Anglo American Annual Report 2008
27. Retirement benefits
The Group operates defined contribution and defined benefit pension plans for the majority of its employees. It also operates post retirement medical arrangements in southern Africa and North America.
Defined contribution plans
The defined contribution pension and medical cost represents the actual contributions payable by the Group to the various plans. At 31 December 2008 there were no material outstanding or prepaid contributions and so no accrual or prepayment has been disclosed in the balance sheet in relation to these plans.
The assets of the defined contribution plans are held separately in independently administered funds. The charge in respect of these plans is calculated on the basis of the contribution payable by the Group in the financial year. The charge for the year for defined contribution pension schemes for continuing operations was $134 million (2007: $157 million) and for defined contribution medical schemes for continuing operations was $9 million (2007: $5 million).
Defined benefit pension plans and post retirement medical plans
The majority of the defined benefit pension plans are funded. The assets of these plans are held separately from those of the Group, in independently administered funds, in accordance with statutory requirements or local practice throughout the world. The unfunded pension plans are principally in South America.
The post retirement medical arrangements provide health benefits to retired employees and certain dependants. Eligibility for cover is dependent upon certain criteria. The majority of these plans are unfunded.
The Group's provision of anti-retroviral therapy to HIV positive staff has not significantly impacted the post retirement medical plan liability.
Independent qualified actuaries carry out full valuations every three years using the projected unit method. The actuaries have updated the valuations to 31 December 2008.
The Group's plans in respect of pension and post retirement healthcare are summarised as follows:
| 2008 | 2007 | |||||||
|---|---|---|---|---|---|---|---|---|
| US$ million | Southern Africa | The Americas | Europe | Total | Southern Africa | The Americas | Europe | Total |
| Assets(1) | ||||||||
| Defined benefit pension plans in surplus | 32 | – | – | 32 | 48 | – | 4 | 52 |
- (1)
- Amounts are included in 'Other non-current assets'.
| 2008 | 2007 | |||||||
|---|---|---|---|---|---|---|---|---|
| US$ million | Southern Africa | The Americas | Europe | Total | Southern Africa | The Americas | Europe | Total |
| Liabilities | ||||||||
| Defined benefit pension plans in deficit | – | (132) | (45) | (177) | – | (129) | (6) | (135) |
| Post retirement medical plans in deficit | (204) | (20) | – | (224) | (277) | (32) | – | (309) |
| (204) | (152) | (45) | (401) | (277) | (161) | (6) | (444) | |
| US$ million | 2008 | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|---|
| Defined benefit pension plans | |||||
| Present value of liabilities | (2,157) | (3,095) | (4,256) | (3,985) | (4,041) |
| Fair value of plan assets | 2,073 | 3,148 | 4,160 | 3,539 | 3,479 |
| Net (deficit)/surplus | (84) | 53 | (96) | (446) | (562) |
| Surplus restriction | (61) | (136) | (163) | (107) | – |
| Net deficit after surplus restriction | (145) | (83) | (259) | (553) | (562) |
| Actuarial (loss)/gain on plan assets(1) | (392) | 39 | 308 | 438 | 163 |
| Actuarial gain/(loss) on plan liabilities(2) | 208 | (48) | (156) | (435) | (198) |
| Post retirement medical plans | |||||
| Present value of liabilities | (241) | (329) | (422) | (650) | (654) |
| Fair value of plan assets | 17 | 20 | 16 | 22 | 15 |
| Net deficit | (224) | (309) | (406) | (628) | (639) |
| Actuarial gain on plan assets(3) | 1 | 1 | – | – | – |
| Actuarial gain/(loss) on plan liabilities(4)(5) | 16 | (29) | 15 | (67) | (22) |
- (1)
- Net experience losses on pension plan assets were $392 million (2007: gains of $32 million; 2006: gains of $314 million).
- (2)
- Net experience losses on pension plan liabilities were $29 million (2007: $112 million; 2006: $113 million).
- (3)
- Net experience gains on medical plan assets were $1 million (2007: losses of $1 million; 2006: losses of $1 million).
- (4)
- Net experience losses on medical plan liabilities were $7 million (2007: $4 million; 2006: gains of $36 million).
- (5)
- Includes actuarial gains of $11 million due to a change in modelling methodology.
Cumulative net actuarial losses recognised in the Consolidated statement of recognised income and expense are $292 million (2007: $163 million; 2006: $126 million; 2005: $228 million; 2004: $57 million).
The market value of assets was used to determine the funding level of the plans. The market value of the assets of the funded plans was sufficient to cover 101% (2007: 105%) of the benefits that had accrued to members after allowing for expected increases in future earnings and pensions. Companies within the Group are paying contributions as required in accordance with local actuarial advice. As the majority of the defined benefit pension plans are closed to new members, it is expected that contributions (in local currency) will increase as the members age.
