G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Notes to the consolidated financial statements continued 34 Retirement benefit obligations continued The composition of the scheme assets at the reporting date is as follows: UK Rest of World Total 2011 Equity instruments 10% 34% 12% Debt instruments 25% 44% 27% Property 0% 4% 0% Cash 28% 2% 26% Other assets 37% 16% 35% 100% 100% 100% 2010 Equity instruments 18% 38% 19% Debt instruments 16% 43% 18% Property 0% 3% 0% Cash 24% 2% 23% Other assets 42% 14% 40% 100% 100% 100% Other assets in the UK comprised a range of derivatives, private equity holdings, macro-orientated and multi-strategy alternative investments and a credit portfolio including corporate bond exposure, credit long/short funds and distressed debt investments. None of the pension scheme assets are held in the entity’s own financial instruments or in any assets held or used by the entity. The expected weighted average rates of return on scheme assets for the following year at the balance sheet date are as follows: Rest of UK World Total 2011 (return expected in 2012) 5.7% 4.4% 5.6% 2010 (return expected in 2011) 7.0% 4.5% 6.8% 2009 (return expected in 2010) 6.9% 5.6% 6.8% For the UK, the expected return on assets is based on the return targeted under the investment strategy. For the rest of the world, the expected rates of return on individual categories of scheme assets are determined with respect to bonds by reference to relevant indices, and with respect to other assets by reference to relevant indices of the historical return and economic forecasts of future returns relative to inflation in respect of assets of a similar nature. The overall expected rate of return is the weighted average of the rates on the individual asset categories. 114 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information 34 Retirement benefit obligations continued The history of experience adjustments is as follows: 2011 Experience adjustments on scheme liabilities Amount (£m) 18 (2) 16 Percentage of scheme liabilities (%) 1 (2) 1 Experience adjustments on scheme assets Amount (£m) (58) (5) (63) Percentage of scheme assets (%) (4) (5) (4) 2010 Experience adjustments on scheme liabilities Amount (£m) (28) (3) (31) Percentage of scheme liabilities (%) (2) (3) (2) Experience adjustments on scheme assets Amount (£m) 7 (4) 3 Percentage of scheme assets (%) – (4) – 2009 Experience adjustments on scheme liabilities Amount (£m) 10 (2) 8 Percentage of scheme liabilities (%) 1 (1) – Experience adjustments on scheme assets Amount (£m) (133) (8) (141) Percentage of scheme assets (%) (11) (9) (11) 2008 Experience adjustments on scheme liabilities Amount (£m) – 1 1 Percentage of scheme liabilities (%) – 1 – Experience adjustments on scheme assets Amount (£m) (315) (17) (332) Percentage of scheme assets (%) (30) (21) (30) 2007 Experience adjustments on scheme liabilities Amount (£m) 6 (3) 3 Percentage of scheme liabilities (%) – (4) – Experience adjustments on scheme assets Amount (£m) (17) (5) (22) Percentage of scheme assets (%) (1) (7) (2) UK Rest of World Total The estimated amounts of contributions expected to be paid to the schemes during the financial year commencing 1 January 2012 in respect of the ongoing accrual of benefits should be approximately £10m and it is anticipated that these will remain at a similar level in the medium term subject to changes in financial conditions. Additional contributions of approximately £35m will also be made in 2012 in respect of the deficit in the schemes. IAS 19 specifies that pension liabilities should be discounted at appropriate high quality corporate bond rates. The directors consider that it is appropriate to apply the average of the yields on those AA corporate bonds which most closely approximate to the timescale of the liability profile of the schemes and have therefore used such a rate, being 4.95%, in respect of the UK schemes at 31 December 2011 (5.5% at 31 December 2010). The effect of a 0.1% movement in the discount rate applicable in the UK is to alter reported liabilities (before associated deferred tax) by approximately £30m. Liability calculations are also impacted heavily by the mortality projections included in the actuarial assumptions. The weighted average life expectancy of a male member of the UK schemes currently aged 65 has been assumed as 21 years. The weighted average life expectancy at 65 of a male currently aged 52 has been assumed as 22 years. The directors consider, on actuarial advice, these assumptions to be appropriate to the profile of the membership of the schemes. The effect of a one year change in this UK life expectancy assumption is to alter reported liabilities (before associated deferred tax) by approximately £78m. Pension obligations in respect of deferred members increase in line with inflation. Increases in salaries and increases in pensions-in-payment generally move in line with inflation. Inflation is therefore an important assumption in the calculation of defined retirement benefit liabilities. The effect of a 0.1% movement in the rate of inflation assumption applicable in the UK is to alter reported liabilities (before associated deferred tax) by approximately £16m. G4S plc Annual Report and Accounts 2011 115
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