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John Lewis Partnership plc Annual Report and Accounts 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
22 Retirement benefit obligations (continued) Specific risks include:
– Changes in future expectations of price inflation: The majority of the scheme’s benefit obligations are linked to inflation and higher inflation will lead to higher liabilities. Hence, an increase in inflation will increase the deficit.
– Changes in the discount rate used to value pension liabilities: A lower discount rate will lead to a higher present value being placed on future pension payments. Hence a reduction in discount rate will increase the deficit.
– The return on assets being lower than assumed. If the rate of growth in assets falls below the discount rate used to value the liabilities then the pension deficit will increase.
– Falls in asset values not being matched by similar falls in the value of liabilities. As the majority of assets held by the scheme are not matched to the liabilities of the scheme, a fall in plan assets will lead to an increase in the deficit.
– Unanticipated increase in life expectancy leading to an increase in the scheme’s liabilities. An increase in life expectancy would mean pensions are expected to be paid for a longer period, so increasing the liability and the scheme’s deficit. This is offset by the scheme applying a Life Expectancy Adjustment Factor, whereby future pensions coming into payment are adjusted in part to allow for increases in life expectancy.
The senior pension scheme provided additional benefits to certain members of senior management. The senior pension scheme was merged into the main scheme on 31 March 2013.
Pension commitments recognised in these accounts have been calculated based on the most recent actuarial valuation, as at 31 March 2013, which has been updated by actuaries to reflect the assets and liabilities of the scheme as at 25 January 2014, calculated on assumptions that are appropriate for accounting under IAS 19.
The Partnership is currently engaged in discussions with the Partnership Council on the level and form of future provision of pension benefits to Partners.
22.1 Financial assumptions Scheme assets are stated at market values at 25 January 2014. The following financial assumptions have been used:
2014 Discount rate
Future retail price inflation (RPI) Future consumer price inflation (CPI) Increase in earnings
Increase in pensions – in payment Increase in pensions – deferred
4.40% 3.30% 2.30% 3.80% 3.00% 2.30%
Increases in earnings are projected at 0.5% above retail price inflation, with increases in pensions in payment being 0.3% below retail price inflation, reflecting the impact of a cap on the level of pension increases, and increases in deferred pensions are projected to be in line with consumer price inflation.
The post-retirement mortality assumptions used in valuing the pensions liabilities were based on the “S1 Light” series standard tables. Based on scheme experience, the probability of death at each age was multiplied by 127% for males and 114% for females. Future improvements in life expectancy have been allowed for in line with the standard CMI model projections subject to a long term trend of 1.25%.
22.2 Demographic assumptions The average life expectancies assumed were as follows:
2014 Average life expectancy for a 60 year old (in years) Average life expectancy at age 60, for a 40 year old (in years)
Men 26.8 28.7
Women 28.9 30.9
2013
Men Women 26.2 28.5 27.6 29.9
2013
4.60% 3.20% 2.30% 3.70% 3.00% 2.30%
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