Aviva 2014 Annual Report Download - page 213

Aviva plc Annual report and accounts 2014
209
49 – Pension obligations continued
Sensitivity analysis
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and
mortality. The sensitivities analyses below have been determined based on reasonably possible changes of the respective
assumptions, holding all other assumptions constant. The following table summarises how the defined benefit obligation would
have increased/ (decreased) as a result of the change in the respective assumptions:
Impact on present value of defined benefit obligation
Increase in
discount
rate
+1%
£m
Decrease in
discount
rate
-1%
£m
Increase in
inflation
rate
+1%
£m
Decrease in
inflation
rate
-1%
£m
1 year
younger1
£m
Impact on present value of defined benefit obligation at 31 December 2014 (2,170) 2,911 2,747 (2,081) 367
Impact on present value of defined benefit obligation at 31 December 2013 (1,968) 2,616 2,388 (1,824) 324
1 The effect of assuming all members in the schemes were one year younger.
The sensitivity analyses presented above may not be representative as in practice it is unlikely that the changes in assumptions
would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, the present value of the
defined benefit obligation has been calculated using the projected unit credit method, which is the same as that applied in
calculating the defined benefit obligation liability recognised within the consolidated statement of financial position. In addition,
the sensitivities shown are for liabilities only and ignore the impact on assets, which would significantly mitigate the net interest
rate and inflation sensitivity impact on the net surplus.
Maturity profile of the defined benefit obligation
The discounted scheme liabilities have an average duration of 20 years in ASPS, 19 years in the RAC scheme, 20 years in the Irish
scheme and 12 years in the Canadian scheme. The expected undiscounted benefits payable from the main UK defined benefit
scheme, ASPS, is shown in the chart below:
(iv) Risk management and asset allocation strategy
As noted above, the long-term investment objectives of the trustees and the employers are to limit the risk of the assets failing to
meet the liabilities of the schemes over the long term, and to maximise returns consistent with an acceptable level of risk so as to
control the long-term costs of these schemes. To meet these objectives, the schemes’ assets are invested in a portfolio, consisting
primarily (approximately 75%) of debt securities as detailed in section (b)(ii). The investment strategy will continue to evolve over
time and is expected to match the liability profile increasingly closely with swap overlays to improve interest rate and inflation
matching. The schemes are generally matched to interest rates on the funding basis.
Main UK scheme
The Company works closely with the trustee, who is required to consult it on the investment strategy.
Interest rate and inflation risks are managed using a combination of liability-matching assets and swaps. Exposure to equity risk
has been reducing over time and credit risk is managed within risk appetite. Currency risk is relatively small and is largely hedged.
The other principal risk is longevity risk. On 5 March 2014, ASPS entered into a longevity swap covering approximately £5 billion of
pensioner in payment scheme liabilities.
Other schemes
The other schemes are considerably less material but their risks are managed in a similar way to those in the main UK scheme.
(v) Funding
Formal actuarial valuations normally take place every three years and where there is a deficit, the Company and the trustee would
agree a deficit recovery plan. The assumptions adopted for triennial actuarial valuations are determined by the trustee and agreed
with the Company and are normally more prudent than the assumptions adopted for IAS19 purposes, which are best estimate.
For ASPS, following the latest formal actuarial valuation (with an effective date of 31 March 2012) deficit recovery plan was
agreed, to make good the deficit over a period of time, consistent with the requirements of the UK pension regulations. As at 31
December 2014, the funding deficit was estimated at £30 million. The deficit funding payment for 2015 is estimated to be £180
million, however, contributions will depend on the funding position of the scheme and the outcome of the triennial actuarial
valuation as at 31 March 2015.
Total employer contributions for all schemes in 2015 are currently expected to be £298 million.
400
500
700
600
0
100
200
300
Undiscounted benet payments
(£m)
2015 2045 2075 2105
Deferred member cash flows Pensioner cash flows
Aviva plc Annual report and accounts 2014 |209
IFRS Financial statements