The actual return on plan assets in respect of defined benefit pension schemes for continuing and discontinued operations was a loss of $178 million (2007: gain of $307 million).
Income statement
The amounts recognised in the income statement are as follows:
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| US$ million | Pension plans | Post retirement medical plans | Total plans |
Pension plans | Post retirement medical plans | Total plans |
| Analysis of the amount charged to operating profit | ||||||
| Current service costs | 43 | 5 | 48 | 54 | 8 | 62 |
| Past service costs | 1 | – | 1 | 3 | – | 3 |
| Total within operating costs – continuing operations | 44 | 5 | 49 | 57 | 8 | 65 |
| Analysis of the amount charged to net finance costs | ||||||
| Expected return on plan assets(1) | (214) | (1) | (215) | (255) | (2) | (257) |
| Interest costs on plan liabilities(2) | 180 | 21 | 201 | 207 | 22 | 229 |
| Net (credit)/charge to net finance costs – continuing operations | (34) | 20 | (14) | (48) | 20 | (28) |
| Total charge to the income statement – continuing operations | 10 | 25 | 35 | 9 | 28 | 37 |
- (1)
- Included in 'Investment income'.
- (2)
- Included in 'Interest expense'.
Actuarial assumptions
The principal assumptions used to determine the actuarial present value of benefit obligations and pension charges and credits under IAS 19 are detailed below (shown as weighted averages):
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| % | Southern Africa | The Americas | Europe | Southern Africa | The Americas | Europe |
| Defined benefit pension plans | ||||||
| Average discount rate for plan liabilities | 7.3 | 8.6 | 6.0 | 8.2 | 7.5 | 5.7 |
| Average rate of inflation | 4.0 | 3.7 | 2.7 | 5.5 | 3.6 | 3.4 |
| Average rate of increase in salaries | 5.3 | 5.4 | 2.7 | 6.8 | 4.5 | 3.5 |
| Average rate of increase of pensions in payment | 4.0 | 3.2 | 2.8 | 5.5 | 1.8 | 3.4 |
| Average long term rate of return on plan assets(1) | 7.6 | 11.3 | 5.9 | 8.5 | 10.6 | 6.8 |
| Post retirement medical plans | ||||||
| Average discount rate for plan liabilities | 7.3 | 7.1 | n/a | 8.0 | 5.5 | n/a |
| Average rate of inflation | 4.0 | 0.5 | n/a | 5.3 | 2.6 | n/a |
| Expected average increase in healthcare costs | 5.4 | 3.8 | n/a | 6.8 | 4.4 | n/a |
- (1)
- The long term expected return on plan assets has been set with reference to current market yields on government and corporate bonds and expected equity bond-outperformance in the relevant jurisdictions. The expected return on cash assets has been set with reference to expected bank base rates. The overall long term expected rate of return for each class is weighted by the asset allocation to the class at the balance sheet date.
Mortality assumptions are determined based on standard mortality tables with adjustments, as appropriate, to reflect experience of conditions locally. In southern Africa, the PA90 tables (2007: the SA85-90 and the PA90 tables) are used. The main schemes in Europe use the PXA00 tables (2007: PA92 tables). The main schemes in the Americas use the RV2004, AT83 and UP24 tables (2007: RV2004, AT83 and GAM94 tables). The mortality tables used imply that a male or female aged 60 at the balance sheet date has the following future life expectancy:
| Male | Female | |||
|---|---|---|---|---|
| Years | 2008 | 2007 | 2008 | 2007 |
| Southern Africa | 20.5 | 20.3 | 25.5 | 25.2 |
| The Americas | 22.4 | 22.0 | 26.5 | 26.1 |
| Europe | 25.7 | 25.3 | 28.1 | 26.8 |
The market value of the pension assets in defined benefit pension plans and long term expected rate of return as at 31 December 2008 and 31 December 2007 are as follows:
| Southern Africa | The Americas | Europe | Total | ||||
|---|---|---|---|---|---|---|---|
| Rate of return % | Fair value US$ million | Rate of return % | Fair value US$ million | Rate of return % | Fair value US$ million | Fair value US$ million | |
| At 31 December 2008 | |||||||
| Equity | 10.0 | 231 | 10.5 | 49 | 7.4 | 568 | 848 |
| Bonds | 6.6 | 422 | 11.7 | 137 | 5.2 | 427 | 986 |
| Other | 5.2 | 42 | 8.9 | 7 | 2.7 | 190 | 239 |
| Fair value of pension plan assets | 695 | 193 | 1,185 | 2,073 | |||
| Present value of unfunded obligations | – | (102) | (6) | (108) | |||
| Present value of funded obligations | (602) | (223) | (1,224) | (2,049) | |||
| Present value of pension plan liabilities | (602) | (325) | (1,230) | (2,157) | |||
