RBS 2011 Annual Report Download - page 335

RBS Group 2011 333
4 Pensions
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 principal defined benefit
scheme is The Royal Bank of Scotland Group Pension Fund (the “Main
scheme”) which accounts for 85% (2010 - 84%; 2009 - 61%) of the
Group’s retirement benefit obligations.
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 Main scheme has been closed to new entrants who have
instead been offered membership of The Royal Bank of Scotland
Retirement Savings Plan, a defined contribution pension scheme.
Since 2009, pensionable salary increases in the Main scheme and
certain other UK and Irish schemes have been limited to 2% per annum
or CPI inflation if lower.
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 (weighted average) 2011
%
2010
%
2009
%
2011
%
2010
%
2009
%
Discount rate 5.0 5.5 5.9 5.2 5.4 5.7
Expected return on plan assets 5.7 6.7 6.8 5.6 6.3 6.1
Rate of increase in salaries 1.8 1.8 1.8 2.0 2.0 2.0
Rate of increase in pensions in payment 3.0 3.3 3.5 2.9 3.0 3.0
Inflation assumption 3.0 3.3 3.5 3.0 3.2 3.0
Main scheme All schemes
Major classes of plan assets as a percentage of total plan assets 2011
%
2010
%
2009
%
2011
%
2010
%
2009
%
Quoted equities 20.9 25.9 38.9 23.3 28.2 36.2
Private equity 5.8 5.4 5.1 4.9 4.5 3.1
Index-linked bonds 26.1 27.0 23.7 24.3 24.1 15.2
Government fixed interest bonds 0.9 — — 2.8 1.9 18.9
Corporate and other bonds 23.9 26.2 19.7 22.2 24.8 14.7
Hedge funds 2.5 3.2 3.6 2.4 3.5 3.1
Property 3.5 3.4 3.5 3.6 3.6 3.6
Derivatives 2.4 0.9 — 2.1 1.2 0.8
Cash and other assets 13.8 7.8 5.3 13.7 8.1 4.3
Equity exposure of equity futures 17.7 25.6 10.6 15.7 21.4 6.3
Cash exposure of equity futures (17.5) (25.4) (10.4) (15.0) (21.3) (6.2)
100.0 100.0 100.0 100.0 100.0 100.0
The Main scheme, which represents 84% of plan assets at 31 December 2011 (2010 - 84%; 2009 - 59%), is invested in a diversified portfolio of quoted
and private equity, government and corporate fixed-interest and index-linked bonds, and other assets including property and hedge funds.
The Main scheme also employs derivative instruments, where appropriate, to achieve a desired asset class exposure or to match assets more closely to
liabilities. The value of assets shown reflects the actual physical assets held by the scheme, with any derivative holdings valued on a mark-to-market
basis. The return on assets on the total scheme has been based on the asset exposure created allowing for the net impact of the derivatives on the risk
and return profile of the holdings.