Tesco 2011 Annual Report Download - page 142

NOTE 28 POST-EMPLOYMENT BENEFITS CONTINUED
Overseas
The most significant overseas schemes are the funded defined benefit pension schemes which operate in the Republic of Ireland and South Korea. An
independent actuary, using the projected unit method, carried out the latest actuarial assessment of the Republic of Ireland scheme as at 1 April 2010.
The valuations used for IAS 19 have been based on the most recent actuarial valuations and updated by Towers Watson Limited to take account
of the requirements of IAS 19 in order to assess the liabilities of the schemes as at 26 February 2011. The schemes’ assets are stated at their market
values as at 26 February 2011. Towers Watson Limited have updated the most recent Republic of Ireland and South Korea valuations. 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
During the year the government announced that the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) should be used as the basis
of the calculation of inflation for the statutory index-linked features of retirement benefits Accordingly the value of liabilities due to the past service
cost of deferred members has been reduced by £270m with the corresponding credit to actuarial gains in the Statement of Comprehensive Income.
The major assumptions, on a weighted average basis, used by the actuaries were as detailed below:
2011
%
2010
%
Discount rate 5.9 5.9
Price inflation 3.5 3.6
Rate of increase in salaries 3.6 3.6
Rate of increase in pensions in payment* 3.3 3.4
Rate of increase in deferred pensions* 2.8 3.6
Rate of increase in career average benefits 3.5 3.6
* In excess of any Guaranteed Minimum Pension (GMP) element.
The main financial assumption is the real discount rate (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 £150m and the annual UK current service cost would
decrease/increase by approximately £14m.
UK mortality assumptions
The Company conducts analysis of mortality trends under the Tesco PLC Pension Scheme in the UK as part of the triennial actuarial valuation
of the Scheme. At the latest triennial actuarial valuation as at 31 March 2008 the following assumptions were adopted for funding purposes:
Base tables:
PMA92C00 for male members with cohort improvements to 2000 and members taken to be one year younger than actual age.
PFA92C00 for female members with cohort improvements to 2000 and members taken to be half a year older than actual age.
These assumptions were used for the calculation of the pension liability as at 26 February 2011 for the main UK scheme.
The mortality assumptions used are based on tables that have been updated in line with medium cohort projections with a minimum improvement
of 1% per annum from 31 March 2008 to 26 February 2011. In addition, the allowance for future mortality improvements incorporates medium cohort
projections with a minimum improvement of 1% per annum.
The following table illustrates the expectation of life of an average member retiring at age 65 at the balance sheet date and a member reaching age 65
at the same date +25 years:
2011
years
2010
years
Retiring at reporting date at age 65: Male 21.7 21.6
Female 23.5 23.4
Retiring at reporting date +25 years at age 65: Male 24.1 24.0
Female 26.0 25.9
Rates of return on scheme assets
The assets in the defined benefit pension schemes and the expected nominal rates of return were:
2011 2010
Long-term
rate of return
%
Market
value
£m
Long-term
rate of return
%
Market
value
£m
Equities 8.5 3,032 8.7 2,521
Bonds 5.0 1,116 5.1 1,233
Property 6.8 511 7.0 343
Other (alternative assets) 8.5 564 8.7 484
Cash 4.0 385 4.1 115
Total market value of assets 5,608 4,696
The expected rate of return on assets is a weighted average based on the actual plan assets held and the respective returns expected on the separate
asset classes. The expected rate of return on equities and cash have both been set having regard to expected returns over the medium term, as
calculated by the Company’s independent actuary. The expected rate of return on bonds was measured directly from actual yields for gilts and corporate
bond stocks. The above rate takes into account the actual mix of UK gilts, UK corporate bonds and overseas bonds held at the balance sheet date.
FINANCIAL STATEMENTS
138 — TESCO PLC Annual Report and Financial Statements 2011
Notes to the Group financial statements