RBS 2012 Annual Report Download - page 384

382
Notes on the consolidated accounts continued
4 Pensions continued
The Main scheme’s holdings of derivative instruments are summarised in the table below:
2012 2011 2010
Fair value Fair value Fair value
Notional
amounts Assets Liabilities
Notional
amounts Assets Liabilities
Notional
amounts Assets Liabilities
£m £m £m £m £m £m £m £m £m
Inflation rate swaps 5,474 20 335 2,585 67 178 2,132 69 8
Interest rate swaps 19,304 3,424 2,811 15,149 2,232 1,864 10,727 270 110
Total return swaps 515 6 — 2,085 169 — 466 16 —
Currency swaps 2,539 326 259 2,861 116 117 (973) — 1
Credit default swaps 709 11 12 238 6 — — — —
Equity and bond futures 2,109 16 17 3,745 80 10 4,851 49 14
Currency forwards 8,551 41 — 2,078 8 — 4,883 35 91
Equity and bond call options 963 94 — 814 67 4 — — —
Equity and bond put options 963 13 31 665 11 — — — —
The investment strategy of other schemes is similar to that of the Main
scheme, adjusted to take account of the nature of liabilities, risk appetite
of the trustees, size of the scheme and any local regulatory constraints.
The use of derivative instruments outside of the Main scheme is not
material.
Swaps are part of the management of the inflation and interest rate
sensitivity of the Main scheme liabilities. They have been executed at
prevailing market rates and within standard market bid/offer spreads. The
majority of swaps are with The Royal Bank of Scotland plc and National
Westminster Bank Plc (the “banks”). At 31 December 2012,
the gross notional value of the swaps was £28,541 million (2011 -
£22,918 million; 2010 - £12,352 million) and had a net positive fair value
of £370 million (2011 - £431 million; 2010 - £236 million) to the scheme.
Collateral is required on all swap transactions with those between the
banks and the Main scheme on terms that do not allow the banks to re-
hypothecate. The banks had delivered £521 million of collateral at 31
December 2012 (2011 - £375 million; 2010 - £210 million).
Ordinary shares of the company with a fair value of £4 million (2011 - £3
million; 2010 - £9 million) are held by the Group's Main scheme which
also holds other financial instruments issued by the Group with a value of
£610 million (2011 - £424 million; 2010 - £264 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, allowing for the net impact of derivatives on the risk and return profile:
Main scheme All schemes
2012
%
2011
%
2010
%
2012
%
2011
%
2010
%
Quoted equities 7.7 7.7 7.7 7.8 7.7 7.5
Private equity 7.7 7.7 7.7 7.7 7.7 7.7
Index-linked bonds 3.2 3.1 4.2 3.2 3.1 4.0
Government fixed interest bonds 3.2 3.1 — 2.9 2.8 2.9
Corporate and other bonds 4.2 4.7 5.5 4.2 4.7 5.2
Hedge funds 6.0 6.0 6.0 6.0 6.0 5.3
Property 6.7 6.7 6.7 6.7 6.5 6.4
Cash and other assets 2.6 2.6 4.0 2.6 2.9 3.7
Equity exposure of equity futures 7.7 7.7 7.7 7.7 7.7 7.7
Cash exposure of equity futures 2.6 2.6 4.0 2.6 2.6 4.0
Total fund 5.3 5.7 6.7 5.3 5.6 6.3
Post-retirement mortality assumptions (Main scheme) 2012 2011 2010
Longevity at age 60 for current pensioners (years)
Males 27.5 27.3 27.2
Females 29.8 29.6 29.6
Longevity at age 60 for future pensioners currently aged 40 (years)
Males 29.5 29.3 29.3
Females 31.0 30.9 30.8