed that, based on long-term financial assumptions,
the contribution rate required to meet future benefit accrual was 32% of pensionable earnings (29% employers and 3%
employees). The ongoing contribution rate does not include an allowance for administration expenses. These contributions
are reviewed annually. From 1 April 2007, the rate used for the recovery of administration costs was 3.7% of salary.
Employers are currently, therefore, payin
g
a total contribution rate of 32.7%. The contribution rate will be reviewed as part of
the 2007 actuarial valuation which is currently in progress.
In line with the agreement made after the 2003 valuation, no funding of the deficit identified in the 2006 actuarial valuation
will be provided to the scheme until the outcome of the actuarial valuation as at 31 March 2007 is known. At this point,
National Grid will pay the gross amount of any deficit up to a maximum amount of £520m (£373m net of tax) into the
scheme. Until the 31 March 2007 actuarial valuation has been completed, National Grid has arranged for banks to provide
the trustees with letters of credit. The main conditions under which these letters of credit could be drawn relate to events
that would imperil the interests of the scheme, such as National Grid Gas plc, a subsidiary undertaking, becoming insolvent
or National Grid failing to make agreed payments into the scheme.
The actuarial valuation as at 31 March 2007 is currently in progress but has not yet been completed. In anticipation of the
finalisation of the valuation, the Company made deficit payments to the scheme totalling £115m (£81m net of tax) prior to 31
March 2008 and a further £250m (£180m net of tax) in April 2008. The Company and trustees are currently in the process
of agreeing a recovery plan in respect of the outstanding deficit amount which will be agreed before the end of June 2008.
Electricity Supply Pension Scheme
The Electricity Supply Pension Scheme is a funded scheme which is divided into sections, one of which is National Grid’s
section. National Grid’s section of the scheme provides final salary defined benefits and was closed to new entrants on 1
April 2006.
The latest full actuarial valuation as at 31 March 2007 has been carried out by Hewitt Associates Limited. The aggregate
market value of the scheme’s assets at that date was £1,345m and the value of the assets represented 77% of the actuarial
value of benefits due to members calculated on the basis of pensionable earnings and service at 31 March 2007 on an
ongoing basis and allowing for projected increases in pensionable earnings. There was a funding deficit of £405m on the
valuation date.
The actuarial valuation showed that, based on long-term financial assumptions, the contribution rate required to meet future
benefit accrual was 26.5% of pensionable earnings (20.5% employers and 6% employees). This contribution rate will be
reviewed as part of the next full actuarial valuation due on 31 March 2010.
Following the 2004 actuarial valuation it had been agreed that no funding of the deficit identified would be provided to the
scheme until the outcome of the actuarial valuation at 31 March 2007 was known. At this point, National Grid would pay the
gross amount of any deficit up to a maximum amount of £68m (£48m net of tax) plus interest into the scheme. Over the
year to 31 March 2008, deficit payments equal to £40m (£28m net of tax) were paid into the scheme and a further payment
of £60m (£43m net of tax) was paid in April 2008. The Company and the trustees have agreed a recovery plan which will
see the remainin
g
deficit paid off by March 2017. In addition, the Company a
g
reed to put in place tri
gg
ers which would brin
g
forward payment of the outstanding deficit. The conditions under which payment of the outstanding deficit would be made
are if National Grid Electricity Transmission plc (NGET) ceases to hold the licence granted under the Electricity Act 1989 or
NGET’s credit rating by two out of three specified agencies falls below an agreed level for a period of 40 days.