| Net surplus/(deficit) in pension plans | 93 | (132) | (45) | (84) | |||
| Surplus restriction related to pension plans | (61) | – | – | (61) | |||
| Recognised pension plan assets/(liabilities) | 32 | (132) | (45) | (145) | |||
| Amounts in the balance sheet | |||||||
| Pension assets | 32 | – | – | 32 | |||
| Pension liabilities | – | (132) | (45) | (177) | |||
| 32 | (132) | (45) | (145) | ||||
| At 31 December 2007 | |||||||
| Equity | 11.0 | 273 | 10.7 | 68 | 8.1 | 1,021 | 1,362 |
| Bonds | 7.6 | 654 | 10.8 | 167 | 5.2 | 568 | 1,389 |
| Other | 7.1 | 54 | 7.8 | 10 | 5.5 | 333 | 397 |
| Fair value of pension plan assets | 981 | 245 | 1,922 | 3,148 | |||
| Present value of unfunded obligations | – | (105) | (4) | (109) | |||
| Present value of funded obligations | (853) | (269) | (1,864) | (2,986) | |||
| Present value of pension plan liabilities | (853) | (374) | (1,868) | (3,095) | |||
| Net surplus/(deficit) in pension plans | 128 | (129) | 54 | 53 | |||
| Surplus restriction related to pension plans | (80) | – | (56) | (136) | |||
| Recognised pension plan assets/(liabilities) | 48 | (129) | (2) | (83) | |||
| Amounts in the balance sheet | |||||||
| Pension assets | 48 | – | 4 | 52 | |||
| Pension liabilities | – | (129) | (6) | (135) | |||
| 48 | (129) | (2) | (83) | ||||
Movement analysis
The changes in the present value of defined benefit obligations are as follows:
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| US$ million | Pension plans | Post retirement medical plans | Total plans |
Pension plans | Post retirement medical plans | Total plans |
| At 1 January | (3,095) | (329) | (3,424) | (4,256) | (422) | (4,678) |
| Current service costs(1) | (43) | (5) | (48) | (57) | (9) | (66) |
| Acquisition, disposal and demerger of businesses | – | – | – | 1,442 | 150 | 1,592 |
| Past service costs and effects of settlements and curtailments(2) | (1) | – | (1) | (1) | – | (1) |
| Interest costs(3) | (180) | (21) | (201) | (220) | (25) | (245) |
| Actuarial gains/(losses) | 208 | 16 | 224 | (48) | (29) | (77) |
| Benefits paid | 145 | 16 | 161 | 137 | 18 | 155 |
| Contributions paid by other members | (9) | (3) | (12) | (7) | (2) | (9) |
| Reclassifications | – | – | – | (2) | – | (2) |
| Currency movements | 818 | 85 | 903 | (83) | (10) | (93) |
| At 31 December | (2,157) | (241) | (2,398) | (3,095) | (329) | (3,424) |
- (1)
- Includes nil (2007: $3 million) for pension plans and nil (2007: $1 million) for post retirement medical plans in respect of discontinued operations.
- (2)
- Includes nil (2007: a gain of $2 million) for pension plans in respect of discontinued operations.
- (3)
- Includes nil (2007: $13 million) for pension plans and nil (2007: $3 million) for post retirement medical plans in respect of discontinued operations.
The changes in the fair value of plan assets are as follows:
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| US$ million | Pension plans | Post retirement medical plans | Total plans |
Pension plans | Post retirement medical plans | Total plans |
| At 1 January | 3,148 | 20 | 3,168 | 4,160 | 16 | 4,176 |
| Expected return(1) | 214 | 1 | 215 | 268 | 2 | 270 |
| Actuarial (losses)/gains | (392) | 1 | (391) | 39 | 1 | 40 |
| Acquisition, disposal and demerger of businesses | – | – | – | (1,329) | – | (1,329) |
| Contributions paid by employer | 50 | 11 | 61 | 69 | 16 | 85 |
| Contributions paid by other members | 9 | 5 | 14 | 7 | 2 | 9 |
| Benefits paid | (145) | (16) | (161) | (137) | (18) | (155) |
| Reclassifications | – | – | – | 2 | – | 2 |
| Currency movements | (811) | (5) | (816) | 69 | 1 | 70 |
| At 31 December | 2,073 | 17 | 2,090 | 3,148 | 20 | 3,168 |
- (1)
- Includes nil (2007: $13 million) for pension plans in respect of discontinued operations.
Assumed healthcare trend rates have a significant effect on the amounts recognised in the income statement. A 1% change in assumed healthcare cost trend rates would have the following effects:
| 1% increase | 1% decrease | |||
|---|---|---|---|---|
| US$ million | 2008 | 2007 | 2008 | 2007 |
| Effect on the sum of service costs and interest costs | 3 | 4 | (3) | (2) |
| Effect on defined benefit obligations | 28 | 39 | (26) | (22) |
The Group expects to contribute approximately $39 million to its defined benefit pension plans and $20 million to its post retirement medical plans in 2009.