BT 2007 Annual Report Download - page 118

29. RETIREMENT BENEFIT PLANS
Background
The group offers retirement benefit plans to its employees. The group’s main scheme, the BT Pension Scheme (BTPS), is a defined
benefit scheme where the benefits are based on employees’ length of service and final pensionable pay. This scheme has been
closed to new entrants since 31 March 2001 and replaced by a defined contribution scheme, the BT Retirement Plan (BTRP). The
total pension cost of the group for the year, included within staff costs, was £643 million (2006: £603 million, 2005: £540 million).
Defined contribution schemes
The income statement charge in respect of defined contribution schemes represents the contribution payable by the group based
upon a fixed percentage of employees’ pay. The total pension cost for the year in respect of the group’s main defined contribution
scheme was £28 million (2006: £19 million, 2005: £11 million) and £3 million (2006: £2 million, 2005: £1 million) of contributions
were outstanding at 31 March 2007.
Defined benefit schemes
BT Pension Scheme Trustees Limited administers and manages the scheme on behalf of the members in accordance with the terms
of the Trust Deed of the scheme and relevant legislation. Under the terms of the trust deed of the BTPS, there are nine trustee
directors appointed by the group, five of which appointments are made with the agreement of the relevant trade unions, including
the Chairman of the Trustees. Four trustee directors other than the Chairman are appointed by BT on the nomination of the relevant
trade unions. Two of the trustee directors will normally hold senior positions within the group, and two will normally hold (or have
held) senior positions in commerce or industry. Subject to there being an appropriately qualified candidate, there should be at least
one current pensioner or deferred pensioner of the BTPS as one of the trustee directors. Trustee directors are appointed for a
three-year term, but are then eligible for re-appointment.
Measurement of scheme assets and liabilities – IAS 19
Scheme assets are measured at market value at the balance sheet date. The liabilities of the BTPS are measured by discounting the
best estimate of future cash flows to be paid out by the scheme using the projected unit method. Estimated future cash flows are
discounted at the current rate of return on high quality corporate bonds of an equivalent term to the liability. Actuarial gains and
losses are recognised in full in the period in which they occur in the statement of recognised income and expense.
The financial assumptions used to measure the net pension obligation of the BTPS at 31 March 2007 are as follows:
Real rates (per annum) Nominal rates (per annum)
2007 2006 2005 2007 2006 2005
%%%%%%
Rate used to discount liabilities 2.28 2.19 2.63 5.35 5.00 5.40
Average future increases in wages and salaries 0.75a0.75a1.00 3.77a3.52a3.73
Average increase in pensions in payment and
deferred pensions –––3.00 2.75 2.70
Inflation – average increase in retail price index –––3.00 2.75 2.70
aThere is a short term reduction in the real salary growth assumption to 0.5% for the first three years.
The average life expectancy assumptions, after retirement at 60 years of age, are as follows:
2007 2006
Number of years Number of years
Male in lower pay bracket 22.6 22.5
Male in higher pay bracket 25.0 24.7
Female 25.6 25.4
Future improvement every 10 years 1.0 1.0
BT Group plc Annual Report & Form 20-F 117
Financial statements