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(i) Analysis of provisions | |||
|---|---|---|---|
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Notes |
2008 |
2007 |
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Retirement benefit obligations |
551 |
595 | |
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Other provisions |
|
190 |
147 |
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|
741 |
742 |
Other provisions includes £186m (2007: £147m) of future commission payments which have contingent settlement provisions. This liability has been determined using the net present value of the future commission which will be payable on fund values. This valuation technique uses assumptions which are consistent with the [Group]’s effective rate of interest, investment return assumptions and persistency assumptions used in other valuations, but it is not determined by reference to published price quotations.
The undiscounted value which is expected to be paid at maturity in respect of such commission is £229m (2007: £212m).
(ii) Retirement benefit obligations
Defined contribution plans
The Group operates the following defined contribution pension schemes in the UK and overseas:- Legal & General Group Personal Pension Plan (UK).
- Legal & General Staff Stakeholder Pension Scheme (UK).
- Legal & General America Inc. Savings Plan (US).
- Régime de Retraite Professionnel (France).
- Legal & General Nederland Stichting Pensioenfonds (Netherlands); replacing the early retirement scheme previously part of the defined benefit plan.
Contributions of £25m (2007: £21m) were charged as expenses during the year in respect of these plans.
Defined benefit plans
The Group operates the following defined benefit pension schemes in the UK and overseas:- Legal & General Group UK Pension and Assurance Fund (the Fund). The Fund was closed to new members from January 1995; last full actuarial valuation as at 31 December 2006.
- Legal & General Group UK Senior Pension Scheme (the Scheme). The Scheme was, with a few exceptions (principally transfers from the Fund), closed to new members from August 2000 and finally closed to new members from April 2007; last full actuarial valuation as at 31 December 2006.
- Legal & General America Inc. Cash Balance Plan; last full actuarial valuation as at 31 December 2007.
- Legal & General Nederland Stichting Pensioenfonds; last full actuarial valuation as at 31 December 2007.
- Régime de Retraite à Prestations Définies de Legal & General (France); last full actuarial valuation as at 31 December 2007.
The benefits paid from the defined benefit schemes are based on percentages of the employees’ final pensionable salary for each year of credited service. The Group has no liability for retirement benefits other than for pensions, except for a small scheme in France (Indemnités de Fin de Carrière), which provides lump sum benefits on retirement. The Fund and Scheme account for virtually all of the UK and over 98% of worldwide assets of the Group’s defined benefit schemes.
The principal actuarial assumptions for the UK defined benefit schemes were:
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Fund and |
Fund and | ||
|---|---|---|---|---|---|---|---|
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Rate used to discount liabilities |
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6.50 |
5.70 | |||
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Expected return on plan assets |
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6.71 |
6.67 | |||
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Rate of increase in salaries1 |
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2.30 |
4.40 | |||
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Rate of increase in pensions in payment |
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3.20 |
3.40 | |||
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Rate of increase in deferred pensions |
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3.75 |
4.40 | |||
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Rate of general inflation (RPI) |
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2.70 |
3.40 | |||
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Rate of wage inflation |
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2.30 |
4.40 | |||
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Post retirement mortality |
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– 2008 |
100% (Fund) / 85% (Scheme) of PCMA/PCFA 00 with improvement at 100% [MC] males, | ||||||
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– 2007 |
100% (Fund) / 85% (Scheme) of PCMA/PCFA 00 with improvement at 100% MC males, | ||||||
| (Download XLS:) |
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Fund and |
Overseas |
Fund and |
Overseas |
|---|---|---|---|---|
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Change in present value of defined benefit obligations |
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As at 1 January |
(1,365) |
(19) |
(1,327) |
(19) |
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Current service cost |
(17) |
(1) |
(17) |
– |
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Past service cost |
5 |
– |
– |
– |
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Interest expense |
