GSK » Topics » 28 Pensions and other post-employment benefits

This excerpt taken from the GSK 20-F filed Feb 29, 2008.

28 Pensions and other post-employment benefits

  2007   2006   2005  
Pension and other post-employment costs £m   £m   £m  

 
UK pension schemes 108   159   124  
US pension schemes 24   35   41  
Other overseas pensions schemes 89   91   83  
Unfunded post-retirement healthcare schemes 90   91   100  
Other post-employment costs 2   1   2  

 
  313   377   350  

 
Analysed as:            
Funded defined benefit/hybrid pension schemes 171   237   198  
Unfunded defined benefit pension schemes 17   19   25  
Unfunded post-retirement healthcare schemes 90   91   100  

 
Defined benefit schemes 278   347   323  
Defined contribution pension schemes 33   29   25  
Other post-employment costs 2   1   2  

 
  313   377   350  

 

The costs of the defined benefit pension and post-retirement healthcare schemes are charged in the income statement as follows:

Cost of sales 72   74   71  
Selling, general and administration 129   175   177  
Research and development 77   98   75  

 
  278   347   323  

 

GSK entities operate pension arrangements which cover the Group’s material obligations to provide pensions to retired employees. These arrangements have been developed in accordance with local practices in the countries concerned. Pension benefits can be provided by state schemes; by defined contribution schemes, whereby retirement benefits are determined by the value of funds arising from contributions paid in respect of each employee, or by defined benefit schemes, whereby retirement benefits are based on employee pensionable remuneration and length of service. Some ‘hybrid’ defined benefit schemes also include defined contribution sections.

Contributions to defined benefit schemes are determined in accordance with the advice of independent, professionally qualified actuaries. Pension costs of defined benefit schemes for accounting purposes have been assessed in accordance with independent actuarial advice, using the projected unit method. In certain countries pension benefits are provided on an unfunded basis, some administered by trustee companies. Liabilities are generally assessed annually in accordance with the advice of independent actuaries. Formal, independent, actuarial valuations of the Group’s main plans are undertaken regularly, normally at least every three years.

Actuarial movements in the year are recognised in full through the statement of recognised income and expense.

The UK discount rate is based on the iBoxx over 15 year AA index and the US discount rate is based on corporate bond yields which reflect the term of the expected benefit payments. The expected rate of return on bonds reflects the portfolio mix of index-linked, government and corporate bonds. An equity risk premium of between 3% and 4% is added to longer term government bond yields to give the expected rate of return on equities. Projected inflation rate and pension increases are long-term predictions based on the yield gap between long-term index-linked and fixed interest Gilts. In the UK, mortality rates are determined by adjusting the PA92 standard mortality tables to reflect recent scheme experience. These rates are then projected to reflect improvements in life expectancy in line with the medium cohort (i.e. improvements at recently observed higher levels which are assumed to continue to 2020) with minimum improvements thereafter of 1% per year for males and 0.5% for females. In the USA, mortality rates are calculated using the RP2000 fully generational table, projected using scale AA, with the white collar adjustment.

The mortality assumptions for the UK and US schemes were set following a review in December 2007. GSK expects to review these again in December 2008.

 GSK Annual Report 2007  117
   

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  FINANCIAL STATEMENTS
  Notes to the financial statements
   
   
 
Notes to the financial statements
continued
 

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