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29. RETIREMENT BENEFIT PLANS continued
The group expects to contribute approximately £630 million to the BTPS, including £232 million of deficiency contributions, in the
2007 financial year.
The mortality assumption has been updated to reflect experience and expected future improvements in life expectancy. The
average life expectancy assumptions, after retirement at 60 years of age, are as follows:
2006 2005
Number of years Number of years
Male 23.8 23.3
Female 25.4 25.0
Future improvement every 10 years 1.0 0.5
The assumed discount rate, salary increases and mortality all have a significant effect on the IAS 19 accounting valuation. The
following table shows the sensitivity of the valuation to changes in these assumptions.
Impact on deficit
Increase/(Decrease)
£bn
0.25 percentage point increase to:
– discount rate (1.4)
– salary increases 0.3
Additional 1.0 year increase to life expectancy 1.5
Funding valuation
A triennial valuation is carried out for the independent scheme trustees by a professionally qualified independent actuary, using the
projected unit credit method. The purpose of the valuation is to design a funding plan to ensure that present and future
contributions should be sufficient to meet future liabilities. The triennial valuation as at 31 December 2005, is currently being
performed and reviewed in the context of recent regulatory developments and the impact of the Crown Guarantee granted on
privatisation in 1984. Until that concludes contributions will continue to be paid in accordance with the 2002 funding plan. The
contributions for the 2005 and 2006 financial years were based on the 31 December 2002 valuation. The funding valuation is
performed at 31 December because this is the financial year end of the BTPS.
The valuation basis for funding purposes is broadly as follows:
– scheme assets are valued at market value at the valuation date; and,
– scheme liabilities are measured using a projected unit credit method and discounted at the estimated rate of return
reflecting the assets of the scheme.
The last three triennial valuations were determined using the following long-term assumptions:
Real rates (per annum) Nominal rates (per annum)
2002 1999 1996 2002 1999 1996
valuation valuation valuation valuation valuation valuation
%%%%%%
Return on existing assets, relative to market
values 4.52 2.38 3.80 7.13 5.45 7.95
(after allowing for an annual increase in
dividends of) 1.00 1.00 0.75 3.53 4.03 4.78
Return on future investments 4.00 4.00 4.25 6.60 7.12 8.42
Average increase in retail price index –––2.50 3.00 4.00
Average future increases in wages and salaries 1.5
a
1.75 1.75 4.04
a
4.80 5.82
Average increase in pensions –––2.50 3.00 3.75-4.00
aThere is a short term reduction in the real salary growth assumption to 1.25% for the first three years.
BT Group plc Annual Report and Form 20-F 2006 Notes to the consolidated financial statements100