2015_lbg_annual_report_v3

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Financial statements Notes to the consolidated financial statements continued NOTE 36: OTHER LIABILITIES 2015 £m 2014 £m Settlement balances 467 1,024 Unitholders’ interest in Open Ended Investment Companies 22,621 19,525 Unallocated surplus within insurance businesses 257 320 Other creditors and accruals 6,316 7,556 Total other liabilities 29,661 28,425 NOTE 37: RETIREMENT BENEFIT OBLIGATIONS 2015 £m 2014 £m 2013 £m Charge to the income statement Past service (credits) charges 1 – (822) 104 Other 307 334 392 Defined benefit pension schemes 307 (488) 496 Other post-retirement benefit schemes 8 10 7 Total defined benefit schemes 315 (478) 503 Defined contribution pension schemes 233 252 255 Total charge (credit) to the income statement (note 11) 548 (226) 758 1On 11 March 2014 the Group announced a change to its defined benefit pension schemes, revising the existing cap on the increases in pensionable pay used in calculating the pension benefit, from 2 per cent to nil with effect from 2 April 2014. The effect of this change was to reduce the Group’s retirement benefit obligations recognised on the balance sheet by £843 million with a corresponding curtailment gain recognised in the income statement. This was partly offset by a charge of £21 million following changes to pension arrangements for staff within the TSB business. In 2013, the Group agreed certain changes to early retirement and commutation factors in two of its principal defined benefit pension schemes, resulting in a cost of £104 million recognised in the Group’s income statement in the year ended 31 December 2013. 2015 £m 2014 £m Amounts recognised in the balance sheet Retirement benefit assets 901 1,147 Retirement benefit obligations (365) (453) Total amounts recognised in the balance sheet 536 694 The total amount recognised in the balance sheet relates to: 2015 £m 2014 £m Defined benefit pension schemes 736 890 Other post-retirement benefit schemes (200) (196) Total amounts recognised in the balance sheet 536 694 Pension schemes Defined benefit schemes (i) Characteristics of and risks associated with the Group’s schemes The Group has established a number of defined benefit pension schemes in the UK and overseas. All significant schemes are based in the UK, with the three most significant being the defined benefit sections of the Lloyds Bank Pension Schemes No’s 1 and 2 and the HBOS Final Salary Pension Scheme. These schemes provide retirement benefits calculated as a percentage of final pensionable salary depending upon the length of service; the minimum retirement age under the rules of the schemes at 31 December 2015 is generally 55 although certain categories of member are deemed to have a contractual right to retire at 50. The Group operates a number of funded and unfunded pension arrangements, the majority, including the three most significant schemes, are funded schemes in the UK. All schemes are operated as separate legal entities under trust law by the trustees. All UK schemes are funded in compliance with the Pensions Act 2004. A valuation exercise is carried out for each scheme at least every three years, whereby scheme assets are measured at market value and liabilities (‘Technical Provisions’) are measured using prudent assumptions, if a deficit is identified a recovery plan is agreed and sent to the Pensions Regulator for review. The outcome of this valuation process, including agreement of any recovery plans, is agreed between the Group and the scheme Trustee. The Group has not provided for these deficit contributions as the future economic benefits arising from these contributions are expected to be available to the Group. The Group’s overseas defined benefit pension schemes are subject to local regulatory arrangements. The latest full valuations of the three main schemes were carried out as at 30 June 2014; the results have been updated to 31 December 2015 by qualified independent actuaries. The last full valuations of other Group schemes were carried out on a number of different dates; these have been updated to 31 December 2015 by qualified independent actuaries. 226
Lloyds Banking Group Annual Report and Accounts 2015 NOTE 37: RETIREMENT BENEFIT OBLIGATIONS continued During 2009, the Group made one-off contributions to the Lloyds Bank Pension Scheme No 1 and Lloyds Bank Pension Scheme No 2 of approximately £1 billion in aggregate. These contributions took the form of interests in limited liability partnerships for each of the two schemes which contained assets of approximately £5.4 billion in aggregate entitling the schemes to annual payments of approximately £215 million in aggregate until 31 December 2014. As all scheduled distributions have now been made, the value of the partnership interests equates to a nominal amount and the limited liability partnerships will continue to hold assets to provide security for the Group’s obligations to the Lloyds Bank Pension Scheme No 1 and Lloyds Bank Pension Scheme No 2. At 31 December 2015, the limited liability partnerships held assets of approximately £5.2 billion and no cash payments were made to the pension schemes during the year (2014: £215 million). The limited liability partnerships are consolidated fully in the Group’s balance sheet (see note 20). The Group has also established three private limited companies which hold assets to provide security for the Group’s obligations to the HBOS Final Salary Pension Scheme, a section of the Lloyds Bank Pension Scheme No 1 and the Lloyds Bank Offshore Pension Scheme. At 31 December 2015 these held assets of approximately £4.1 billion in aggregate; they do not make any distributions to the pension schemes. The private limited companies are consolidated fully in the Group’s balance sheet. The terms of these arrangements require the Group to maintain assets in these vehicles to agreed minimum values in order to secure obligations owed to the relevant Group pension schemes. The Group has satisfied this requirement during 2015. The Group currently expects to pay contributions of approximately £600 million to its defined benefit schemes in 2016. The responsibility for the governance of the Group’s funded defined benefit pension schemes lies with the Pension Trustees. Each of the Group’s funded UK defined benefit pension schemes are managed by a Trustee Board (the Trustee) whose role is to ensure that their Scheme is administered in accordance with the Scheme rules and relevant legislation, and to safeguard the assets in the best interests of all members and beneficiaries. The Trustee is solely responsible for setting investment policy and for agreeing funding requirements with the employer through the triennial valuation process. The Board of Trustees must be composed of representatives of the Company and plan participants in accordance with the Scheme’s regulations. (ii) Amounts in the financial statements Amount included in the balance sheet Present value of funded obligations (36,903) (37,243) Fair value of scheme assets 37,639 38,133 Net amount recognised in the balance sheet 736 890 Net amount recognised in the balance sheet At 1 January 890 (787) Net defined benefit pension (charge) credit (307) 488 Actuarial gains (losses) on defined benefit obligation 607 (4,272) Return on plan assets (879) 4,928 Employer contributions 427 531 Exchange and other adjustments (2) 2 At 31 December 736 890 2015 £m 2015 £m 2014 £m 2014 £m Strategic report Financial results Governance Risk management Financial statements Other information 227
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BECOMING THE BEST BANK FOR CUSTOMER
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Lloyds Banking Group Annual Report
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Other information OTHER INFORMATION
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