Contributions are paid to provide for the cost of benefit
accrual. The rate of contribution agreed with the Trustee is 16%
(2013: 16%) paid by the employer plus 5% (2013: 5%) member
contributions, in each case of pensionable earnings, and additional
contributions as agreed with the Trustee. Contributions totalled
GBP2.6 million at 31 December 2014 (2013: GBP2.8 million).
The funding position of the Fund is assessed every three years
by an independent qualified actuary. Contributions are made at the
funding rates recommended by the actuary and typically include
adjustments to amortise any funding surplus or shortfall over a
period. Amounts paid under the scheme are charged to Syndicate 2001
or other Group companies. The last completed formal valuation of
the Fund was as at 31 March 2013 and was completed in June 2014 by
Mr D Wilding, Fellow of the Institute of Actuaries, and used the
projected unit credit actuarial method.
On 20 June 2014, the Group agreed a schedule of contributions
with the Trustee, to run over ten years. The schedule requires four
separate payments of GBP2.0 million to the Fund, followed by six
separate payments of GBP1.2 million to the Fund. The present value
of the future payments attributable to past service has been
recognised as a liability at 31 December 2014, to the extent that
the contributions will not be available after they are paid into
the Fund through a refund or a reduction in future
contributions.
The Group has also entered into an agreement with the Trustee to
hold certain funds within an escrow account. The Group has made
payments totalling GBP14.0 million to the escrow account, with the
most recent made in May 2013, and it is now fully funded. Following
the 2013 triennial actuarial valuation, the escrow account is being
held as security against certain of the assumptions used in the
valuation. Further details are provided in note 12(j).
Other schemes
Funding for the other schemes in operation is in accordance with
related insurance arrangements and regulations described above.
Restriction to defined benefit asset due to asset ceiling
The Lloyd's Superannuation Fund's rules do not allow the Group
to receive a refund of contributions in any circumstances.
Therefore, the present value of the future payments has been
recognised as a liability at 31 December 2014, to the extent that
the contributions will not be available after they are paid into
the Fund. A restriction to the defined benefit asset has therefore
been recognised.
Risks to which the Group is exposed through its defined benefit
schemes
The defined benefit schemes expose the Group to the following
risks:
-- Changes in bond yields - The discount rate used in
calculating the present value of the defined benefit obligation is
based upon the yield of high-quality debt instruments issued by
blue chip companies, with maturities consistent with those of the
defined benefit obligations. A decrease in bond yields is likely to
increase the defined benefit obligation.
-- Asset volatility - There is a risk that the return on the
plan assets underperforms the yield on corporate bonds, thereby
reducing the surplus or increasing the deficit.
-- Inflation risk - The defined benefit obligation is linked to
inflation and therefore should the inflation rate increase, there
will be an increase in the plan obligation.
-- Life expectancy - The present value of the defined benefit
obligation is calculated based on certain mortality assumptions as
stated below. An increase in the life expectancy of the plan
participants will result in an increase in the defined benefit
obligation.
-- Risk of insurer default - Where the schemes have entered into
insurance arrangement, if the insurer is unable to meet its
obligations, or if the contract is cancelled by either party; it
will fall to the Group to provide the benefits to members in
accordance with the relevant scheme assets.
Significant actuarial assumptions
The significant actuarial assumptions used as at 31 December
2014 were:
UK The Netherlands Belgium Switzerland
% pa % pa % pa % pa
Discount rate for pension benefits 3.6 2.1 1.4 1.0
Price inflation (CPI/RPI for UK) 2.1/3.1 2.0 1.9 1.3
Expected salary increases - general - 1.5-2.0 1.9 2.3
Indexation for active and formerly active employees - 1.0-1.5 - -
---------------------------------------------------- ------- --------------- ------- -----------
For the Lloyd's Superannuation Fund, there are no expected
salary increases (2013: nil) because the plan participants'
salaries have been capped at the date of buy out. They continue to
accrue additional years' service but do not benefit from salary
increases.
The significant actuarial assumptions used as at 31 December
2013 were:
UK The Netherlands Belgium Switzerland
% pa % pa % pa % pa
Discount rate for pension benefits 4.4 3.7 2.5 2.3
Price inflation (CPI/RPI for UK) 2.5/3.5 2.0 2.0 1.5
Expected salary increases - general - 2.0 2.0 2.5
Indexation for active and formerly active employees - 2.0 - -
---------------------------------------------------- ------- --------------- ------- -----------
The mortality assumptions used in the 31 December 2014 valuation
included the following life expectancies:
UK The Netherlands Belgium Switzerland
--------------------------------
Life expectancy (years) at age
60
for a member currently: Male Female Male Female Male Female Male Female
-------------------------------- ---- ------ ----------- --------------- ------ -------- -------- ------------
Aged 60 28.2 30.0 26.8 28.0 26.7 30.9 26.4 29.0
Aged 45 29.7 31.6 27.9 28.8 26.7 30.9 27.7 30.3
-------------------------------- ---- ------ ----------- --------------- ------ -------- -------- ------------
The mortality assumptions used in the 31 December 2013 valuation
included the following life expectancies:
UK The Netherlands Belgium Switzerland
--------------------------------
Life expectancy (years) at age
60
for a member currently: Male Female Male Female Male Female Male Female
-------------------------------- ---- ------ ----------- --------------- ------ -------- -------- ------------
Aged 60 28.0 29.4 26.8 28.0 26.7 30.9 26.3 28.9
Aged 45 30.0 31.0 27.9 28.8 26.7 30.9 27.7 30.3
-------------------------------- ---- ------ ----------- --------------- ------ -------- -------- ------------
Significant actuarial assumptions - sensitivities
The table below shows the impact on the defined benefit
obligation that a change in certain key assumptions would have:
2014 2013
Assumption change GBPm GBPm
(Increase)/decrease in discount rate by 0.25% (22.9)/25.5 (18.2)/20.5
(Decrease)/increase in inflation rate by 0.25% (9.7)/12.1 (10.9)/11.3
(Decrease)/increase in salary rate by 0.5% (1.3)/1.5 (0.5)/0.6
(Decrease)/increase in indexation rate by 0.5% (9.4)/11.5 (6.6)/7.6
(Decrease)/increase in life expectancy by one year (19.0)/19.0 (13.6)/13.5
-------------------------------------------------- ----------- -----------
The above sensitivities of the significant actuarial assumptions
have been calculated by changing each assumption in turn whilst all
remaining assumptions are held constant. The limitation of this
sensitivity analysis is that in practice assumptions may be
correlated and therefore are unlikely to change in isolation.
Analysis of scheme assets
The analysis of the scheme assets at the reporting date is as
follows:
31 December 2014 31 December 2013
Quoted Unquoted Total Total Quoted Unquoted Total Total
GBPm GBPm GBPm % GBPm GBPm GBPm %
------------------------------------------------------ ------ -------- ----- ----- ------ -------- ----- -----
Cash and cash equivalents - 13.7 13.7 2.6 - 15.8 15.8 3.4
Equity instruments
United Kingdom 77.0 - 77.0 14.5 72.8 - 72.8 15.6
Europe 12.0 - 12.0 2.2 12.2 - 12.2 2.6
North America 30.6 - 30.6 5.7 27.0 - 27.0 5.8
Asia 6.6 - 6.6 1.2 5.5 - 5.5 1.2
Rest of World 6.6 - 6.6 1.2 8.1 - 8.1 1.7
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