Tesco 2008 Annual Report Download - page 85

Tesco PLC Annual Report and
Financial Statements 2008 83
Note 24 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering both funded defined contribution and funded and unfunded defined benefit
schemes. The most significant of these are the funded defined benefit pension schemes for the Group’s employees in the UK and the Republic of Ireland.
Defined contribution plans
The contributions payable for defined contribution schemes of £8m (2007 – £7m) have been fully expensed against profits in the current year.
Defined benefit plans
United Kingdom
The principal plan within the Group is the Tesco PLC Pension Scheme, which is a funded defined benefit pension scheme in the UK, the assets of which
are held as a segregated fund and administered by trustees. Watson Wyatt Limited, an independent actuary, carried out the latest triennial actuarial assessment
of the scheme as at 31 March 2005, using the projected unit method.
At the date of the last actuarial valuation the actuarial deficit was £153m. The market value of the schemes’ assets was £2,632m and these assets
represented 95% of the benefits that had accrued to members, after allowing for expected increases in earnings and pensions in payment.
The One Stop Senior Executive Pension Scheme is a funded defined benefit scheme open to senior executives and certain other employees at the
invitation of the Company. An independent actuary, using the projected unit method, carried out the latest actuarial assessment of the scheme as
at 5 April 2004.
Overseas
The most significant overseas scheme is the funded defined benefit pension scheme which operates in the Republic of Ireland. An independent actuary,
using the projected unit method, carried out the latest actuarial assessment of the scheme as at 1 April 2007.
The valuations used for IAS 19 have been based on the most recent actuarial valuations and updated by Watson Wyatt Limited to take account of the
requirements of IAS 19 in order to assess the liabilities of the schemes as at 23 February 2008. The schemes’ assets are stated at their market values
as at 23 February 2008. Watson Wyatt Limited have updated the most recent Republic of Ireland valuation. The liabilities relating to retirement healthcare
benefits have also been determined in accordance with IAS 19, and are incorporated in the following tables.
Principal assumptions
The valuations used have been based on the most recent actuarial valuations and updated by Watson Wyatt Limited to take account of the requirements
of IAS 19 in order to assess the liabilities of the schemes as at 23 February 2008. The major assumptions, on a weighted average basis, used by the
actuaries were as follows:
2008 2007 2006
%%%
Rate of increase in salaries 5.0 4.5 4.0
Rate of increase in pensions in payment* 3.5 3.0 2.7
Rate of increase in deferred pensions* 3.5 3.0 2.7
Rate of increase in career average benefits 3.5 3.0 2.7
Discount rate 6.4 5.2 4.8
Price inflation 3.5 3.0 2.7
* In excess of any Guaranteed Minimum Pension (GMP) element.
The main financial assumption is the real discount rate i.e. the excess of the discount rate over the rate of price inflation. If this assumption increased/
decreased by 0.1%, the UK defined benefit obligation would decrease/increase by approximately £115m and the annual UK current service cost would
decrease/increase by approximately £13m.
UK mortality assumptions
The Company conducts analysis of mortality trends under the Tesco PLC Pension Scheme in the UK as part of the triennial actuarial valuation of the
Scheme. At the latest triennial actuarial valuation as at 31 March 2005, the following assumptions were adopted for funding purposes:
Base tables:
PMA92C00 for male members with cohort improvements to 2000 and members taken to be two years older than actual age.
PFA92C00 for female members with cohort improvements to 2000 and members taken to be half a year older than actual age.
Additionally, at the 31 March 2005 valuation an allowance was built in for future mortality improvements via a 0.2% reduction to the discount rate.
These assumptions were used for the calculation of the pension liabilities as at 25 February 2006 and 24 February 2007 for the main UK scheme.
At 23 February 2008, the mortality assumptions have been strengthened. The base mortality tables detailed above have been updated in line with
medium cohort improvements from 31 March 2005 to 23 February 2008. In addition, the allowance for future mortality improvements has been
changed to incorporate medium cohort improvements in the future.