Unilever 2005 Annual Report Download - page 118

Financial Statements
Unilever Annual Report and Accounts 2005 115
Notes to the consolidated accounts
Unilever Group
22 Pensions and similar obligations (continued)
IAS 19 Disclosures
Assumptions
With the objective of presenting the assets and liabilities of the pensions and other post-employment benefit plans at their fair value on the
balance sheet, assumptions under IAS 19 are set by reference to market conditions at the valuation date. The actuarial assumptions used to
calculate the benefit obligations vary according to the country in which the plan is situated. The following table shows the assumptions,
weighted by liabilities, used to value the principal defined benefit pension plans (covering approximately 90% of pension liabilities – the
‘principal pension plans’) and plans providing other post-employment benefits, and in addition the expected long-term rates of return on assets,
weighted by asset value.
31 December 2005 31 December 2004 31 December 2003
Principal Other Principal Other Principal Other
defined post- defined post- defined post-
benefit employment benefit employment benefit employment
pension benefit pension benefit pension benefit
plans plans plans plans plans plans
Discount rate 4.6% 5.5% 5.0% 5.7% 5.5% 6.1%
Inflation 2.4% n/a 2.4% n/a 2.4% n/a
Rate of increase in salaries 3.5% 4.0% 3.6% 4.5% 3.7% 4.5%
Rate of increase for pensions in payment 2.1% n/a 2.2% n/a 2.2% n/a
Rate of increase for pensions in deferment (where provided) 2.5% n/a 2.6% n/a 2.6% n/a
Long-term medical cost inflation n/a 4.8% n/a 4.8% n/a 4.9%
Expected long-term rates of return:
Equities 7.4% 7.9% 8.4%
Bonds 4.2% 4.5% 5.0%
Property 5.8% 6.3% 6.8%
Others 6.1% 6.1% 5.5%
Weighted average asset return 6.4% 6.8% 7.2%
The valuations of other post-employment benefit plans generally assume a higher initial level of medical cost inflation, which falls from 10.4%
to the long-term rate within the next five years. Assumed healthcare cost trend rates have a significant effect on the amounts reported for
healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have the following effect:
€ million € million
1% point 1% point
increase decrease
Effect on total of service and interest cost components 7(6)
Effect on total benefit obligation 78 (69)
The expected rate of return on plan assets was determined, based on actuarial advice, by a process that takes the long-term rates of return on
government bonds available at the balance sheet date and applies to these rates suitable risk premiums that take account of historic market
returns and current market long-term expectations for each asset class.
Demographic assumptions, such as mortality rates, are set having regard to the latest trends in life expectancy, plan experience and other
relevant data. The assumptions are reviewed and updated as necessary as part of the periodic actuarial valuation of the pension plans.
For the most important pension plans, representing over 75% of all defined benefit plans by liabilities, the assumptions used at 31 December
2005, 2004 and 2003 were:
United Kingdom Netherlands
Other Assumptions 2005 2004 2003 2005 2004 2003
Discount rate 4.7% 5.3% 5.4% 4.0% 4.5% 5.2%
Inflation 2.7% 2.8% 2.7% 1.8% 1.8% 1.8%
Rate of increase in salaries 4.2% 4.3% 4.2% 2.3% 2.3% 2.5%
Rate of increase for pensions in payment 2.7% 2.9% 2.8% 1.8% 1.8% 1.8%
Rate of increase for pensions in deferment (where provided) 2.7% 2.9% 2.8% 1.8% 1.8% 1.8%
Expected long-term rates of return:
Equities 7.6% 8.0% 8.3% 7.0% 7.6% 8.3%
Bonds 4.5% 5.0% 5.3% 3.7% 4.1% 4.7%
Property 6.1% 6.5% 6.8% 5.5% 6.1% 6.8%
Others 6.7% 7.2% 4.3% 3.7% 3.5% 3.2%
Weighted average asset return 6.9% 7.3% 7.6% 6.0% 6.6% 7.3%