Unilever 2006 Annual Report Download - page 107

104 Unilever Annual Report and Accounts 2006
Financial Statements (continued)
20 Pensions and similar obligations (continued)
The valuations of other post-employment benefit plans generally assume a higher initial level of medical cost inflation, which falls from 9.9%
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 4 (3)
Effect on total benefit obligation 51 (47)
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.
For the most important pension plans, representing approximately 80% of all defined benefit plans by liabilities, the assumptions used at
31 December 2006, 2005 and 2004 were:
United Kingdom Netherlands
Assumptions 2006 2005 2004 2006 2005 2004
Discount rate 5.1% 4.7% 5.3% 4.6% 4.0% 4.5%
Inflation 2.9% 2.7% 2.8% 1.9% 1.8% 1.8%
Rate of increase in salaries 4.4% 4.2% 4.3% 2.4% 2.3% 2.3%
Rate of increase for pensions in payment 2.9% 2.7% 2.9% 1.9% 1.8% 1.8%
Rate of increase for pensions in deferment (where provided) 2.9% 2.7% 2.9% 1.9% 1.8% 1.8%
Expected long-term rates of return:
Equities 8.0% 7.6% 8.0% 7.6% 7.0% 7.6%
Bonds 5.2% 4.5% 5.0% 4.4% 3.7% 4.1%
Property 6.5% 6.1% 6.5% 6.1% 5.5% 6.1%
Others 7.2% 6.7% 7.2% 4.0% 3.7% 3.5%
Weighted average asset return 7.3% 6.9% 7.3% 6.6% 6.0% 6.6%
United States Germany
2006 2005 2004 2006 2005 2004
Discount rate 5.8% 5.5% 5.7% 4.6% 4.0% 4.5%
Inflation 2.5% 2.4% 2.5% 1.9% 1.8% 1.8%
Rate of increase in salaries 4.0% 4.0% 4.5% 2.6% 2.5% 2.5%
Rate of increase for pensions in payment 0.0% 0.0% 0.0% 1.9% 1.8% 1.8%
Rate of increase for pensions in deferment (where provided) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expected long-term rates of return:
Equities 8.3% 8.0% 8.4% 7.6% 7.0% 7.6%
Bonds 5.2% 4.8% 4.7% 4.4% 3.7% 4.1%
Property 6.8% 6.5% 6.9% 6.1% 5.5% 6.1%
Others 4.8% 4.2% 2.1% 3.0% 3.7% 3.7%
Weighted average asset return 7.4% 7.0% 7.3% 5.8% 5.3% 5.7%
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.
Mortality assumptions for the most important countries are based on the following post-retirement mortality tables: (i) United Kingdom: PMA 92
and PFA 92 with short cohort adjustment and scaling factor of 125% applied, projected to 2015 for current pensioners and to 2025 for future
pensioners; (ii) the Netherlands: GBMV (1995-2000) with age set back of four years for males and two years for females; (iii) United States:
RP2000 with a projection period of 10-15 years; and (iv) Germany: Heubeck 1998 (Periodentafel) with a scaling factor of 85%.
These tables translate into the following years of life expectancy for current pensioners aged 65:
United United
Kingdom Netherlands States Germany
Males 19 18 19 18
Females 22 21 22 21
As considered appropriate having regard to the factors set out above, the assumptions and approach adopted allow for future improvements in
life expectancy.
Assumptions for the remaining defined benefit plans vary considerably, depending on the economic conditions of the countries where they
are situated.
Notes to the consolidated accounts Unilever Group