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Notes to the Group financial statements
Note 26 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering both funded defined contribution and funded and unfunded defined
benefit schemes. The most significant of these are the funded defined benefit pension schemes for the Group’s employees in the UK, the Republic of
Ireland and South Korea.
Defined contribution plans
The contributions payable for defined contribution schemes of £20m (2011: £14m) have been recognised in the Group Income Statement.
Defined benefit plans
UK
The principal plan within the Group is the Tesco PLC Pension Scheme, which is a funded defined benefit pension scheme in the UK, the assets of which
are held as a segregated fund and administered by trustees. Towers Watson Limited, an independent actuary, carried out the latest triennial actuarial
assessment of the scheme as at 31 March 2008, using the projected unit method.
At 31 March 2008, the actuarial deficit was £275m. The market value of the schemes’ assets was £3,987m and these assets represented 94% of the
benefits that had accrued to members, after allowing for expected increases in earnings and pensions in payment. The actuarial assessment as at
31March 2011 has started and the results will be finalised by June 2012. The Group is currently in consultation with staff and trustees regarding
proposed changes to the scheme.
Overseas
The most significant overseas schemes are the funded defined benefit schemes which operate in the Republic of Ireland and South Korea. An
independent actuary, using the projected unit method, carried out the latest actuarial assessment of the Republic of Ireland scheme as at 1 April 2010
and South Korea as at 25 February 2012.
The valuations used for IAS 19 have been based on the most recent actuarial valuations and updated by Towers Watson Limited to take account
of the requirements of IAS 19 in order to assess the liabilities of the schemes as at 25 February 2012. The schemes’ assets are stated at their market
values as at 25 February 2012. Towers Watson Limited have updated the most recent Republic of Ireland and South Korea valuations. The liabilities
relating to retirement healthcare benefits have also been determined in accordance with IAS 19 and are incorporated in the following tables.
Principal assumptions
The major assumptions, on a weighted average basis, used by the actuaries were as detailed below:
2012
%
2011
%
Discount rate 5.2 5.9
Price inflation 3.1 3.5
Rate of increase in salaries 3.2 3.6
Rate of increase in pensions in payment* 2.9 3.3
Rate of increase in deferred pensions* 2.1 2.8
Rate of increase in career average benefits 3.1 3.5
* In excess of any Guaranteed Minimum Pension (GMP) element.
The main financial assumption is the real discount rate (the excess of the discount rate over the rate of price inflation). If this assumption increased/
decreased by 0.1%, the UK defined benefit obligation would decrease/increase by approximately £170m and the annual UK current service cost would
decrease/increase by approximately £14m.
UK mortality assumptions
The Company conducts analysis of mortality trends under the Tesco PLC Pension Scheme in the UK as part of the triennial actuarial valuation
of the Scheme. At the latest triennial actuarial valuation as at 31 March 2008 the following assumptions were adopted for funding purposes:
Base tables:
PMA92C00 for male members with cohort improvements to 2000 and members taken to be one year younger than actual age.
PFA92C00 for female members with cohort improvements to 2000 and members taken to be half a year older than actual age.
These assumptions were used for the calculation of the pension liability as at 25 February 2012 for the main UK scheme.
The mortality assumptions used are based on tables that have been updated in line with medium cohort projections with a minimum improvement
of 1% per annum from 31 March 2008 to 25 February 2012. In addition, the allowance for future mortality improvements incorporates medium cohort
projections with a minimum improvement of 1% per annum.
The following table illustrates the expectation of life of an average member retiring at age 65 at the balance sheet date and a member reaching age 65
at the same date +25 years:
2012
years
2011
years
Retiring at reporting date at age 65: Male 21.8 21.7
Female 23.6 23.5
Retiring at reporting date +25 years at age 65: Male 24.2 24.1
Female 26.1 26.0
134 Tesco PLC Annual Report and Financial Statements 2012