Setting new standards - Friends Life

FINANCIAL STATEMENTS
IFRS FINANCIAL STATEMENTS
EEV SUPPLEMENTARY INFORMATION
Notes to the consolidated accounts continued
10. Staff pension schemes continued
Overseas schemes
Given possible changes in overseas pension provision (for example the new schemes set-up), there is some uncertainty on the future level of
employer contributions that may be required. The figures in the table below assume that contributions at the level paid in 2006 continue for
the overseas schemes.
Contributions to defined benefit schemes
Amounts paid into the defined benefit schemes in the past two years and expected future payments over the next five years are as follows:
£m
Contributions paid
2005 5
2006 4
Contributions expected to be paid
2007 12
2008 4
2009 4
2010 4
2011 4
(xi) Risk Management
UK schemes
The trustees of each scheme set general investment policy but delegate the responsibility for the selection of specific investments (other
than investments in respect of members’ voluntary contributions) to the Investment Manager.
The trustees regularly monitor the schemes’ investments. The trustees seek advice from their investment adviser and believe they have
sufficient skills and expertise to make investment decisions based on this advice.
The trustees have set performance and risk targets for the Investment Manager. The performance objectives are long term, however the
trustees monitor the Investment Manager on a regular basis in order to ensure that the scheme is on track to meet its long-term objectives.
In conjunction with F&C, the trustees have recently conducted asset-liability review of the schemes. These studies were used to assist the
trustees and F&C to determine the optimal long-term asset allocation with regard to the liabilities within the schemes, subject to an
acceptable funding cost to F&C. The results of the studies were also used to assist the trustees and F&C in managing volatility in the
underlying investment performance and risk of a significant increase in the schemes’ deficits by providing information used to determine the
schemes’ investment strategy.
Asset allocation
Following the asset-liability review, both the trustees of the F&C Mgt Fund and ISIS Fund have agreed with F&C that they will shortly
implement a Liability Driven Investment (LDI) approach to their investment strategy. This will involve the use of pooled LDI products managed
by F&C. The exact details of the investment strategy and asset allocation for the merged ISIS Fund are still being considered.
Currency risk
In order to increase the diversification of the equity portfolio, the schemes invest in overseas assets. However, the schemes’ liabilities are
entirely in pound sterling and therefore there is a risk that the appreciation of pound sterling against other currencies will reduce the return
from overseas equities.
108 Friends Provident Annual Report & Accounts 2006