Annual Report 2009 in PDF - GKN

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26 Post-employment obligations
2009 2008
Post-employment obligations as at the year end comprise: £m £m
Pensions Ñ funded (597) (417)
Ñ unfunded (345) (348)
Medical Ñ funded (13) (18)
Ñ unfunded (41) (51)
(996) (834)
The GroupÕ s pension arrangements comprise various defined benefit and defined contribution schemes throughout the world. The main
externally funded defined benefit pension schemes operate in the UK, US and Japan. In Europe, funds are retained within certain businesses
to provide defined benefit pension benefits. In addition, in the US and UK a number of retirement plans are operated which provide certain
employees with post-employment medical benefits.
(a) Defined benefit schemes Ñ measurement and assumptions
Independent actuarial valuations of all major defined benefit scheme assets and liabilities were carried out at 31 December 2009. The
present value of the defined benefit obligation, the related current service cost and the past service cost were measured using the projected
unit credit method.
Key assumptions were:
UK Americas Europe ROW
% % % %
2009
Rate of increase in pensionable salaries 4.25 3.5 2.50 3.5
Rate of increase in payment and deferred pensions 3.40 2.0 1.75 n/a
Discount rate 5.70 6.0 5.40 2.0
Inflation assumption
Rate of increases in medical costs:
3.25 2.5 1.75 1.0
initial/long term 7.0/4.5 9.0/5.0 n/a n/a
2008
Rate of increase in pensionable salaries 3.9 3.5 2.50 3.5
Rate of increase in payment and deferred pensions 3.0 2.0 1.75 n/a
Discount rate 6.5 5.8 6.00 2.0
Inflation assumption
Rate of increases in medical costs:
2.9 2.5 1.75 1.0
initial/long term 6.6/4.5 9.0/5.0 n/a n/a
The discount rates in the table above for the UK and Europe were referenced against specific iBoxx indices, whilst the Citigroup liability index
was the reference point for the USA discount rate. The reference for the UK discount rate was the yield as at 31 December on the iBoxx GBP
Corporate rated AA bonds with a maturity of 15 years plus. The reference for the European discount rate was the yield as at 31 December on
the iBoxx Euro Corporate rated AA bonds with a maturity of 10 years plus of 5.1%, adjusted to reflect the duration of liabilities. For the USA,
the discount rate matched the Citigroup liability index as at 31 December 2009 of 6.0%.
The underlying mortality assumptions for the major schemes are as follows:
United Kingdom
Such is the size and profile of the UK scheme that data on the schemeÕ s mortality experience is collected and reviewed annually. The key
current year mortality assumptions for the scheme use PA92 (Year of Birth) tables with a plus 2.5 year age adjustment to reflect actual
mortality experience for the scheme together with medium cohort projected improvement in longevity. Using these assumptions a male
aged 65 lives for a further 19.8 years, whilst a male aged 40 is expected to live a further 21 years after retiring at 65. The prior period
valuations used the same mortality assumptions.
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