Property & pensions
The Group owns a significant property portfolio, most of which is used for trading purposes. If the Group had continued to revalue this it would have had a market value of £3.0 billion at year end (2008/09: £3.2 billion), compared to the net book value of £2.7 billion recorded in the financial statements. The values are based on valuations performed by external qualified valuers where the key assumption is the estimated yields.
The valuation exercise was performed in October 2009 with approximately one third of the portfolio valued by external professional valuers.
At the year end, the Group had a deficit of £198 million in relation to defined benefit pension arrangements of which £171 million is in relation to its UK Scheme. In 2008/09 the Group had a deficit of £74 million.
The approach used to prepare the pension valuation is in line with current market practice and international accounting standards, and has been applied consistently. This uses a number of assumptions which are likely to fluctuate in the future and so may have a significant effect on the accounting valuation of the scheme’s assets and liabilities.
The increase in the deficit was predominantly due to changes in the financial markets which drive the valuation of the pension obligation. The biggest change being a 1% decrease in the UK discount rate used which is a key assumption in valuing the pension obligation. Accounting standards require this to be set based on market yields on high quality bonds at the balance sheet date. Due to the current volatility of the bond market, there can be significant fluctuations in the yield rate.
The valuation is very sensitive to these assumptions. To aid understanding of the impact that changes to the assumptions could have on the pension obligation we have included sensitivity analysis as part of the pension disclosure in note 27. Further details of all the key assumptions are also contained within the note.