Aviva 2002 Annual Report Download - page 99

45 – Pension and other post-retirement benefit costs
(a) The Group operates a large number of pension schemes around the world, whose members receive benefits on either a defined
benefit basis or a defined contribution basis. The largest defined benefit schemes are in the United Kingdom, the Netherlands, Canada
and Ireland, where the scheme assets comprise over 95% of the total defined benefit scheme assets throughout the Group. Of this total,
the United Kingdom comprises some 80%. The assets of the main United Kingdom, Irish and Canadian schemes are held in separate
trustee-administered funds and, in the Netherlands, the main scheme is held in a separate foundation which invests in the life funds of
the Group. An actuarial report has been submitted for each of the defined benefit schemes within the last three years, using appropriate
methods for the respective countries on local funding bases. These reports showed no material deficits in any of the main schemes.
(b) The Group has continued to account for pensions in accordance with SSAP24 and the disclosures given in section (c) below are those
required by that accounting standard. FRS17 “Retirement Benefits” was issued in November 2000 and differs from SSAP24 in a number
of ways. These are principally in the choice of assumptions, and that the difference between the market value of assets and liabilities is
immediately recognised in the balance sheet under FRS17, whereas changes in assets and liabilities are recognised on a smoothed basis
under SSAP24.
The accounting provisions of FRS17 were not expected to be mandatory for the Group until the year ending 31 December 2003 but,
in the transitional period, certain disclosures were required in the notes to the accounts. In November 2002, the Accounting Standards
Board issued an amendment to FRS17 which extended the transitional period through to, in the Group’s case, the year ending
31 December 2005. The transitional disclosures, to the extent not given in section (c), are set out in section (d) below.
(c) In the United Kingdom, the Group operated two main pension schemes until their merger on 31 December 2001 to form the CGNU
Staff Pension Scheme, which has since been renamed the Aviva Staff Pension Scheme. New entrants now join the defined contribution
section of the scheme, as the defined benefit section is generally closed to new employees.
The merged scheme was valued as at an effective date of 1 April 2002, on a market value basis using the Projected Unit Method. The
main financial assumptions used were a pension increase rate of 2.5%, a salary increase rate of 4.25% and an interest rate of 6.4%.
The scheme had an asset value of £4,639 million, projected accrued liabilities of £4,010 million and a funding level of 116%. The cost of
future service benefits in respect of defined benefit members was 21.4% of pensionable salaries which, after allowing for amortisation
of the scheme surplus and interest on the balance sheet prepayment, led to a net pension cost for the period to 31 December 2002 of
8.2% of pensionable salaries. The pension cost was then increased to allow for the amounts credited to members’ accounts under the
defined contribution section of the scheme.
The employing companies’ contributions to the defined benefit section of the merged scheme throughout 2002 were 12.5% and 3.2%
of employees’ pensionable salaries in respect of members of the previous CGU scheme and NU scheme respectively. The employers’
contribution rate for 2003 has been agreed as 25% of pensionable salaries for all members of this section.
In the Netherlands, Canada and Ireland, regular actuarial valuations of the main schemes are made in accordance with local funding
and/or accounting standards. Total pension costs for the schemes in these countries have been taken as equal to the locally determined
accounting costs or contributions paid to the plans as, at a Group level, these are not considered to be materially different from charges
calculated under a detailed application of SSAP24.
The Group also operates a variety of smaller pension arrangements in these and other countries, where costs have also been based on
those calculated locally.
The 2002 pension costs of defined benefit and defined contribution schemes for the Group were £117 million (2001: £89 million).
There were no significant contributions outstanding or prepaid as at 31 December 2002.
(d) FRS17 Retirement benefits
(i) The valuation used for FRS17 disclosures has been based on the most recent actuarial valuations, updated to take account of the
requirements of FRS17 in order to assess the liabilities of the major schemes at 31 December 2002. The updating was made by actuaries
in each country, with overall co-ordination by external consultants, Watson Wyatt. Other than the actuary of the Aviva Staff Pension
Scheme, the actuaries making the calculation were independent of the Group. Scheme assets are stated at their market values at
31 December 2002. The details for the main defined benefit schemes are shown below. Where schemes provide both defined benefit
and defined contribution pensions, the assets and liabilities shown exclude those relating to defined contribution pensions.
UK Netherlands Canada Ireland
2002 2001 2002 2001 2002 2001 2002 2001
Date of most recent actuarial valuation 1.4.02 Various 31.12.01 31.12.00 31.12.01 1.1.01 Various 1.4.00
The main financial assumptions used to
calculate scheme liabilities under FRS17 are:
Inflation rate 2.2% 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% 3.0%
General salary increases 4.0% 4.2% 3.5% 3.5% 3.0% 3.0% 4.25% 4.75%
Pension increases 2.2% 2.4% 2.5% 2.5% 1.25% 1.25% 2.25% 2.5%
Deferred pension increases 2.2% 2.4% 2.5% 2.5% 0% 0% 2.25% 2.5%
Discount rate 5.75% 5.9% 5.5% 6.1% 5.75% 6.6% 5.55% 6.2%
85 Aviva plc
Annual report + accounts 2002