RBS 2009 Annual Report Download - page 265

Financial statements
Notes on the accounts
263RBS Group Annual Report and Accounts 2009
4 Pension costs
The Group sponsors 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 under IAS 19 ‘Employee
Benefits’ were prepared to 31 December with the support of independent
actuaries, using the following assumptions:
Main scheme All schemes
Principal actuarial assumptions at 31 December 2009 2008 2007 2009 2008 2007
Weighted average
Discount rate 5.9% 6.5% 6.0% 5.7% 6.0% 5.8%
Expected return on plan assets (weighted average) 6.2% 7.1% 6.9% 5.9% 6.3% 6.8%
Rate of increase in salaries 1.8% 4.0% 4.5% 2.0% 3.4% 4.0%
Rate of increase in pensions in payment 3.5% 2.7% 3.2% 3.0% 2.4% 2.8%
Inflation assumption 3.5% 2.7% 3.2% 3.0% 2.4% 2.9%
Main scheme All schemes
Major classes of plan assets as a percentage of total plan assets 2009 2008 2007 2009 2008 2007
Equity interests 47.6% 59.4% 61.0% 41.7% 42.2% 57.8%
Index-linked bonds 23.7% 18.0% 18.2% 15.2% 11.4% 13.1%
Government fixed interest bonds — 1.2% 1.2% 19.9% 26.8% 12.9%
Corporate and other bonds 19.7% 18.5% 15.1% 14.8% 14.3% 12.0%
Property 3.5% 3.7% 3.8% 3.4% 3.9% 3.0%
Cash and other assets 5.5% (0.8%) 0.7% 5.0% 1.4% 1.2%
Ordinary shares of the company with a fair value of £4 million (2008 – £15 million; 2007 – £69 million) are held by the Group’s pension schemes;
£4 million (2008 – £15 million; 2007 – £65 million) in the Main scheme which also holds other financial instruments issued by the Group with a value of
£192 million (2008 – £421 million; 2007 – £606 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
2009 2008 2007 2009 2008 2007
Equities 7.9% 8.4% 8.1% 7.8% 8.4% 8.1%
Index-linked bonds 4.5% 3.9% 4.5% 4.5% 3.9% 4.5%
Government fixed interest bonds — 3.9% 4.5% 4.0% 4.3% 4.7%
Corporate and other bonds 5.9% 6.1% 5.5% 5.7% 5.7% 5.5%
Property 6.2% 6.1% 6.3% 6.0% 6.1% 6.3%
Cash and other assets 0.5% 2.5% 4.6% 1.4% 5.1% 4.5%
Post-retirement mortality assumptions (Main scheme) 2009 2008 2007
Longevity at age 60 for current pensioners (years):
Males 27.1 26.1 26.0
Females 29.5 26.9 26.8
Longevity at age 60 for future pensioners (years):
Males 29.2 28.1 28.1
Females 30.8 28.2 28.2
The allowance for post-retirement mortality has been updated following an analysis of recent experience of pensioners in the Main scheme.