Aviva 2009 Annual Report Download - page 233

231
Performance review
Aviva plc Notes to the consolidated financial statements continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
47 – Pension obligations continued
There is a small buy-out market in Ireland, largely restricted to pensions currently in payment and it is not clear whether current
capacity would enable an immediate buy-out of our Irish pension liabilities at present. The Canadian defined benefit plan’s
liabilities represent the likely limit on what the Canadian group annuity market could absorb at normal competitive group annuity
prices if the entire plan were subject to a buy-out valuation. There is in fact a reasonably high chance that only a portion of the
plan’s liabilities could be absorbed in one tranche.
IAS 19 requires us to use the projected unit credit method to measure our pension scheme liabilities. Neither of the alternative
methods is considered appropriate in presenting fairly the Group’s obligations to the members of its pension schemes on an
ongoing basis, so they are not considered further.
Valuations and assumptions
The valuations used for accounting under IAS 19 have been based on the most recent full actuarial valuations, updated to take
account of that standard’s requirements in order to assess the liabilities of the material schemes at 31 December 2009. Scheme
assets are stated at their fair values at 31 December 2009.
The main actuarial assumptions used to calculate scheme liabilities under IAS 19 are:
UK Netherlands
2009 2008 2007 2009 2008 2007
Inflation rate 3.6% 2.9% 3.4% 2.1% 2.0% 2.0%
General salary increases 5.4% 4.7% 5.2% 3.1%* 3.0%* 3.0%*
Pension increases 3.6% 3.1% 3.4% 2.1%/1.9%** 2.0%/1.3%** 2.0%/2.4%**
Deferred pension increases 3.6% 3.1% 3.4% 2.1%/1.9%** 2.0%/1.3%** 2.0%/2.4%**
Discount rate 5.7% 6.2% 5.8% 5.2% 5.7% 5.5%
Basis of discount rate AA-rated corporate bonds AA-rated corporate bonds
* Age-related scale increases plus 3.1%
(2008: 3%, 2007: 3%).
**2.1% until 2011 and 1.9% thereafter (2008: 2.0% and 1.3% respectively, 2007: 2.0% and 2.4% respectively).
Canada Ireland
2009 2008 2007 2009 2008 2007
Inflation rate 2.5% 2.5% 2.5% 2.0% 2.0% 2.5%
General salary increases 3.75% 3.75% 3.75% 3.5% 3.75% 4.25%
Pension increases 1.25% 1.25% 1.25% 2.0% 2.0% 2.4%
Deferred pension increases — — — 2.0% 2.0% 2.4%
Discount rate 5.5% 6.75% 5.25% 5.5% 5.9% 5.6%
Basis of discount rate AA-rated corporate bonds AA-rated corporate bonds
The discount rate and pension increase rate are the two assumptions that have the largest impact on the value of the liabilities,
with the difference between them being known as the net discount rate. For each country, the discount rate is based on current
average yields of high quality debt instruments taking account of the maturities of the defined benefit obligations. A 1% increase
in this rate (and therefore the net discount rate) would reduce the liabilities by £1.8 billion and the service cost for the year by
£31 million.
Mortality assumptions
Mortality assumptions are significant in measuring the Group’s obligations under its defined benefit schemes, particularly given
the maturity of these obligations in the material schemes. The assumptions used are summarised in the table below and have
been selected to reflect the characteristics and experience of the membership of these schemes.
Financial statements IFRS