NATS-Annual-Report-2015

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Annual Report and Accounts 2015 | NATS Holdings Limited Financial Statements 142 Notes forming part of the consolidated accounts (continued) 28. Retirement benefit schemes (continued) The principal risks to the financial performance of the company arising from the scheme are in respect of: a. Asset volatility: for accounting purposes, scheme liabilities are determined using a discount rate set by reference to high quality corporate bond yields. If scheme assets under-perform relative to this yield, this will create a deficit. As explained below, NATS and Trustees are reviewing measures to de-risk the scheme by investing more in assets which better match the liabilities. b. Changes in bond yields: a decrease in the yield on high quality corporate bonds will increase scheme obligations, although this is partly mitigated by an increase in the value of the scheme’s holdings of bonds. c. Inflation risk: the scheme’s benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities. The majority of the scheme’s assets (such as equities) are real in nature and so provide some inflation protection, but overall, an increase in inflation will adversely impact on the funding position. d. Life expectancy (mortality): the majority of the scheme’s obligations are to provide benefits for the life of a member, so an increase in life expectancy will result in an increase in the scheme’s obligations. Sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below: Assumption Change in assumption Impact on scheme liabilities Discount rate (bond yields) Increase/decrease by 0.5% Decrease by 11.1%/increase by 13.0% Rate of inflation Increase/decrease by 0.5% Increase by 12.9%/decrease by 11.0% Rate of salary growth Increase/decrease by 0.5% Increase by 3.2%/decrease by 3.0% Rate of mortality 1 year increase in life expectancy Increase by 2.6% Each sensitivity above is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as for calculating the liability recognised on the balance sheet. Amounts recognised in income, in the staff costs line item, in respect of the defined benefit scheme are as follows: 2015 2014 £m £m Current service cost (103.5) (113.5) Past service cost (2.2) (1.9) Net interest expense 2.6 3.9 Administrative expenses (1.9) (1.8) Components of defined benefit costs recognised within operating profit (105.0) (113.3) Financial Statements
Annual Report and Accounts 2015 | NATS Holdings Limited Financial Statements 143 Notes forming part of the consolidated accounts (continued) 28. Retirement benefit schemes (continued) Remeasurements recorded in the statement of comprehensive income are as follows: 2015 2014 £m £m Return on plan assets (excluding amounts included in net interest expense) 308.3 71.0 Actuarial gains and losses arising from changes in financial assumptions (751.5) 45.2 Actuarial gains and losses arising from changes in demographic assumptions - - Actuarial gains and losses arising from experience adjustments 68.8 (174.6) (374.4) (58.4) The amount included in the consolidated balance sheet arising from the group’s obligations in respect of its defined benefit scheme is as follows: 2015 2014 £m £m Present value of defined benefit obligations (5,050.2) (4,178.7) Fair value of scheme assets 4,697.2 4,166.4 Deficit in scheme (353.0) (12.3) Movements in the present value of the defined benefit obligations were as follows: 2015 2014 £m £m At 1 April (4,178.7) (3,859.1) Current service cost (103.5) (113.5) Past service cost (2.2) (1.9) Interest expense on defined benefit scheme obligations (185.7) (169.6) Actuarial gains and losses arising from changes in financial assumptions (751.5) 45.2 Actuarial gains and losses arising from changes in demographic assumptions - - Actuarial gains and losses arising from experience adjustments 68.8 (174.6) Contributions from scheme members (0.1) (0.1) Benefits paid 102.7 94.9 At 31 March (5,050.2) (4,178.7) The average duration of the scheme’s liabilities at the end of the year is 24.0 years (2014: 24.3 years). The present value of the defined benefit obligation can be analysed by member group as follows: 2015 2014 £m £m Active members 2,794.2 2,317.8 Deferred members 442.9 291.7 Pensioners 1,813.1 1,569.2 5,050.2 4,178.7 Financial Statements
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