National Grid 2008 Annual Report Download - page 676

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 55296
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: 149
Description: EXHIBIT 15.1
0/8345.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/345/8*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 55296
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: 149 Description: EXHIBIT 15.1
0/8345.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/345/8*
Table of Contents
Annual Report and Accounts 2007/08
157
31. Actuarial information on pensions and other post-retirement benefits continued
US pension plans
National Grid’s defined benefit pension plans in the US provide annuity or lump sum payments for all vested employees. In
addition, all employees with greater than one year’s service are provided with defined contribution benefits. KeySpan
companies also have defined benefit pension plans covering substantially all employees. In addition, employees are provided
with defined contribution benefits. The assets of the plans are held in separate trustee administered funds.
Employees do not contribute to the defined benefit plans. Employer contributions are made in accordance with the rules set out
by the US Internal Revenue Code. These contributions vary according to the funded status of the plans and the amounts that
are tax deductible. At present, there is some flexibility in the amount that is contributed on an annual basis. The policy for the
New York plans, includin
g
the acquired KeySpan plans is to set the contribution amount equal to the amount that is collected in
rates. These contributions are expected to meet the requirements of the Pension Protection Act of 2006. In New England, our
subsidiaries contribute an amount such that 100% of the Funding Target under the Pension Protection Act will be obtained by
2009.
US retiree healthcare and life insurance plans
National Grid and the acquired KeySpan companies provide healthcare and life insurance benefits to eligible retired US
employees. Eligibility is based on certain age and length of service requirements and in most cases retirees must contribute to
the cost of their coverage.
In the US, there is no governmental requirement to pre-fund post-retirement health and welfare plans. However, there may be
requirements under the various state regulatory agreements to contribute to these plans. Depending upon the rate jurisdiction
and the plan, the funding level may be: equal to the expense as determined under SFAS 106; equal to the amount collected in
rates; equal to the maximum tax deductible contribution; or zero. These requirements may change as rate agreements are
reset.
National Grid expects to contribute approximately £268m to the pension and post-retirement benefit plans from 1 April 2008 to
31 March 2009, although this figure may vary due to changes in market conditions and regulatory recovery.
Asset allocations and actuarial assumptions
The major categories of plan assets as a percentage of total plan assets were as follows:
In respect of UK schemes, the expected long-term rate of return on assets has been set reflecting the price inflation
expectation, the expected real return on each major asset class and the long-term asset allocation strategy adopted for each
scheme. The expected real returns on specific asset classes reflect historical returns, investment yields on the measurement
date and general future return expectations, and have been set after taking advice from the schemes’ actuaries. The current
target asset allocation for the National Grid UK Pension Scheme is 34% equities, 58% bonds and 8% property and other. The
current target asset allocation for National Grid’s section of the Electricity Supply Pension Scheme is 58% equities, 35% bonds,
7% property and other.
In respect of US plans, the estimated rate of return for various passive asset classes is based both on analysis of historical
rates of return and forward-looking analysis of risk premiums and yields. Current market conditions, such as inflation and
interest rates, are evaluated in connection with the setting of our long-term assumptions. A small premium is added for active
management of both equity and fixed income. The rates of return for each asset class are then weighted in accordance with
our target asset allocation. The long-term target asset allocation for the National Grid US pension plans is 66% equities, 34%
bonds and cash. The long-term target asset allocation for other National Grid US post-retirement benefit plans is 67% equities
and 33% bonds. For all KeySpan plans (including post-retirement benefit plans) the long-term asset allocation is 70% equities
and 30% bonds and cash.
UK pensions US pensions US other post-retirement benefits
2008 2007 2006 2008 2007 2006 2008 2007 2006
% % % % % % % % %
E
q
uities
(
i
)
35.9 35.8 40.7 60.6 63.7 66.4 63.1 68.5 69.0
Corporate bonds (ii) 25.0 18.6 19.2 33.6 33.5 32.0 32.3 31.1 30.6
Gilts 29.8 33.9 30.1
–
–
–
–
–
–
Pro
p
ert
y
6.7 8.5 8.5
–
–
0.2
–
–
–
Other 2.6 3.2 1.5 5.8 2.8 1.4 4.6 0.4 0.4
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
(i) Included within equities at 31 March 2008 were ordinary shares of National Grid plc with a value of £24m (2007: £24m).
(ii) Included within corporate bonds is an investment in a bond issued by a subsidiary undertaking with a value of £20m (2007: £nil).