ANNUAL REPORT AND FINANCIAL STATEMENTS 2011 | 85
25. Pension benefits continued
(iii) Cost of annuities The table below summarises the cost of providing annuities of £1 per annum (with associated death benefits and pension increases) for UK members currently aged 40, retiring at age 60, based on the assumptions used for the pension disclosures:
31 December 31 December 2011 £
2010 £
Male annuity Female annuity
27.50 26.70
25.60 25.00
These rates assume a monthly payments model with a discount rate of 4.70% (2010: 5.30%). The rates also assume two-thirds of the members’ benefit will be paid to the spouse; a five-year guarantee is provided; and pensions in excess of Guaranteed Minimum Pension will increase by 3.20% (2010: 3.35%) per annum.
(iv) Discount and growth assumptions The range of assumptions used to determine benefit obligations are as follows:
31 December 2011
Discount rate
Rate of salary increase Rate of price inflation (CPI) Rate of inflation increase (RPI)
4.70%– 5.20% 2.00%– 4.00% 2.60%
2.00%– 3.30%
The range of assumptions used to determine net pension cost for the year are as follows: 2011
Discount rate
Weighted average expected long-term return on plan assets Rate of salary increase
Rate of inflation increase (RPI) 5.30%
4.91%– 6.04% 2.00%– 4.00% 2.00%– 3.50%
31 December 2010
5.30%
2.00% – 4.00% 3.50%
2.00% – 3.50% 2010
5.50% – 5.70% 4.91% – 6.00% 2.00% – 4.00% 2.00% – 3.60%
(v) Sensitivities An estimate of the sensitivities regarding the principal assumptions used to measure the schemes’ liabilities are set out below:
Assumption Inflation
Salaries Pensions
Discount rate Life expectancy
Change in assumption
Increase/decrease by 0.1% Increase/decrease by 0.1% Increase/decrease by 0.1% Increase/decrease by 0.1% Increase/decrease by 1 year
(c) Profile of schemes’ membership The profile of the current membership of defined benefit arrangements in the Group is as follows:
31 December 2011 %of total
Active members Deferred members Pensioners
membership 16%
71% 13%
100% The profile of the liabilities of defined benefit arrangements throughout the Group is as follows:
2011 £m
Active members Deferred members Pensioners
Benefit obligations at 31 December 52.6
112.3 71.5
236.4
2010 £m
52.7
105.0 60.3
218.0 Average
44 44 66
31 December 2010 % of total
age membership 17%
70% 13%
100%
Average age
44 44 66
Estimated impact on scheme liabilities Increase/decrease by 1.7%
Increase/decrease by 0.1% Increase/decrease by 1.3% Decrease/increase by 2.2% Increase/decrease by 2.5%
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