BP 2015 Annual Report Download - page 146

23. Pensions and other post-retirement benefits – continued
A significant proportion of the assets are held in equities, which are expected to generate a higher level of return over the long term, 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.
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 the asset portfolio with the pension liabilities. There is a similar agreement in place
in the US. During 2015, the UK and the US plans switched 8% and 5% respectively from equities to bonds.
In 2015, BP’s primary plan in the UK adopted a more formal liability driven investment (LDI) approach for part of the portfolio, a form of investing
designed to match the movement in pension plan assets with the impact of interest rate changes and inflation assumption changes on the projected
benefit obligation.
The current asset allocation policy for the major plans at 31 December 2015 was as follows:
UK US
Asset category %%
Total equity (including private equity) 62 55
Bonds/cash (including LDI) 31 45
Property/real estate 7–
The amounts invested under the LDI programme as at 31 December 2015 were $329 million of government-issued nominal bonds and $6,421 million
of index-linked bonds. This is partly funded by short-term sale and repurchase agreements, proceeds from which are shown separately in the table
below.
In addition, the primary UK plan entered into interest rate swaps in the year to offset the long-term fixed interest rate exposure for $2,651 million of the
corporate bond portfolio. The $17 million fair value of the swaps as at 31 December 2015 is included in other assets in the table below.
Some of the group’s pension plans in other countries also use derivative financial instruments as part of their asset mix to manage the level of risk.
The group’s main pension plans do not invest directly in either securities or property/real estate of the company or of any subsidiary.
The fair values of the various categories of assets held by the defined benefit plans at 31 December are presented in the table below, including the
effects of derivative financial instruments. Movements in the fair value of plan assets during the year are shown in detail in the table on page 143.
$ million
UKaUSbEurozone Other Total
Fair value of pension plan assets
At 31 December 2015
Listed equities – developed markets 13,474 2,329 423 371 16,597
– emerging markets 2,305 226 49 50 2,630
Private equity 2,933 1,522 1 4 4,460
Government issued nominal bonds 393 1,527 685 492 3,097
Government issued index-linked bonds 6,425 – 5 – 6,430
Corporate bonds 4,357 1,717 551 367 6,992
Property 2,453 6 48 58 2,565
Cash 564 116 10 139 829
Other 110 67 102 50 329
Debt (repurchase agreements) used to fund liability driven investments (1,791) – – – (1,791)
31,223 7,510 1,874 1,531 42,138
At 31 December 2014
Listed equities – developed markets 16,190 3,026 415 420 20,051
– emerging markets 2,719 293 45 47 3,104
Private equity 2,983 1,571 2 26 4,582
Government issued nominal bonds 642 1,535 753 604 3,534
Government issued index-linked bonds 892 – 9 – 901
Corporate bonds 4,687 1,726 541 340 7,294
Property 2,403 7 51 69 2,530
Cash 1,145 134 85 191 1,555
Other 112 63 72 38 285
31,773 8,355 1,973 1,735 43,836
At 31 December 2013
Listed equities – developed markets 17,341 3,260 414 499 21,514
– emerging markets 2,290 308 32 52 2,682
Private equity 2,907 1,432 2 4 4,345
Government issued nominal bonds 549 1,259 717 541 3,066
Government issued index-linked bonds 787 – 12 57 856
Corporate bonds 4,427 1,323 597 385 6,732
Property 2,200 6 57 77 2,340
Cash 855 135 120 158 1,268
Other 160 55 64 49 328
31,516 7,778 2,015 1,822 43,131
aBonds held by the UK pension plans are all denominated in sterling. Property held by the UK pension plans is in the United Kingdom.
bBonds held by the US pension plans are denominated in US dollars.
142 BP Annual Report and Form 20-F 2015