36 Provisions.


(i) Analysis of provisions

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Note

2010
£m

2009
£m

1.

Retirement benefit obligations are presented gross of £514m of annuity obligations insured by Society (2009: £465m).

Retirement benefit obligations1

(ii)

748

746

Other provisions

 

13

11

 

 

761

757

(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).
  • Legal & General International (Ireland) Limited Retirement Solution Plan (Ireland).

Contributions of £35m (2009: £34m) were charged as expenses during the year in respect of defined contribution 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 2009.
  • 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 2009.
  • Legal & General America Inc. Cash Balance Plan; last full actuarial valuation as at 31 December 2009.
  • Legal & General Nederland Stichting Pensioenfonds; last full actuarial valuation as at 31 December 2010.
  • Régime de Retraite à Prestations Définies de Legal & General (France); last full actuarial valuation as at 31 December 2010.

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 all of the UK and over 97% 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
Scheme
2010
%

Fund and
Scheme
2009
%

1.

On 1 December 2008, the conditions of the Fund and Scheme were amended to cap future pensionable salary increases at a maximum of 2.5% each year with effect from 1 January 2009.

Rate used to discount liabilities

5.50

5.70

Expected return on plan assets

5.98

6.37

Rate of increase in salaries1

2.30

2.30

Rate of increase in pensions in payment

3.50

3.60

Rate of increase in deferred pensions

4.10

4.30

Rate of general inflation (RPI)

3.40

3.60

Rate of wage inflation

2.30

2.30

Post retirement mortality

 

 

– 2010: 100% (Fund) / 85% (Scheme) of PCMA/PCFA 00 with improvement at 100% MC males, 75% MC females, minimum improvement 1.5% pa males and 1.0% pa females, with tapering of minimum improvement rate linearly down to nil between ages 90 and 120.

– 2009: 100% (Fund) / 85% (Scheme) of PCMA/PCFA 00 with improvement at 100% MC males, 75% MC females, minimum improvement 1.5% pa males and 1.0% pa females, with tapering of minimum improvement rate linearly down to nil between ages 90 and 120.

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Fund and
Scheme
2010
£m

Overseas
2010
£m

Fund and
Scheme
2009
£m

Overseas
2009
£m

Movement in present value of defined benefit obligations

 

 

 

 

As at 1 January

(1,446)

(28)

(1,160)

(27)

Current service cost

(11)

(1)

(10)

(1)

Interest expense

(82)

(2)

(74)

(2)

Actuarial (loss) (recognised in statement of comprehensive income)

(20)

(1)

(258)

(1)

Benefits paid

62

1

56

1

Exchange differences

–

1

–

2

As at 31 December

(1,497)

(30)

(1,446)

(28)

 

 

 

 

 

Movement in fair value of plan assets

 

 

 

 

As at 1 January

699

29

609

27

Expected return on plan assets

44

2

41

2

Actuarial gain (recognised in statement of comprehensive income)

8

–

46

–

Employer contributions

59

1

59

3

Benefits paid

(62)

(1)

(56)

(1)

Exchange differences

–

–

–

(2)

As at 31 December

748

31

699

29

Gross pension obligations included in provisions

(749)

1

(747)

1

Annuity obligations insured by Society

514

–

465

–

Gross defined benefit pension deficit

(235)

1

(282)

1

Deferred tax on defined benefit pension deficit

66

–

79

–

Net defined benefit pension deficit

(169)

1

(203)

1

The total amount of actuarial (losses) net of tax recognised in the statement of comprehensive income for the year was £(9)m; cumulative £(280)m (2009: £(154)m); cumulative £(271)m). Actuarial (losses) net of tax relating to with-profits policyholders of £(4)m (2009: £(62)m) have been allocated to the unallocated divisible surplus.

Recent changes announced by the UK Government have changed the rate of inflation relevant to benefits of the UK defined benefit pension schemes in certain circumstances. The interaction of these changes with the scheme rules has led to a change in the calculation of the defined benefit liability. The amendments reflect a change of the inflation assumption from RPI to Consumer Price Index (CPI) inflation for the revaluation of the accrued benefits earned after 2 May 2006 for members who have become early leavers. This change has reduced the defined benefit liability by £3m and has been reflected as an assumption change.

The historic funding and experience adjustments are as follows:

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2010
£m

2009
£m

2008
£m

2007
£m

2006
£m

Present value of defined benefit obligations

(1,527)

(1,474)

(1,187)

(1,384)

(1,346)

Fair value of plan assets

779

728

636

789

778

Gross pension obligations

(748)

(746)

(551)

(595)

(568)

Experience adjustments on plan liabilities

(8)

18

3

(19)

(13)

Experience adjustments on plan assets

11

46

(222)

(32)

10

The fair value of the plan assets and expected return at the end of the year is made up as follows:

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As at 31 December 2010

UK
£m

Expected
return
%

Overseas
£m

Expected
return
%

Equities

357

6.5

10

8.0

Bonds

349

5.5

17

3.9

Properties

42

5.5

–

–

Other investments

–

–

4

2.1

 

748

 

31

 

 

 

 

 

 

As at 31 December 2009

UK
£m

Expected
return
%

Overseas
£m

Expected
return
%

Equities

351

7.0

8

8.2

Bonds

311

5.7

17

4.1

Properties

37

6.0

–

–

Other investments

–

–

4

2.8

 

699

 

29

 

The average credit rating of the bond portfolio is AA (2009: 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. In 2010, the return on plan assets, excluding annuity obligations, was £57m (2009: £89m).

Employer contributions decreased to £60m (2009: £62m) including a pension deficit reduction payment of £47m (2009: £41m). Employer contributions of £59m are expected to be paid to the plan during 2011.

The following amounts have been charged/(credited) to the income statement:

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2010
£m

2009
£m

Current service costs

12

11

Interest expense

84

76

Expected return on plan assets

(46)

(43)

Total included in other expenses

50

44

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