John Lewis Partnership plc annual report and accounts 2012

Notes to the accounts continued

24 Retirement benefit obligations (continued)

Scheme assets are stated at market values at 28 January 2012. The following financial assumptions have been used:

Graph showing financial assumptions

2012 | 2011 

Future retail price inflation 2.80% |  3.35%
Future consumer price inflation 2.00% | 2.65%
Discount rate 4.95% | 5.65%
Expected return on assets 7.60% | 7.70%
Increases in earnings 3.30% | 3.85%
Increases in pensions – in payment 2.60% | 3.15%
Increases in pensions – deferred 2.00% | 2.65%

The expected return on assets is a weighted average of the individual asset categories and their expected rates of return, which are determined by consideration of historical experience and current market factors. Increases in earnings are projected at 0.5% above retail price inflation, with increases in pensions in payment being 0.2% below retail price inflation, reflecting the impact of a cap on the level of pension increases, and increase in deferred pensions being in line with consumer price inflation.

The financial assumption which has the most significant effect on the valuation of scheme liabilities and the current service cost is the real discount rate, i.e. the discount rate less the rate of future retail price inflation. A movement in the real discount rate of 0.10% would have the effect of increasing or decreasing the IAS 19 defined benefit obligation by circa £50m, and would increase or decrease the current service cost by circa £3.0m.

The post-retirement mortality assumptions used in valuing the pensions liabilities were based on the “S1 Light” series standard tables for all retirements, together with medium cohort improvement factors, and reflecting anticipated future improvements in mortality rates.

The average life expectancies assumed were as follows: 

Graph showing average life expectancies

Men (2012) | Women (2012) | Men (2011) | Women (2011)

Average life expectancy (in years) for a 60-year-old 26.2 | 28.4 | 26.1 | 28.2
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Average life expectancy (in years) at age 60, for a 40-year-old 27.5 | 29.8 | 27.3 | 29.7
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Amounts recognised in the balance sheet | 2012 (£m) | 2011 (£m) | 2010 (£m) | 2009 (£m) | 2008 (£m)

Defined benefit obligation for funded arrangements (3,164.0) | (2,869.0) | (2,824.0) | (2,334.0) | (2,397.0)
Defined benefit obligation for unfunded arrangements (11.0) | (11.0) | (29.0) | (18.0) | (16.0)
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Total defined benefit obligation (3,175.0) | (2,880.0) | (2,853.0) | (2,352.0) | (2,413.0)
Total value of assets 2,536.9 | 2,466.0 | 1,948.4 | 1,622.0 | 1,859.0
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Defined benefit liability at end of year (638.1) | (414.0) | (904.6) | (730.0) | (554.0)

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