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 schemes and the expected annual rate of return Expected rate of return Value 2006 2005 2006 2005 % % £m £m Gilts 5.00 5.00 17 15 Equities 7.00 7.00 93 86 Corporate bonds 5.00 4.70 13 12 Other 7.00 - 7 - Cash 4.50 4.00 4 3 Total market value of assets 134 116 Present value of scheme liabilities (180) (164) Deficit in the schemes (46) (48) 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 rate of return on plan assets To develop the expected long-term rate of return on assets assumption, F&C considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for the future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. (vii) Amounts recognised in the income statement in respect of defined benefit schemes 2006 2005 £m £m Current service costs (4) (3) Interest cost (8) (6) Expected return on plan assets 8 6 Past service cost - (1) Total amounts recognised in the income statement (4) (4) Actual return on plan assets 10 17 (viii) Amounts recognised in the statement of recognised income and expense in respect of defined benefit schemes 2006 2005 £m £m Actuarial gains/(losses) recognised in the year 2 (31) 106 <strong>Friends</strong> 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 schemes 2002* 2003* 2004 2005 2006 £m £m £m £m £m Present value of defined benefit obligations (33) (37) (114) (164) (180) Fair value of plan assets 25 30 96 116 134 Deficit (8) (7) (18) (48) (46) Difference between the expected and actual return on schemes assets Amount (9) 2 2 11 2 Percentage of closing schemes assets (37)% 7% 2% 10% 2% Experience gains and losses on schemes liabilities Amount 1 - (1) - (2) Percentage of the present value of the schemes liabilities 4% - (1)% - - Total amount recognised in the statement of recognised income and expense Amount (8) 1 (3) (31) 2 Percentage of the present value of the schemes liabilities (24)% 2% (3)% (19)% 1% * The history before 1 January 2004, the date of adoption of IFRS, is prepared on a UK GAAP basis. (x) Future Funding requirements UK schemes The trustees of the ISIS Fund and F&C Mgt Fund have agreed to merge the schemes. This is targeted to occur during 2007 and will be achieved by the transfer of all of the defined benefit assets and liabilities from the F&C Mgt Fund into the ISIS Fund. The assets and liabilities will be merged on a co-mingled basis (ie they will not be separately identifiable into F&C Mgt Fund or ISIS Fund sections). In conjunction with this merger, special employer contributions totalling £8m will be paid into the ISIS Fund around the time of the merger with a view to improving the funding level of the merged scheme. Following the merger, it is intended that a formal actuarial valuation will be performed. This valuation will be subject to the requirements of the scheme funding regulations introduced under the Pensions Act 2004 and the funding principles are to be agreed between the trustees of the merged scheme and F&C. The results of this formal valuation will help to determine the future level of employer contributions due to the merged scheme. Until such time as any revision to employer contributions is agreed following this valuation, it is anticipated that employer contributions will continue initially at 25% of Pensionable Salaries for ex-ISIS Fund members and at 29.9% of Pensionable Salaries for ex-F&C Fund members. <strong>Friends</strong> Provident Annual Report & Accounts 2006 107
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