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25. Post employment benefits
Background
At 31 March 2008, the Group operated a number of pension plans for the benefit
of its employees throughout the world, which vary depending on the conditions
and practices in the countries concerned. The Group’s pension plans are provided
through both defined benefit and defined contribution arrangements. Defined
benefit schemes provide benefits based on the employees’ length of pensionable
service and their final pensionable salary or other criteria. Defined contribution
schemes offer employees individual funds that are converted into benefits at the
time of retirement.
The principal defined benefit pension scheme of the Group is in the United
Kingdom. This tax approved final salary scheme was closed to new entrants from
1 January 2006. The assets of the scheme are held in an external trustee
administered fund. In addition, the Group operates defined benefit schemes in
Germany, Greece, India, Ireland, Italy, Turkey and the United States. Defined
contribution pension schemes are currently provided in Australia, Egypt, Greece,
Hungary, Ireland, Italy, Kenya, Malta, the Netherlands, New Zealand, Portugal,
South Africa, Spain and the United Kingdom.
Income statement expense
2008 2007 2006
£m £m £m
Defined contribution schemes 63 32 28
Defined benefit schemes 28 62 52
Total amount charged to the
income statement (note 35) 91 94 80
Defined benefit schemes
The principal actuarial assumptions used for estimating the Group’s benefit
obligations are set out below:
2008(1) 2007(1) 2006(1)
Weighted average actuarial assumptions
used at 31 March:
Rate of inflation 3.1% 2.7% 2.5%
Rate of increase in salaries 4.3% 4.4% 4.2%
Rate of increase in pensions in
payment and deferred pensions 3.1% 2.7% 2.5%
Discount rate 6.1% 5.1% 4.8%
Expected rates of return:
Equities 8.0% 7.8% 7.3%
Bonds(2) 4.4% 4.8% 4.2%
Other assets 1.3% 5.3% 3.4%
Notes:
(1) Figures shown represent a weighted average assumption of the individual schemes.
(2) For the year ended 31 March 2008 the expected rate of return for bonds consisted of a 4.7%
rate of return for corporate bonds (2007: 5.1%) and a 3.5% rate of return for government
bonds (2007: 4.0%).
The expected return on assets assumptions are derived by considering the
expected long term rates of return on plan investments. The overall rate of return
is a weighted average of the expected returns of the individual investments made
in the group plans. The long term rates of return on equities and property are
derived from considering current risk free rates of return with the addition of an
appropriate future risk premium from an analysis of historic returns in various
countries. The long term rates of return on bonds and cash investments are set
in line with market yields currently available at the balance sheet date.
Mortality assumptions used are consistent with those recommended by the
individual scheme actuaries and reflect the latest available tables, adjusted for
the experience of the Group where appropriate. The largest scheme in the Group
is the UK scheme and the tables used for this scheme indicate a further life
expectancy for a male/female pensioner currently aged 65 of 22.0/24.8 years
(2007: 19.4/22.4 years, 2006: 17.8/20.7 years) and a further life expectancy for
a male/female non-pensioner member currently aged 40 of 23.2/26.0 years
(2007: 22.1/25.1 years, 2006: 20.3/23.3 years) from age 65.
Measurement of the Group’s defined benefit retirement obligations are
particularly sensitive to changes in certain key assumptions, including the
discount rate. An increase or decrease in the discount rate of 0.5% would result
in a £135 million decrease or a £145 million increase in the defined benefit
obligation, respectively.
Charges made to the Consolidated Income Statement and Consolidated
Statement of Recognised Income and Expense (“SORIE”) on the basis of the
assumptions stated above are:
2008 2007 2006
£m £m £m
Current service cost 53 74 57
Interest cost 69 61 52
Expected return on pension assets (89) (73) (57)
Curtailment (5) − −
Total included within staff costs 28 62 52
Actuarial losses /(gains) recognised
in the consolidated SORIE 47 (65) 43
Cumulative actuarial losses recognised
in the consolidated SORIE 127 80 145
Vodafone Group Plc Annual Report 2008 121