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106
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
11 RETIREMENT BENEFITS CONTINUED
C. Demographic assumptions
Apart from post-retirement mortality, the demographic assumptions are in line with those adopted for the last formal actuarial valuation of
the scheme performed as at 31 March 2012. The post-retirement mortality assumptions are based on an analysis of the pensioner mortality
trends under the scheme for the period to March 2012 updated to allow for anticipated longevity improvements over the subsequent
years. The specifi c mortality rates used are based on the VITA lite tables, adjusted to allow for the experience of scheme pensioners.
The life expectancies underlying the valuation are as follows:
2015 2014
Current pensioners (at age 65) – males 22.7 22.4
– females 24.4 24.1
Future pensioners (at age 65) – males 22.4 21.8
– females 25.1 24.6
Deferred pensioners (at age 65) – males 23.2 22.6
– females 26.0 25.4
D. Sensitivity analysis
The table below summarises the estimated impact of changes in the principal actuarial assumptions on the pension scheme surplus:
2015
£m
2014
£m
(Decrease)/increase in scheme surplus caused by an increase in the discount rate of 0.25% (last year 0.5%) (70.0) 50.0
Increase/(decrease) in scheme surplus caused by an increase in the infl ation rate of 0.25% 30.0 (50.0)
Increase in scheme surplus caused by a decrease in the average life expectancy of one year 330.0 230.0
The sensitivity analysis above is based on a change in one assumption while holding all others constant. Therefore interdependencies
between the assumptions have not been taken into account within the analysis.
E . Ana lys is of assets
The investment strategy of the UK defi ned benefi t pension scheme is driven by its liability profi le, in particular its infl ation-linked pension
benefi ts. In addition to its interest in the Scottish Limited Partnership (refer to note 12), the scheme invests in di erent types of bonds
(including corporate bonds and gilts) and derivative instruments (including infl ation, interest rate, cross-currency and total return swaps) in
order to align movements in the value of its assets with movements in its liabilities arising from changes in market conditions. Broadly the
scheme has hedging that covers 90% of interest rate movements and 85% of infl ation movements, as measured on the Trustee’s funding
assumptions which use a discount rate derived from gilt yields.
The fair value of the plan assets at the end of the reporting period for each category are as follows:
2015
£m
2014
£m
Debt investments
– government 4,180.0 2,319.0
– corporate bonds 1,211.0 1,255.7
– asset backed securities and structured debt 363.9 232.0
Scottish Limited Partnership interest (see note 12) 531.3 574.7
Equity investments – quoted 1,131.8 998.1
Equity investments – unquoted 178.0 11 0 . 1
Property 327.1 278.6
Derivatives
– interest and infl ation rate swap contracts (127.5) 51.3
– foreign exchange contracts and other derivatives 190.9 123. 3
Hedge and reinsurance funds 313.6 329.8
Cash and cash equivalents 306.2 444.1
Other (9.8) 12.7
8,596.5 6,729.4
The fair values of the above equity and debt investments are determined based on publicly available market prices wherever available.
Unquoted investments, hedge funds and reinsurance funds are stated at fair value estimates provided by the manager of the investment
or fund. Property includes both quoted and unquoted investments. The market value of the Scottish Limited Partnership interest is based
on the expected cash fl ows and benchmark asset-backed credit spreads. It is the policy of the Scheme to hedge a proportion of interest rate
and infl ation risk. The Scheme reduces its foreign currency exposure using forward foreign exchange contracts.
At year end, the UK scheme indirectly held 199,032 (last year 199,523) ordinary shares in the Company through its investment in UK Equity
Index Funds.