RBS 2008 Annual Report Download - page 193

Notes on the accounts continued
RBS Group Annual Report and Accounts 2008192
4 Pension costs
Members of the Group sponsor a number of pension schemes in the
UK and overseas, predominantly defined benefit schemes, whose
assets are independent of the Group’s finances. The Group’s defined
benefit schemes generally provide a pension of one-sixtieth of final
pensionable salary for each year of service prior to retirement up to a
maximum of 40 years. Employees do not make contributions for basic
pensions but may make voluntary contributions to secure additional
benefits on a money-purchase basis. Since October 2006 The Royal
Bank of Scotland Group Pension Fund (‘Main scheme’) has been closed
to new entrants.
The Group also provides post-retirement benefits other than pensions,
principally through subscriptions to private healthcare schemes in the
UK and the US and unfunded post-retirement benefit plans. Provision
for the costs of these benefits is charged to the income statement over
the average remaining future service lives of eligible employees. The
amounts are not material.
Interim valuations of the Group’s schemes were prepared to 31 December
by independent actuaries, using the following assumptions:
Main scheme All schemes
Principal actuarial assumptions at 31 December 2008 2007 2006 2008 2007 2006
Weighted average
Discount rate 6.5% 6.0% 5.3% 6.0% 5.8% 5.3%
Expected return on plan assets (weighted average) 7.1% 6.9% 6.9% 6.3% 6.8% 6.9%
Rate of increase in salaries* 4.0% 4.5% 4.2% 3.4% 4.0% 4.1%
Rate of increase in pensions in payment 2.7% 3.2% 2.9% 2.4% 2.8% 2.8%
Inflation assumption 2.7% 3.2% 2.9% 2.4% 2.9% 2.9%
* Rate of increase in salaries in the Main Scheme assumed to be 2.0% over the next two years.
Main scheme All schemes
Major classes of plan assets as a percentage of total plan assets 2008 2007 2006 2008 2007 2006
Equities 59.4% 61.0% 60.5% 42.2% 57.8% 60.7%
Index-linked bonds 18.0% 18.2% 17.3% 11.4% 13.1% 16.1%
Government fixed interest bonds 1.2% 1.2% 2.5% 26.8% 12.9% 3.3%
Corporate and other bonds 18.5% 15.1% 14.0% 14.3% 12.0% 13.9%
Property 3.7% 3.8% 4.3% 3.9% 3.0% 4.5%
Cash and other assets (0.8%) 0.7% 1.4% 1.4% 1.2% 1.5%
Ordinary shares of the company with a fair value of £15 million (2007 – £69 million; 2006 – £89 million) are held by the Group’s pension schemes;
£15 million (2007 – £65 million; 2006 – £87 million) in the Main scheme which also holds other financial instruments issued by the Group with a value
of £421 million (2007 – £606 million; 2006 – £258 million).
The expected return on plan assets at 31 December is based upon the weighted average of the following assumed returns on the major classes of
plan assets:
Main scheme All schemes
2008 2007 2006 2008 2007 2006
Equities 8.4% 8.1% 8.1% 8.4% 8.1% 8.1%
Index-linked bonds 3.9% 4.5% 4.5% 3.9% 4.5% 4.5%
Government fixed interest bonds 3.9% 4.5% 4.5% 4.3% 4.7% 4.5%
Corporate and other bonds 6.1% 5.5% 5.3% 5.7% 5.5% 5.3%
Property 6.1% 6.3% 6.3% 6.1% 6.3% 6.3%
Cash and other assets 2.5% 4.6% 4.6% 5.1% 4.5% 4.4%
Post-retirement mortality assumptions (Main scheme) 2008 2007 2006
Longevity at age 60 for current pensioners (years):
Males 26.1 26.0 26.0
Females 26.9 26.8 28.9
Longevity at age 60 for future pensioners (years):
Males 28.1 28.1 26.8
Females 28.2 28.2 29.7