2009 Annual Report - CRH

28. Retirement Benefit Obligations continued
Actuarial valuations - funding requirements
The funding requirements in relation to the Group’s defined benefit schemes are assessed in accordance with the advice of independent and qualified actuaries and
valuations are prepared in this regard either annually, where local requirements mandate that this be done, or at triennial intervals at a maximum in all other cases. In
Ireland and Britain, either the attained age or projected unit credit methods are used in the valuations. In the Netherlands and Switzerland, the actuarial valuations
reflect the current unit method, while the valuations are performed in accordance with the projected unit credit methodology in Portugal and Germany. In the United
States, valuations are performed using a variety of actuarial cost methodologies - current unit, projected unit and aggregate cost. The actuarial valuations range
from April 2006 to December 2009.
The assumptions which have the most significant effect on the results of the actuarial valuations are those relating to the rate of return on investments and the rates
of increase in remuneration and pensions. In the course of preparing the funding valuations, it was assumed that the rate of return on investments would, on average,
exceed annual remuneration increases by 2% and pension increases by 3% per annum. In general, actuarial valuations are not available for public inspection; however,
the results of valuations are advised to the members of the various schemes.
Financial assumptions
The financial assumptions employed in the valuation of the defined benefit liabilities arising on pension schemes, post-retirement healthcare obligations and
long-term service commitments applying the projected unit credit methodology are as follows:
Scheme liabilities
The major long-term assumptions used by the Group’s actuaries in the computation of scheme liabilities as at 31st December 2009 and 31st December 2008 are
as follows:
Britain and
Eurozone Northern Ireland Switzerland United States
2009 2008 2009 2008 2009 2008 2009 2008
% % % % % % % %
Rate of increase in:
- salaries 4.00 3.80 4.50 3.50 2.25 2.25 3.50 3.50
- pensions in payment 2.00 1.80 3.50-3.70 2.75-3.25 0.50 0.50 - -
Inflation 2.00 1.80 3.50 2.75 1.50 1.50 2.00 2.00
Discount rate 6.00 5.80 5.75 6.25 3.25 3.50 5.75 6.25
Medical cost trend rate 5.25 5.25 n/a n/a n/a n/a 9.50 10.00
The mortality assumptions employed in determining the present value of scheme liabilities under IAS 19 are in accordance with the underlying funding valuations and
represented actuarial best practice in the relevant jurisdictions taking account of mortality experience and industry circumstances. With regard to the most material of the
Group’s schemes, the future life expectations factored into the relevant valuations based on retirement at 65 years of age for current and future retirees, are as follows:
104 CRH
Republic of
Ireland
Britain and
Northern Ireland Switzerland
2009 2008 2009 2008 2009 2008
Current retirees
- male 20.7 19.8 22.7 21.9 18.5 18.4
- female 23.8 22.8 25.5 24.6 22.0 21.9
Future retirees
- male 21.8 20.8 24.5 22.4 18.5 18.4
- female 24.8 23.8 27.2 25.1 22.0 21.9
The above data allow for future improvements in life expectancy.
Scheme assets
The long-term rates of return expected at 31st December 2009 and 31st December 2008, determined in conjunction with the Group’s actuaries and analysed by class
of investment, are as follows:
Eurozone
Britain and
Northern Ireland Switzerland United States
2009 2008 2009 2008 2009 2008 2009 2008
% % % % % % % %
Equities 8.00 9.00 8.00 9.00 6.75 7.50 8.00 9.00
Bonds 4.50 4.25 5.00 4.75 2.75 3.25 5.50 6.00
Property 7.00 7.00 7.00 7.00 4.75 4.50 7.00 7.00
Other 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50
The methodology applied in relation to the expected return on equities is driven by prevailing risk-free rates in the four jurisdictions listed and the application of an
equity risk premium (which varies by country) to those rates. The differences between the expected return on bonds and the yields used to discount the liabilities in
each of the four jurisdictions listed are driven by the fact that the majority of the Group’s schemes hold an amalgam of government and corporate bonds. The property
and “other” (largely cash holdings) components of the asset portfolio are not material. In all cases, the reasonableness of the assumed rates of return is assessed by
reference to actual and target asset allocations in the long-term and the Group’s overall investment strategy as articulated to the trustees of the various defined benefit
pension schemes in operation.