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105
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
OUR BUSINESSOUR PERFORMANCE
GOVERNANCEFINANCIAL STATEMENTS
11 RETIREMENT BENEFITS CONTINUED
Within the total Group retirement benefi t cost of £74.9m (last year £53.5m), £33.7m (last year £27.0m) relates to the UK defi ned benefi t
scheme, £36.4m (last year £39.2m) to the UK defi ned contribution scheme and £4.8m (last year £12.7m) to other retirement benefi t schemes.
The most recent actuarial valuation of the UK Defi ned Benefi t Pension Scheme was carried out at 31 March 2012 and showed a defi cit of
£290m. As a result, a funding plan of £112m cash contributions was agreed with the Trustees. The Group contributed payments of £28m to
the UK defi ned benefi t scheme in March 2014 and March 2015 in the current fi nancial year, and expects to contribute an additional £28m
each year until March 2017. The di erence between the valuation and the funding plan is expected to be met by better than expected
investment returns on the scheme’s assets. Future contributions to meet the cost of accruing benefi ts to the UK scheme are made at
the rate of 23.4% of pensionable salaries up to the next full actuarial valuation.
By funding its defi ned benefi t pension schemes, the Group is exposed to the risk that the cost of meeting its obligations is higher than
anticipated. This could occur for several reasons, for example:
> Investment returns on the schemes’ assets may be lower than anticipated, especially if falls in asset values are not matched by similar
falls in the value of the schemes’ liabilities.
> The level of price infl ation may be higher than that assumed, resulting in higher payments from the schemes.
> Scheme members may live longer than assumed, for example due to unanticipated advances in medical healthcare. Members may
also exercise (or not exercise) options in a way that leads to increases in the schemes’ liabilities, for example through early retirement
or commutation of pension for cash.
> Legislative changes could also lead to an increase in the schemes’ liabilities.
In addition, the Group has an obligation to the UK defi ned benefi t scheme via the interest in the Scottish Limited Partnership (refer to
note 12), through which the Group is exposed to additional risks. In particular, under the legal terms of the Partnership, a default by the
Group on the rental payments to the Partnership or a future change in legislation could trigger earlier or higher payments, or an increase
in the collateral to be provided by the Group.
A. Pensions and other post-retirement liabilities
2015
£m
2014
£m
Total market value of assets 8,596.5 6,729.4
Present value of scheme liabilities (8,135.8) (6,528.7)
Net funded pension plan asset 460.7 200.7
Unfunded retirement benefi ts (0.7) (0.7)
Post-retirement healthcare (11.0) (11.0)
Net retirement benefi t asset 449.0 189.0
Analysed in the statement of fi nancial position as:
Retirement benefi t asset 460.7 200.7
Retirement benefi t defi cit (11.7) (11.7)
449.0 189.0
The asset recognised for the UK Defi ned Benefi t Scheme is based on the assumption that the full surplus will ultimately be available to the
Group as a future refund of surplus.
B. Financial assumptions
The fi nancial assumptions for the UK scheme and the most recent actuarial valuations of the other post-retirement schemes have been
updated by independent qualifi ed actuaries to take account of the requirements of IAS 19 ‘Employee Benefi ts’ in order to assess the
liabilities of the schemes and are as follows:
2015
%
2014
%
Rate of increase in salaries 1.0 1.0
Rate of increase in pensions in payment for service 1.9–3.0 2.2–3.3
Discount rate 3.10 4.45
Infl ation rate 3.1 3.4
Long-term healthcare cost increases 7.1 7. 4
The infl ation rate of 3.1% refl ects the Retail Price Index (RPI) rate. Certain benefi ts have been calculated with reference to the Consumer Price
Index (CPI) as the infl ationary measure and in these instances a rate of 2.1% (last year 2.4%) has been used.