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Preliminary results for the year ended 29 January 2011

 

24 March 2011

 

Notes to the consolidated financial statements

9. Post employment benefits

    2010/11     2009/10
£ millions UK Other Total UK Other Total
Deficit in scheme at beginning of year (171) (27) (198) (40) (34) (74)
Current service cost (23) (4) (27) (19) (3) (22)
Interest on defined benefit obligations (90) (2) (92) (88) (3) (91)
Expected return on pension scheme assets 84 1 85 87 87
Actuarial gains/(losses) 134 (6) 128 (160) (5) (165)
Contributions paid by employer 45 1 46 49 17 66
Exchange differences 1 1
Deficit in scheme at end of year (21) (37) (58) (171) (27) (198)

The assumptions used in calculating the costs and obligations of the Group's defined benefit pension schemes are set by the Directors after consultation with independent professionally qualified actuaries. The assumptions are based on the conditions at the time and changes in these assumptions can lead to significant movements in the estimated obligations, as illustrated in the sensitivity analysis.

The UK scheme discount rate is based on the yield on the iBoxx over 15 year AA-rated Sterling corporate bond index adjusted for the difference in term between iBoxx and scheme liabilities. The overall expected rate of return on scheme assets reflects market expectations at the valuation date of long term asset returns and the mix of assets in the schemes.

    2010/11   2009/10
Annual % rate UK Other UK Other
Discount rate 5.6 4.4 5.5 5.3
Salary escalation 4.3 2.0 to 6.7 4.2 2.0 to 6.6
Rate of pension increases 3.5 3.4
Price inflation 3.5 2.0 3.4 2.0
Overall expected rate of return on assets 6.0 3.5 5.9 3.5

For the UK scheme, the mortality assumptions used in the actuarial valuations have been selected with regard to the characteristics and experience of the membership of the scheme from 2007 to 2010. The assumptions for life expectancy of UK scheme members are as follows:

Years 2010/11 2009/10
Age to which current pensioners are expected to live (60 now)    
– Male 86.4 87.2
– Female 87.1 85.9
Age to which future pensioners are expected to live (60 in 15 years' time)    
– Male 87.1 88.8
– Female 88.7 87.1

The following sensitivity analysis for the UK scheme shows the estimated impact on obligations resulting from changes to key actuarial assumptions, whilst holding all other assumptions constant.

Assumption Change in assumption Impact on defined benefit obligation
Discount rate Increase/decrease by 0.1% Decrease/increase by £31m
Salary escalation Increase/decrease by 0.1% Increase/decrease by £3m
Rate of pension increases Increase/decrease by 0.1% Increase/decrease by £20m
Price inflation Increase/decrease by 0.1% Increase/decrease by £31m
Mortality Increase in life expectancy by one year Increase by £45m

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