Tesco 2007 Annual Report Download - page 85

Note 23 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering both funded defined contribution and funded
and unfunded defined benefit schemes. The most significant of these are the funded defined benefit schemes for the Group’s
employees in the UK and the Republic of Ireland.
Defined contribution plans
The contributions payable for defined contribution schemes of £7m (2006 – £7m) have been fully expensed against profits in the
current year.
Defined benefit plans
United Kingdom
The principal plan within the Group is the Tesco PLC Pension Scheme, which is a funded defined benefit pension scheme in the UK,
the assets of which are held as a segregated fund and administered by trustees. Watson Wyatt Limited, an independent actuary,
carried out the latest triennial actuarial assessment of the scheme as at 31 March 2005, using the projected unit method.
At the date of the last actuarial valuation the actuarial deficit was £153m. The market value of the schemes’ assets was £2,632m
and these assets represented 95% of the benefits that had accrued to members, after allowing for expected increases in earnings
and pensions in payment.
The One Stop Senior Executive Pension Scheme is a funded defined benefit scheme open to senior executives and certain other
employees at the invitation of the company. An independent actuary, using the projected unit method, carried out the latest
actuarial assessment of the scheme as at 5 April 2004.
Overseas
The most significant overseas scheme is the funded defined benefit scheme which operates in the Republic of Ireland. An independent
actuary, using the projected unit method, carried out the latest actuarial assessment of the scheme as at 1 April 2004.
The valuations used for IAS 19 have been based on the most recent actuarial valuations and updated by Watson Wyatt Limited to
take account of the requirements of IAS 19 in order to assess the liabilities of the schemes as at 24 February 2007. The schemes’
assets are stated at their market values as at 24 February 2007. Buck Consultants (Ireland) Limited have updated the most recent
Republic of Ireland valuation. The liabilities relating to retirement healthcare benefits have also been determined in accordance with
IAS 19, and are incorporated in the following tables.
Principal assumptions
The valuations used have been based on the most recent actuarial valuations and updated by Watson Wyatt Limited to take account
of the requirements of IAS 19 in order to assess the liabilities of the schemes as at 24 February 2007. The major assumptions, on a
weighted average basis, used by the actuaries were as follows:
2007 2006 2005
%%%
Rate of increase in salaries 4.5 4.0 3.9
Rate of increase in pensions in payment 3.0 2.7 2.6
Rate of increase in deferred pensions 3.0 2.7 2.6
Rate of increase in career average benefits 3.0 2.7 2.6
Discount rate 5.2 4.8 5.4
Price inflation 3.0 2.7 2.6
The main financial assumption is the real discount rate i.e. the excess of the discount rate over the rate of price inflation. If this
assumption increased/decreased by 0.1%, the UK defined benefit obligation would decrease/increase by approximately £105m and
the annual UK current service cost would decrease/increase by between £12m and £13m.
UK mortality assumptions
Following analysis of the mortality trends under the Tesco PLC Pension Scheme in the UK, which was carried out as part of the
formal valuation of the Scheme as at 31 March 2005, it was decided to alter the mortality assumptions used in the formal valuation.
The updated mortality tables as at 31 March 2005 were PMA92C00 for male members and PFA92C00 for female members.
Similar to last year, this change has been carried through into the calculation of the pension liabilities in the Balance Sheet as
at 24 February 2007 for the main UK fund.
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NOTES TO THE GROUP
FINANCIAL STATEMENTS