Tesco 2013 Annual Report Download - page 121

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117
Tesco PLC Annual Report and Financial Statements 2013
OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
Note 26 Post-employment benefits
Pensions
The Group operates a variety of post-employment benefit arrangements, covering both funded and unfunded defined benefit schemes and funded
defined contribution schemes. The most significant of these are the funded defined benefit pension schemes for the Group’s employees in the UK,
Republic of Ireland and South Korea.
Defined contribution plans
The contributions payable for defined contribution schemes of £19m (2012: £20m) have been recognised in the Group Income Statement.
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. Towers Watson Limited, an independent actuary, carried out the latest triennial
actuarial assessment of the scheme as at 31 March 2011, using the projected unit method.
At 31 March 2011, the actuarial deficit was £934m. The market value of the schemes’ assets was £5,587m and these assets represented 86% of the
benefits that had accrued to members, after allowing for expected increases in earnings and pensions in payment.
Overseas
The most significant overseas schemes are the funded defined benefit schemes which operate in the Republic of Ireland and South Korea.
An independent actuary, using the projected unit method, carried out the latest actuarial assessment of the Republic of Ireland scheme as at
1 April 2010 and South Korea as at 23 February 2013.
The valuations used for IAS 19 have been based on the most recent actuarial valuations and updated by Towers Watson Limited to take account of
the requirements of IAS 19 in order to assess the liabilities of the schemes as at 23 February 2013. The schemes’ assets are stated at their market
values as at 23 February 2013. Towers Watson Limited have updated the most recent Republic of Ireland and South Korea valuations. 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 major assumptions, on a weighted average basis, used by the actuaries were as follows:
2013
%
2012
%
Discount rate 5.1 5.2
Price inflation 3.3 3.1
Rate of increase in deferred pensions*2.3 2.1
Rate of increase in salaries 3.4 3.2
Rate of increase in pensions in payment*
Benefits accrued before 1 June 2012 3.1 2.9
Benefits accrued after 1 June 2012 2.3 –
Rate of increase in career average benefits
Benefits accrued before 1 June 2012 3.3 3.1
Benefits accrued after 1 June 2012 2.3 –
* In excess of any Guaranteed Minimum Pension (‘GMP’) element.
Changes were made in the year relating to any pension earned after 1 June 2012:
• the age at which a full pension is paid increased by two years and will be adjusted in the future if there are unexpected changes to life expectancy; and
• the basis for calculating the rate of increase in pensions in payment was changed to CPI (previously RPI).
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 £210m 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 2011 the following assumptions were adopted for funding purposes:
Base tables:
90% of the SAPS normal male pensioners for male staff and 80% of the SAPS all male pensioners light for male senior managers.
105% of the SAPS normal female pensioners for female staff and 90% for female senior managers.
These assumptions were used for the calculation of the pension liability as at 23 February 2013 for the main UK scheme.