BT 2003 Annual Report Download - page 115

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31. Pension costs continued
The cumulative difference since the adoption of SSAP 24 between the cash contributions paid by the group
to the pension scheme and the profit and loss charge is reflected on the balance sheet. The cumulative cash
contributions exceed the profit and loss charge and the resulting difference is shown as a prepayment on the
balance sheet. At 31 March 2003 the prepayment was £630 million (2002 – £231 million) with the increase
being principally due to the additional special and deficiency contributions in the year.
The pension charge to the profit and loss account will also include the amortisation of the combined pension
fund position and pension prepayment over the average remaining service lives of scheme members, which
amounts to 13 years, and the cost of enhanced pension benefits provided to leavers.
FRS 17 – Retirement benefits
The group continues to account for pensions in accordance with SSAP 24. Full implementation of FRS 17 has
been deferred by the Accounting Standards Board until accounting periods commencing on or after 1 January
2005. The requirements for disclosure under FRS 17 remain in force between its issue and full implementation,
and the required information is set out below. FRS 17 specifies how key assumptions should be derived and
applied. These assumptions are often different to the assumptions adopted by the pension scheme actuary
and trustees in determining the funding position of pension schemes. The accounting requirements under
FRS 17 are broadly as follows:
&scheme assets are valued at market value at the balance sheet date;
&scheme liabilities are measured using a projected unit method and discounted at the current rate of return
on high quality corporate bonds of equivalent term to the liability; and
&movement in the scheme surplus/deficit is split between operating charges and financing items in the profit
and loss account and, in the statement of total recognised gains and losses, actuarial gains and losses.
The financial assumptions used to calculate the BTPS liabilities under FRS 17 at 31 March 2003 are:
Real rates (per annum) Nominal rates (per annum)
2003
%
2002
%
2003
%
2002
%
Average future increases in wages and salaries 1.50* 1.50 3.78* 4.04
Average increase in pensions in payment and deferred pensions ––2.25 2.50
Rate used to discount scheme liabilities 3.08 3.41 5.40 6.00
Inflation – average increase in retail price index ––2.25 2.50
*There is a short term reduction in the real salary growth assumption to 0.75% for the first three years.
The expected nominal rate of return and fair values of the assets of the BTPS at 31 March were:
31 March 2003 31 March 2002
Expected long-term
rate of return
(per annum) Asset fair value
Expected long-term
rate of return
(per annum) Asset fair value
% £bn % % £bn %
UK equities 8.2 7.4 34 8.0 11.1 41
Non-UK equities 8.2 6.4 30 8.0 8.1 30
Fixed-interest securities 5.2 3.1 14 5.6 3.0 11
Index-linked securities 4.3 1.7 8 4.8 1.9 7
Property 7.0 3.3 15 7.0 2.8 10
Cash and other 4.0 (0.4) (1) 4.5 0.2 1
Total 7.4 21.5 100 7.4 27.1 100
Notes to the financial statements
114 BT Annual Report and Form 20-F 2003