BP 2014 Annual Report Download - page 141

22. Pensions and other post-retirement benefits – continued
The assumptions for the rate of increase in salaries are based on the inflation assumption plus an allowance for expected long-term real salary growth.
These include allowance for promotion-related salary growth, of up to 1.0% depending on country.
In addition to the financial assumptions, we regularly review the demographic and mortality assumptions. The mortality assumptions reflect best
practice in the countries in which we provide pensions, and have been chosen with regard to the latest available published tables adjusted where
appropriate to reflect the experience of the group and an extrapolation of past longevity improvements into the future. BP’s most substantial pension
liabilities are in the UK, the US and the Eurozone where our mortality assumptions are as follows:
Years
Mortality assumptions
2014 2013
UK
2012 2014 2013
US
2012 2014 2013
Eurozone
2012
Life expectancy at age 60 for a male currently aged 60 28.3 27.8 27.7 25.6 24.9 24.9 24.7 24.4 24.3
Life expectancy at age 60 for a male currently aged 40 30.9 30.7 30.6 27.4 26.4 26.3 27.3 26.9 26.9
Life expectancy at age 60 for a female currently aged 60 29.4 29.5 29.4 29.1 26.5 26.4 28.7 28.5 28.5
Life expectancy at age 60 for a female currently aged 40 31.8 32.2 32.1 30.9 27.3 27.3 31.1 30.7 30.6
Pension plan assets are generally held in trusts. The primary objective of the trusts is to accumulate pools of assets sufficient to meet the obligations
of the various plans. The assets of the trusts are invested in a manner consistent with fiduciary obligations and principles that reflect current practices
in portfolio management.
A significant proportion of the assets are held in equities, owing to a higher expected level of return over the long term of such assets with an
acceptable level of risk. In order to provide reasonable assurance that no single security or type of security has an unwarranted impact on the total
portfolio, the investment portfolios are highly diversified.
The current asset allocation policy for the major plans is as follows:
UK US
Asset category %%
Total equity (including private equity) 70 60
Bonds/cash 23 40
Property/real estate 7–
The group’s main pension plans do not invest directly in either securities or property/real estate of the company or of any subsidiary. Some of the
group’s pension plans use derivative financial instruments as part of their asset mix to manage the level of risk.
For the primary UK pension plan there is an agreement with the trustee to reduce the proportion of plan assets held as equities and increase the
proportion held as bonds over time, with a view to better matching of the asset portfolio with the pension liabilities. There is a similar agreement in
place in the US.
BP’s principal plans in the UK and US do not currently follow a liability driven investment approach, a form of investing designed to match the
movement in pension plan assets with the movement in projected benefit obligations over time.
Financial statements
BP Annual Report and Form 20-F 2014 137