|
vii Pension
costs
The following position for the
main pension scheme is computed in accordance with US GAAP pension accounting
rules under SFAS No. 87 and SFAS No. 88, the effect of which is shown in the
above reconciliation statements.
The
pension cost determined under SFAS No. 87 was calculated by reference to an
expected long-term rate of return on scheme assets of 7.35% (2003 – 6.9%, 2002
– 6.5%). The components of the pension cost for the main pension scheme
comprised:
| |
2004 |
|
2003 |
|
2002 |
|
| |
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
|
| Service cost |
388 |
|
453 |
|
564 |
|
| Interest cost |
1,657 |
|
1,707 |
|
1,739 |
|
| Expected return on scheme assets |
(1,646 |
) |
(1,813 |
) |
(1,863 |
) |
| Amortisation of prior service costs |
24 |
|
24 |
|
24 |
|
| Amortisation of net obligation at date of
limited application of SFAS No. 87 |
2 |
|
52 |
|
52 |
|
| Recognised gains |
378 |
|
(22 |
) |
(67 |
) |
| Additional cost of termination benefits |
1 |
|
60 |
|
140 |
|
|
|
|
|
|
|
|
| Pension cost for the year under US GAAP |
804 |
|
461 |
|
589 |
|
|
|
|
|
|
|
|
| |
The
information required to be disclosed in accordance with
SFAS No. 132 concerning the funded status of the main scheme
at 31 March 2003 and 31 March 2004, based on the valuations
at 1 January 2003 and 1 January 2004, respectively, is given
below.
| |
2004 |
|
2003 |
|
| Minimum
liability, intangible asset and other comprehensive
income |
£m |
|
£m |
|
|
|
|
|
|
| Plan assets
at fair value |
26,675 |
|
22,757 |
|
| Accumulated
benefit obligation |
31,137 |
|
28,551 |
|
|
|
|
|
|
| Minimum
liability |
4,462 |
|
5,794 |
|
| Net amount
recognised at end of year |
(2,275 |
) |
(2,497 |
) |
|
|
|
|
|
| Minimum
additional liability |
2,187 |
|
3,297 |
|
| Intangible
asset as at 31 March 2004: |
|
|
|
|
| Unrecognised
net transition obligation |
– |
|
(2 |
) |
| Unrecognised
prior service cost |
(79 |
) |
(103 |
) |
|
|
|
|
|
| Accumulated
other comprehensive income |
2,108 |
|
3,192 |
|
|
|
|
|
|
| |
|
|
|
|
| Changes
in benefit obligation |
2004 |
|
2003 |
|
| |
£m |
|
£m |
|
|
|
|
|
|
| Benefit
obligation at the beginning of the year |
30,277 |
|
29,097 |
|
| Service
cost |
388 |
|
453 |
|
| Interest
cost |
1,657 |
|
1,707 |
|
| Employees’
contributions |
148 |
|
156 |
|
| Additional
cost of termination benefits |
1 |
|
60 |
|
| Actuarial
movement |
1,428 |
|
152 |
|
| Other changes |
5 |
|
13 |
|
| Benefits
paid or payable |
(1,456 |
) |
(1,361 |
) |
|
|
|
|
|
| Benefit
obligation at the end of the year |
32,448 |
|
30,277 |
|
|
|
|
|
|
The benefit obligation and pension cost for the main pension
scheme were determined using the following assumptions at
1 January 2002, 2003 and 2004:
| |
2004 |
|
2003 |
|
2002 |
|
| |
per
annum |
|
per
annum |
|
per
annum |
|
| |
% |
|
% |
|
% |
|
|
|
|
|
|
|
|
| Discount
rate |
5.5 |
|
5.6 |
|
6.0 |
|
| Rate of
future pay increases |
3.6 |
|
3.8 |
|
4.0 |
|
| Rate of
future pension increases |
2.6 |
|
2.25 |
|
2.5 |
|
|
|
|
|
|
|
|
Contributions
expected to be paid to the plan during the next fiscal year
are estimated at £290 million.
