Preliminary results for the year ended 29 January 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 |
