BT 2011 Annual Report Download - page 137

134
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. Retirement benefit plans continued
Actuarial gain (loss) arising from experience adjustments on defined benefit liabilities represents the impact on the liabilities of differences
between actual experience during the year compared to the assumptions made. Such differences might arise, for example, from actual
salary increases being different from those assumed, or members choosing different benefit options at retirement.
Actuarial gain (loss) arising from experience adjustment on plan assets represents the difference between the actual investment
performance in the year and expected rate of return on assets assumed at the start of the year.
BTPS funding valuation and future funding obligations
A triennial valuation is carried out for the independent Trustee 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 the scheme has sufficient funds available to meet
future benefit payments. The funding valuation is based on prudent assumptions and is performed at 31 December as this is the financial
year end of the scheme.
The valuation basis for funding purposes is broadly as follows:
•assets are valued at market value at the valuation date; and
•liabilities are measured using a projected unit credit method and discounted to their present value.
The last two triennial valuations were determined using the following long-term assumptions:
Nominal rates (per annum) Real rates (per annum)
2008 2005 2008 2005
valuation valuation valuation valuation
%%%%
Discount rate
Pre retirement liabilities 6.76 5.84 3.65 3.06
Post retirement liabilities 5.21 4.54 2.15 1.79
Average long-term increase in retail price index 3.00 2.70 – –
Average future increases in wages and salaries 3.00 3.47 – 0.75
Average increase in pensions 3.00 2.70 – –
The results of the two most recent triennial valuations based upon these prudent actuarial assumptions were:
2008 2005
valuation valuation
At 31 December £bn £bn
BTPS liabilities (40.2) (37.8)
Market value of BTPS assets 31.2 34.4
Funding deficit (9.0) (3.4)
Percentage of accrued benefits covered by BTPS assets at valuation date 77.6% 90.9%
Percentage of members benefits that the BTPS assets could purchase from an insurance company at the valuation date 57.0% 70.0%
In the three years ended 31 December 2008, the decline in the market value of assets combined with longer life expectancy assumptions
significantly increased the funding deficit, although the impact on the liabilities was reduced by the higher discount rate and favourable
experience compared to other actuarial assumptions used at 31 December 2005.
The outcome of the 2008 valuation was announced in February 2010, together with the agreement between BT and the Trustee of the BTPS
to a recovery plan to make good the £9.0bn funding deficit over 17 years. The agreement also determined that the ordinary contributions
rate required to meet the benefits of current employed members for service after the valuation date reduce to 13.6% of pensionable salaries
(including employee contributions) from 19.5%, reflecting the implementation of benefit changes with effect from 1 April 2009.
The group made the first two payments of £525m each in December 2009 and 2010, respectively, under the 17-year recovery plan and in
March 2011 paid £505m representing the actuarial value of the £525m payment due to have been made in December 2011. The remaining
payments are scheduled to be paid as follows:
Year ended 31 December £m
2011 –
2012 583
2013-25 Increasing at 3% pa
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