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Notesonnancialstatements
Financial statements
38.Pensionsandotherpost-retirementbenetscontinued
Ourassumptionsfortherateofincreaseinsalariesarebasedonourinationassumptionplusanallowanceforexpectedlong-termrealsalarygrowth.
Theseincludeallowanceforpromotion-relatedsalarygrowth,ofbetween0.3%and0.4%dependingoncountry.Inadditiontothenancialassumptions,
weregularlyreviewthedemographicandmortalityassumptions.
Themortalityassumptionsreectbestpracticeinthecountriesinwhichweprovidepensions,andhavebeenchosenwithregardtothelatest
availablepublishedtablesadjustedwhereappropriatetoreecttheexperienceofthegroupandanextrapolationofpastlongevityimprovementsintothe
future.BP’smostsubstantialpensionliabilitiesareintheUK,theUSandGermanywhereourmortalityassumptionsareasfollows:
Years
Mortalityassumptions UK US Germany
2010 2009 2008 2010 2009 2008 2010 2009 2008
Lifeexpectancyatage60fora
malecurrentlyaged60 26.1 26.0 25.9 24.7 24.6 24.4 23.3 23.2 23.0
Lifeexpectancyatage60fora
malecurrentlyaged40 29.1 29.0 28.9 26.2 26.1 25.9 26.2 26.1 25.9
Lifeexpectancyatage60fora
femalecurrentlyaged60 28.7 28.6 28.5 26.3 26.3 26.1 27.9 27.8 27.6
Lifeexpectancyatage60fora
femalecurrentlyaged40 31.6 31.5 31.4 27.2 27.2 27.0 30.6 30.4 30.3
OurassumptionforfutureUShealthcarecosttrendratefortherstyearafterthereportingdatereectstherateofactualcostincreasesseeninrecent
years.Theultimatetrendratereectsourlong-termexpectationsofthelevelatwhichcostinationwillstabilizebasedonpasthealthcarecostination
seenoveralongerperiodoftime.TheassumedfutureUShealthcarecosttrendrateassumptionsareasfollows:
%
2010 2009 2008
Firstyear’sUShealthcarecosttrendrate 7.8 8.0 8.1
UltimateUShealthcarecosttrendrate 5.0 5.0 5.0
Yearinwhichultimatetrendrateisreached 2018 2016 2014
Pensionplanassetsaregenerallyheldintrusts.Theprimaryobjectiveofthetrustsistoaccumulatepoolsofassetssufcienttomeettheobligationsof
thevariousplans.Theassetsofthetrustsareinvestedinamannerconsistentwithduciaryobligationsandprinciplesthatreectcurrentpracticesin
portfoliomanagement.
Asignicantproportionoftheassetsareheldinequities,owingtoahigherexpectedlevelofreturnoverthelongtermwithanacceptablelevelof
risk.Inordertoprovidereasonableassurancethatnosinglesecurityortypeofsecurityhasanunwarrantedimpactonthetotalportfolio,theinvestment
portfoliosarehighlydiversied.Thelong-termassetallocationpolicyforthemajorplansisasfollows:
Policyrange
Assetcategory %
Totalequity 45-75
Bonds/cash 17.5-50
Property/realestate 0-10
Someofthegroup’spensionplansusederivativenancialinstrumentsaspartoftheirassetmixandtomanagethelevelofrisk.Thegroup’smainpension
plansdonotinvestdirectlyineithersecuritiesorproperty/realestateofthecompanyorofanysubsidiary.
Returnonassetassumptionsreectthegroup’sexpectationsbuiltupbyassetclassandbyplan.Thegroup’sexpectationisderivedfroma
combinationofhistoricalreturnsoverthelongtermandtheforecastsofmarketprofessionals.Ourassumptionforreturnonequitiesisbasedona
long-termview,andthesizeoftheresultingequityriskpremiumovergovernmentbondyieldsisreviewedeachyearforreasonableness.Ourassumption
forreturnonbondsreectstheportfoliomixofgovernmentxed-interest,index-linkedandcorporatebonds.
BPAnnualReportandForm20-F2010 203