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29. RETIREMENT BENEFIT PLANS continued
Actuarial gains and losses have been recognised in the statement of recognised income and expense and the cumulative gain
recognised is £2,416 million at 31 March 2006 (2005: £294 million). The actual return on plan assets was £6,925 million (2005:
£3,582 million).
Changes in the present value of the defined benefit pension obligation are as follows:
2006 2005
£m £m
Opening defined benefit pension obligation (34,435) (32,125)
Service cost (568) (507)
Interest cost (1,816) (1,720)
Contributions by employees (21) (50)
Actuarial losses (2,733) (1,370)
Obligation on acquisition of subsidiaries –(25)
Benefits paid 1,385 1,364
Exchange differences 1(2)
Closing defined benefit pension obligation (38,187) (34,435)
The present value of the obligation is derived from long term cash flow projections and is thus inherently uncertain.
Changes in the fair value of plan assets are as follows:
2006 2005
£m £m
Opening fair value of plan assets 29,628 26,963
Expected return 2,070 1,918
Actuarial gains 4,855 1,664
Contributions by employer 452 382
Contributions by employees 21 50
Assets on acquisition of subsidiaries –15
Benefits paid (1,385) (1,364)
Exchange differences (1) –
Closing fair value of plan assets 35,640 29,628
The expected long term rate of return and fair values of the assets of the BTPS at 31 March were:
2006 2005
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 7.4 9.9 28 8.0 9.6 32
Non-UK equities 7.4 12.5 35 8.0 9.0 30
Fixed-interest securities 4.9 5.6 16 5.4 4.6 16
Index-linked securities 4.1 3.2 9 4.4 2.8 10
Property 5.8 4.4 12 6.8 3.6 12
Cash and other 4.0 ––4.0 ––
6.5 35.6 100 7.1 29.6 100
The assumption for the expected return in scheme assets is a weighted average based on the assumed expected return for each
asset class and the proportions held of each asset class at the beginning of the year. The expected returns on fixed interest and
interest linked securities are based on the gross redemption yields at the start of the year. Expected returns on equities and
property are based on a combination of an estimate of the risk premium above, yields on government bonds and consensus
economic forecasts of future returns. The long-term expected rate of return on investments does not affect the level of the
obligation but does affect the expected return on pension scheme assets within the net finance income.
The history of experience gains and losses are as follows:
2006 2005
£m £m
Present value of defined benefit obligation 38,187 34,435
Less: Fair value of plan assets 35,640 29,628
Net pension obligation 2,547 4,807
Experience adjustment on defined benefit obligation (527) (437)
Percentage of the present value of the defined benefit obligation 1.4% 1.3%
Experience adjustment on plan assets 4,855 1,664
Percentage of the plan assets 13.6% 5.6%
Notes to the consolidated financial statements BT Group plc Annual Report and Form 20-F 2006 99