BT 2014 Annual Report Download - page 160

157
Financial statements
Financial statements
19. Retirement beneƬt plans continued
Ination – increases in RPI and CPI
Salary increases are assumed to be aligned with RPI ination whilst benets are assumed to increase by either RPI or CPI ination 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 xed and index-linked
Government bonds and Bank of England published inationary expectations. CPI is assessed at a margin below RPI taking into account market
forecasts and independent estimates of the long-term dierence, such as the Oce of Budgetary Responsibility’s analysis indicating a long-term
dierence of between 1.3% to 1.5%.
Longevity
The average life expectancy assumptions, after retirement at 60 years of age, are as follows.
At 31 March
2014
Number of
years
2013
Number of
years
Male in lower pay bracket 26.0 25.9
Male in higher pay bracket 27.7 27.6
Female 28.5 28.4
Average improvement for a member retiring at age 60 in 10 years’ time 1.0 1.0
The assumptions about life expectancy have regard to information published by the UK actuarial profession’s Continuous Mortality Investigation.
However, due to the sie 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, ination, salary increases and life expectancy all have a signicant eect on the measurement of scheme
liabilities. The following table provides an indication of the sensitivity of the IAS19 (Revised 2011) pension liability at 31 March 2014, and of the
income statement charge for 2014/15, to changes in these assumptions.
Decrease
(increase) in
liability
£bn
Decrease
(increase) in
service cost
£m
Decrease
(increase) in
net interest
on pensions
decit
£m
0.25 percentage point increase to
–
discount rate1.6 10 55
– ination rate (assuming RPI, CPI and salary increases all move by 0.25 percentage points) (1.3) (10) (55)
– CPI ination rate (assuming RPI and salary increases are unchanged) (0.8) (5) (35)
– salary increases (assuming RPI and CPI are unchanged) (0.2) (5) (10)
Additional one year increase to life expectancy (1.0) (5) (40)
BTPS funding
Triennial funding valuation
The triennial valuation is carried out for the Trustee by a professionally qualied 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 sucient funds available to meet future benet payments.
The latest funding valuation was performed as at 30 June 2011. The next funding valuation will have an eective date of no later than
30 June 2014.
The valuation methodology 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 the projected unit credit method and discounted to their present value.