Setting new standards - Friends Life

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FINANCIAL STATEMENTS IFRS FINANCIAL STATEMENTS EEV SUPPLEMENTARY INFORMATION Notes to the consolidated accounts continued 10. Staff pension schemes continued (vi) Assets in the defined benefit scheme and the expected rate of return Expected rate of return Value 2006 2005 2006 2005 % % £m £m Fixed interest bonds 5.02 4.75 64 110 Index-linked bonds 5.02 4.75 31 116 Equities 7.00 7.00 523 447 Derivatives 5.02 - 14 153 Liability Driven Investment pools 5.02 - 256 - Cash 4.00 4.00 23 22 Total market value of assets excluding non-transferable assets 911 848 Present value of scheme liabilities (942) (907) Deficit in the scheme (31) (59) The expected return on net pension scheme assets is calculated using the assumptions and the market value of pension scheme assets as stated in the table above for the preceding year. Basis used to determine the expected return on plan assets The expected return on assets is calculated using a weighted average of the expected returns at 1 January for each asset class held. These individual expected returns are set having regard to market conditions at 1 January, and long-term expectation on the respective assets classes. Further adjustments were made to the expected return on assets for the year to allow for contributions received by the scheme and for disbursements paid during the year. (vii) Amounts recognised in the income statement in respect of defined benefit scheme 2006 2005 £m £m Current service costs (23) (18) Interest cost (43) (39) Expected return on plan assets 52 40 Total amounts recognised in the income statement (14) (17) Actual return on plan assets 31 197 (viii) Amounts recognised in the statement of recognised income and expense in respect of defined benefit scheme 2006 2005 £m £m Actuarial losses recognised in the year (12) (6) In respect of non-transferable assets - (3) (12) (9) 100 Friends Provident Annual Report & Accounts 2006
PARENT COMPANY ACCOUNTS ABBREVIATIONS AND DEFINITIONS Notes to the consolidated accounts continued 10. Staff pension schemes continued (ix) History of experience gains and losses of defined benefit scheme 2002* 2003* 2004 2005 2006 £m £m £m £m £m Present value of defined benefit obligation (547) (609) (706) (907) (942) Fair value of plan assets 527 603 665 848 911 Surplus/(deficit) (20) (6) (41) (59) (31) Difference between the expected and actual return on scheme assets Amounts (190) 61 64 157 (21) Percentage of closing scheme assets (36)% 10% 10% 19% (2)% Experience gains and losses on scheme liabilities Amount 4 (11) (8) (7) (4) Percentage of the present value of the scheme liabilities 1% (2)% (1)% (1)% - Total amount recognised in the statement of recognised income and expense Amount (214) 26 (6) (9) (12) Percentage of the present value of the scheme liabilities (39)% 4% (1)% (1)% (1)% * The history before 1 January 2004, the date of adoption of IFRS, is prepared on a UK GAAP basis. (x) Future funding The most recently completed triennial actuarial valuation of FPPS was performed by an independent actuary and was carried out as at 30 September 2005. From 1 July 2007 it has been decided to close the scheme to new members and existing members have been asked to increase their contributions of 3% by 1% per annum until 2010 if they wish to continue to retire at the age of 60, or reduce their contributions from 3% to 2% and increase their normal retirement age to 65. Friends Provident has agreed to increase its contributions from 15% to 20%. These arrangements have been put in place with a view to eliminating the deficit within 5 years. A new defined contribution scheme will be in place for new employees. A draft Statement of Funding Principles is being agreed by the Group and the Trustee. The statement provides the principles around assumption setting, in particular, choosing the discount rate, future price inflation, future pension increases, rates of mortality, future pay increases, employee turnover, pension commencement age, and typical partner or dependant information. In addition the Trustee has the following objectives for investments, as set out in the Statement of Investment Principles: • To achieve and maintain a minimum funding level of 100% on a long-term ongoing basis; and • To maintain the cost of providing the benefits at an acceptable level to the Employer. Amounts paid to FPPS in the past 2 years and expected future payments over the next 5 years are as follows: £m Contributions paid 2005 11 2006 14 Contributions expected to be paid 2007 19 2008 17 2009 16 2010 15 2011 14 Friends Provident Annual Report & Accounts 2006 101
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Setting new standards Friends Provi
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ANNUAL REVIEW CORPORATE GOVERNANCE
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Group financial highlights Group
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INTERNATIONAL LIFE & PENSIONS ASSET
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Friends Provident plc Pixham End Do
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Setting new standards - Friends Life

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