BT 2012 Annual Report Download - page 136

Financial statements
Notes to the consolidated financial statements
Inflation – increases in RPI and CPI
Salary increases are assumed to be aligned with RPI inflation whilst benefits are assumed to increase by either RPI or CPI inflation as prescribed by
the rules of the BTPS and summarised above. The assumption for RPI has been assessed by reference to yields on long-term fixed and index-linked
Government bonds and Bank of England published inflationary expectations. CPI is assessed at a margin below RPI taking into account market
forecasts and independent estimates of the long-run difference, such as the Office of Budgetary Responsibility’s projection of a long-term
difference of between 1.3% to 1.5%.
Longevity
The average life expectancy assumptions, after retirement at 60 years of age, are as follows:
2012 2011
Number of Number of
At 31 March years years
Male in lower pay bracket 25.8 25.3
Male in higher pay bracket 27.5 27.6
Female 28.3 28.2
Average improvement for a member retiring at age 60 in 10 years’ time 1.0 1.1
The assumptions about life expectancy have regard to information published by the UK actuarial profession’s Continuous Mortality Investigation.
However, due to the size of the membership of the BTPS it is considered appropriate for the adopted life expectancy assumptions to take into
account the actual membership experience of the scheme. Allowance is also made for future improvements in mortality. The BTPS actuary
undertakes formal reviews of the membership experience at every triennial valuation.
Sensitivity analysis of the principal assumptions used to measure BTPS liabilities
The assumptions on the discount rate, inflation, salary increases and life expectancy all have a significant effect on the measurement of scheme
liabilities. The following table provides an indication of the sensitivity of the IAS 19 pension liability at 31 March 2012, and of the income
statement charge for 2013, to changes in these assumptions:
(Decrease)
Decrease Decrease increase in
(increase) in (increase) in net finance
liability service cost income
£bn £m £m
0.25 percentage point increase to:
– discount rate 1.4 10 (5)
– inflation rate (assuming RPI, CPI and salary increases all move by 0.25 percentage points) (1.2) (10) 15
– salary increases (assuming RPI and CPI are unchanged) (0.2) (5) (10)
Additional one year increase to life expectancy (0.9) (5) (45)
0.1 percentage point increase in expected return on assets – – 35
BTPS funding
Triennial funding valuation
The triennial valuation is carried out for the 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
latest funding valuation was performed as at 30 June 2011 rather than at 31 December 2011, the latest allowable date, which enabled the
valuation to be largely completed and a lump sum deficit payment of £2.0bn to be made before 31 March 2012. The next funding valuation will
have an effective date of no later than 30 June 2014.
The valuation basis for funding purposes, which is based on prudent assumptions, is broadly as follows:
•assets are valued at market value at the valuation date; and
•liabilities are measured on an actuarial funding basis using a projected unit credit method and discounted to their present value.
20. Retirement benefit plans continued
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