BT 2016 Annual Report Download - page 197

203
Overview The Strategic Report Governance Financial statements Additional information
20. Retirement benefit plans continued
IAS 19 liabilities: Key assumptions
The key financial assumptions used to measure the liabilities of the BTPS under IAS 19 are shown below.
Nominal rates (per year) Real rates (per year)a
At 31 March
2016
%
2015
%
2014
%
2016
%
2015
%
2014
%
Rate used to discount liabilities 3.30 3.25 4.25 0.44 0.39 0.97
Inflation – increase in RPI 2.85 2.85 3.25 – – –
Inflation – increase in CPI 1.85b1.85b2.50c (1.0)b(1.0)b(0.75)c
a The real rate is calculated relative to RPI inflation and is shown as a comparator.
b Assumed to be 0.2% lower after 31 March 2017.
c Assumed to be 0.45% lower after 31 March 2016.
The financial assumptions vary for each plan and the BTPS represents over 97% of the group’s retirement benefit obligation. The nominal
financial assumptions weighted by liabilities across all plans are equal to the figures shown in the table above (to nearest 0.05%).
Rate used to discount liabilities
IAS 19 requires that the discount rate is determined by reference to market yields at the reporting date on high quality corporate bonds.
The currency and term of these should be consistent with the currency and estimated term of the pension obligations.
The discount rate at 31March 2016 for the BTPS is based on a market‑based AA corporate bond yield curve allowing for the future
expected benefit payments.
Inflation – increases in RPI and CPI
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 expected difference.
Long-term salary increases for BTPS members are assumed to be equal to CPI inflation whilst benefits are assumed to increase by either
RPI or CPI inflation as prescribed by the rules of the BTPS and summarised above.
Longevity
The assumptions about life expectancy have regard to information published by the UK actuarial profession’s Continuous Mortality
Investigation. 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.
Under IAS 19, the forecast life expectancies for BTPS members aged 60 are as follows:
At 31 March
2016
Number of
years
2015
Number of
years
Male in lower pay bracket 26.1 26.0
Male in medium pay bracket 27.4 27.3
Male in higher pay bracket 28.8 28.7
Female in lower pay bracket 28.8 28.7
Female in higher pay bracket 29.1 29.0
Average improvement for a member retiring at age 60 in 10 years’ time 1.0 1.0