(77) |
(1) |
(67) |
– |
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Plan participants’ contributions |
(3) |
– |
(3) |
– |
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Actuarial (loss)/gain (recognised in SORIE) |
249 |
– |
(1) |
– |
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Benefits paid |
48 |
1 |
50 |
1 |
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Exchange differences |
– |
(7) |
– |
(1) |
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As at 31 December |
(1,160) |
(27) |
(1,365) |
(19) |
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Change in fair value of plan assets |
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As at 1 January |
771 |
18 |
761 |
17 |
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Expected return on plan assets |
51 |
1 |
51 |
– |
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Actuarial (loss)/gain (recognised in SORIE) |
(222) |
(1) |
(32) |
– |
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Employer contributions |
54 |
4 |
38 |
1 |
|
Plan participants’ contributions |
3 |
– |
3 |
– |
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Benefits paid |
(48) |
(1) |
(50) |
(1) |
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Exchange differences |
– |
6 |
– |
1 |
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As at 31 December |
609 |
27 |
771 |
18 |
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Gross pension obligations included in provisions |
(551) |
– |
(594) |
(1) |
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Annuity obligations insured by Society |
411 |
– |
413 |
– |
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Gross defined benefit pension deficit |
(140) |
– |
(181) |
(1) |
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Deferred tax on defined benefit pension deficit |
39 |
– |
51 |
– |
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Net defined benefit pension deficit |
(101) |
– |
(130) |
(1) |
The total amount of actuarial gains/(losses) net of tax recognised in the [SORIE] for the year was £18m; cumulative £(117)m (2007: £(40)m; cumulative £(135)m). Actuarial gains/(losses) net of tax relating to with-profits policyholders of £8m (2007: £(16)m) have been allocated to the unallocated divisible surplus.
The historic funding and experience adjustments are as follows:
| (Download XLS:) |
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2008 |
2007 |
2006 |
2005 |
2004 |
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Present value of defined benefit obligations |
(1,187) |
(1,384) |
(1,346) |
(1,304) |
(1,106) |
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Fair value of plan assets |
636 |
789 |
778 |
722 |
603 |
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Gross pension obligations |
(551) |
(595) |
(568) |
(582) |
(503) |
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Experience adjustments on plan liabilities |
3 |
(19) |
(13) |
(9) |
(9) |
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Experience adjustments on plan assets |
(222) |
(32) |
10 |
76 |
36 |
The fair value of the plan assets and expected return at the end of the year is made up as follows:
| (Download XLS:) |
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As at 31 December 2008 |
UK |
Expected |
Overseas |
Expected |
|---|---|---|---|---|
|
Equities |
293 |
7.0 |
5 |
8.3 |
|
Bonds |
280 |
6.5 |
18 |
4.1 |
|
Properties |
36 |
6.0 |
– |
– |
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Other investments |
– |
– |
4 |
2.3 |
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|
609 |
|
27 |
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As at 31 December 2007 |
UK |
Expected |
Overseas |
Expected |
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Equities |
396 |
7.5 |
5 |
8.5 |
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Bonds |
330 |
5.7 |
10 |
4.8 |
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Properties |
45 |
6.5 |
– |
– |
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Other investments |
– |
– |
3 |
3.7 |
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|
771 |
|
18 |
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The average credit rating of the bond portfolio is AA (2007: AA).
The expected rate of return for bonds is based on the current yield on a medium to long term AA bond index. The expected rates of return on equities and properties are based on margins over bond yields reflecting risk premiums. The return on plan assets in 2008 was £(173)m (2007: £19m).
Employer contributions increased to £58m (2007: £39m) including a pension deficit reduction payment of £39m (2007: £22m). Employer contributions of £70m are expected to be paid to the plan during 2009.
The following amounts have been charged/(credited) to the income statement:
| (Download XLS:) |
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2008 |
2007 |
|---|---|---|
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Current service costs |
18 |
17 |
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Interest expense |
78 |
67 |
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Expected return on plan assets |
(52) |
(51) |
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Total included in other expenses |
44 |
33 |