National Grid 2011 Annual Report Download - page 60

58 National Grid Gas plc Annual Report and Accounts 2010/11
26. Actuarial information on pensions
Asset allocations
The major categories of plan assets as a percentage of total plan assets were as follows:
2011 2010
% %
Equities 33.6 34.7
Corporate bonds 32.4 34.5
Gilts 26.6 22.0
Property 6.1 6.2
Other 1.3 2.6
Total 100.0 100.0
Actuarial assumptions
2011 2010
% %
Discount rate (i) 5.5 5.6
Expected return on plan assets 6.0 6.2
Rate of increase in salaries (ii) 4.4 4.7
Rate of increase in pensions in payment and deferred pensions 3.5 3.8
Rate of increase in Retail Prices Index (iii) 3.5 3.8
(i)
(ii) A promotional age related scale has been used where appropriate.
(iii)
The assumed life expectations for a retiree at age 65 are as follows: 2011 2010
years years
Today:
Males 22.1 20.8
Females 24.9 23.3
In 20 years:
Males 24.3 23.2
Females 27.3 25.6
The National Grid UK Pension Scheme is funded with assets held in a separate trustee administered fund. The scheme is subject to
independent actuarial valuation 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 employees and the proceeds from the scheme's assets, are expected
to be sufficient to fund the benefits payable under the scheme. The 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 Towers Watson as at 31 March 2007. The aggregate market value of the scheme’s
assets was £12,923m 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 2007 on an ongoing basis and allowing for projected increases in pensionable earnings.
There was a funding deficit of £442m (£327m net of tax) on the valuation date in light of which National Grid agreed a recovery plan with the
trustees.
The actuarial valuation showed that, based on long-term financial assumptions, the contribution rate required to meet future benefit accrual
was 32.4% of pensionable earnings (29.4% employers and 3% employees). In addition, the employers pay an allowance for administration
expenses which was 3.2% of pensionable earnings, giving a total company rate of 32.6%. The employer contribution rate will be reviewed as
part of the current valuation, while the administration rate is reviewed annually.
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 the 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 scheme's actuaries. The current target asset allocation for the scheme is 32% equities and 68% bonds, property and other.
The discount rate for pension liabilities has been determined by reference to appropriate yields on high quality corporate bonds prevailing in the UK debt markets at the
balance sheet date.
In September 2010, the UK Government changed the basis for statutory pension increases from the Retail Price Index (RPI) to the Consumer Price Index (CPI). The schem
e
rules specifically reference RPI. As a consequence the impact of the Government's move to CPI was predominantly limited to National Grid's Guaranteed Minimum
Pensions. The financial consequence of the change as at 31 March 2011 was an approximate £50m reduction in present value of the defined benefit obligation.
Contributions to the scheme during 2011/12 will be determined as part of the current valuation negotiations with the Trustees.