| Changes
in scheme assets |
2004 |
|
2003 |
|
| |
£m |
|
£m |
|
|
|
|
|
|
| Fair value
of scheme assets at the beginning of the year |
22,757 |
|
26,597 |
|
| Actual return
on scheme assets |
4,195 |
|
(3,255 |
) |
| Employer’s
contributionsa |
1,026 |
|
607 |
|
| Employees’
contributions |
148 |
|
156 |
|
| Other changes |
5 |
|
13 |
|
| Benefits
paid or payable |
(1,456 |
) |
(1,361 |
) |
|
|
|
|
|
| Fair
value of scheme assets at the end of the year |
26,675 |
|
22,757 |
|
|
|
|
|
|
| |
|
|
|
|
| Funded
status under US GAAP |
2004 |
|
2003 |
|
| |
£m |
|
£m |
|
|
|
|
|
|
| Projected
benefit obligation in excess of scheme assets |
(5,773 |
) |
(7,520 |
) |
| Unrecognised
net obligation at date of initial application of SFAS
No. 87b |
– |
|
2 |
|
| Unrecognised
prior service costsc |
79 |
|
103 |
|
| Other unrecognised
net actuarial losses |
3,419 |
|
4,918 |
|
|
|
|
|
|
| Net amount
recognised under US GAAP |
(2,275 |
) |
(2,497 |
) |
|
|
|
|
|
| a
|
The employer’s
contributions for the year ended 31 March 2004 includes
special contributions of £362 million paid in December
2003 and £380 million paid in March 2004 (2003 – £329
million paid in December 2002). |
| b |
The unrecognised
net obligation at the date of initial application is
being amortised over 15 years from 1 April 1988. |
| c
|
Unrecognised
prior service costs on scheme benefit improvements
are being amortised over periods of 15 or 16 years
commencing in the years of the introduction of the
improvements.
|
Asset allocation
The
Trustees of the main pension scheme approve the target asset
allocation as well as deviation limits. The objective of
the investment activities is to maximise investment return
within an acceptable level of risk, taking into consideration
the liabilities of the main pension scheme.
| |
Year
ended 31 December 2003 |
|
|
|
| |
Fair
value |
|
|
|
Target |
|
| |
£bn |
|
% |
|
% |
|
|
|
|
|
|
|
|
| Equities |
17.1 |
|
65.0 |
|
64.75 |
|
| Fixed interest
bonds |
3.9 |
|
14.8 |
|
15.25 |
|
| Index linked
securities |
2.1 |
|
8.0 |
|
8.00 |
|
| Property |
3.2 |
|
12.2 |
|
12.00 |
|
| Cash |
– |
|
– |
|
– |
|
|
|
|
|
|
|
|
| |
26.3 |
|
100.0 |
|
100.00 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
Year
ended 31 December 2002 |
|
|
|
| |
Fair
value |
|
|
|
Target |
|
| |
£bn |
|
% |
|
% |
|
|
|
|
|
|
|
|
| Equities |
14.8 |
|
64.9 |
|
64.75 |
|
| Fixed interest
bonds |
3.4 |
|
15.0 |
|
15.25 |
|
| Index linked
securities |
1.8 |
|
7.7 |
|
8.00 |
|
| Property |
3.1 |
|
13.9 |
|
12.00 |
|
| Cash |
(0.4 |
) |
(1.5 |
) |
– |
|
|
|
|
|
|
|
|
| |
22.7 |
|
100.0 |
|
100.00 |
|
|
|
|
|
|
|
|
The assumption
for the expected return in scheme assets is a weighted average
based on an assumed expected return for each asset class
and the proportions held of each asset class at the beginning
of the year. The expected returns on bonds are based on
the gross redemption yields at the start of the year. Expected
returns on equities and property are based on a combination
of an estimate of the risk premium above, yields on government
bonds and consensus economic forecasts of future returns.
The expected return of 7.27% per annum used for the calculation
of pension costs for the year ending 31 March 2005 is consistent
with that adopted for FRS 17.
|
