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UK:

 The majority of pensions for UK employees are funded through the industry-wide scheme, the Electricity Supply Pension Scheme (ESPS) which is a defined benefit scheme with assets invested in separate trustee administered funds. The ESPS is divided into sections, and the International Power Group of ESPS was opened to members on 1 April 2002 and employees' past service rights were transferred into the Group later that year.

The majority of employees taken on in First Hydro, as part of the acquisition of the EME portfolio, are members of another section of the ESPS, Energy Mission Energy Group.

Pension costs for 2004 have been calculated using assumptions consistent with those used for the 31 March 2003 funding valuation.

The pension cost for 2004 is £4 million, comprising £3 million regular cost and £1 million variation cost (2003: £3 million).

The principal assumptions used to calculate these pension costs are set out below:

Pre-retirement investment return 6.6% pa
Post-retirement investment return 5.1% pa
Salary increases 4.1% pa
Pension increases in deferment 2.7% pa
Pension increases in payment 2.7% pa

The actuarial value of assets in the International Power section of the ESPS as at 31 March 2004, the date of the latest formal actuarial valuation, was £47 million. The accrued liabilities valued on the projected unit method using assumptions set out below, were £56 million. The market value of assets was, therefore, 84% of accrued liabilities. Arrangements have been made to make good the past service deficit over the average future working lifetime of the membership (calculated to be approximately 12 years). The principal assumptions used for the 31 March 2004 valuation are:

Pre-retirement investment return 6.7% pa
Post-retirement investment return 5.2% pa
Salary increases 4.4% pa
Pension increases in deferment 3.0% pa
Pension increases in payment 3.0% pa

The actuarial value of assets in the Edison Mission Energy section of the ESPS as at 31 March 2004, the date of the latest formal actuarial valuation, was £30 million. The accrued liabilities valued on the projected unit credit method using assumptions set out below, were £40 million. The market value of assets was therefore 75% of accrued liabilities. Arrangements have been made to make good the past service deficit over the average future working lifetime of the membership (calculated to be approximately 15 years).

The principal assumptions used for the 31 March 2004 valuation are:

Pre-retirement investment return 6.7% pa
Post-retirement investment return 5.2% pa
Salary increases 4.4% pa
Pension increases in deferment 2.9% pa
Pension increases in payment 2.8% pa

Australia:

 Employees at Hazelwood and Loy Yang B participate in a standard Australian superannuation fund called Equipsuper. This plan provides benefits primarily for employees in the electricity, gas and water industry, and was developed from the scheme sponsored by the State Electricity Commission of Victoria. Employees at Synergen participate in the Electricity Industry Superannuation Scheme.

At 31 December 2004, the total market value of assets was 100% of accrued liabilities. The assets were £70 million and liabilities £70 million. The pension cost for 2004 was £2 million (2003: £2 million).

The principal assumptions are set out below:

Valuation date 31 December 2004
Investment return 4.5% pa
Salary increases 4.0% pa
Pensions increases n/a

In other countries employees are members of local social security schemes and in some cases defined contribution plans. The charge for 2004 in respect of defined contribution plans was £1 million (2003: £1 million).

FRS17


In accordance with the requirements of FRS 17 (Retirement Benefits), this note discloses the main financial assumptions made in valuing the liabilities of the schemes and the fair value of assets held. However, as permitted by FRS 17, the costs, accruals and prepayments recorded in the financial statements continue to be reported under the requirements of SSAP 24 (Accounting for Pension Costs).

The valuation used for FRS 17 disclosures for the UK schemes has been based on the most recent actuarial valuations at 31 March 2003 and 31 March 2004, and updated by qualified independent actuaries to take account of the requirements of FRS 17 to assess the liabilities of the schemes at 31 December 2004.

The Group operates a number of defined benefit schemes for employees of its overseas businesses. Full actuarial valuations of these schemes have been carried out within the last three years and results have been updated to 31 December 2004 by qualified independent actuaries.

The assumptions used to calculate scheme liabilities under FRS 17 are:

  31 December 2004 31 December 2003 31 December 2002 31 December 2001
  UK
%		 Australia
%		 UK
%		 Australia
%		 UK
%		 Australia
%		 UK
%		 Australia
%
Financial assumptions
Discount rate 5.3 4.5 5.4 7.5 5.5 7.0 5.8 7.3
Rate of increase in salaries 4.4 4.0 4.3 4.0 3.8 4.0 4.0 4.0
Inflation rate 2.9 3.0 2.8 3.0 2.3 3.5 2.5 3.0
Increase to deferred benefits during deferment 3.0 n/a 2.9 n/a 2.5 n/a 2.6 n/a
Increases to pensions payments 2.9 n/a 2.9 n/a 2.5 n/a 2.6 n/a

The amounts required to be disclosed by FRS 17 in respect of the performance statements were:

Analysis of amounts that would have been charged to operating profit in respect of defined benefit schemes   Group
2004
£m		 2003
£m
Current service (5) (5)
Past service cost – –
Curtailment cost (1) –
Total operating charge (6) (5)

Analysis of amounts that would have been credited/(charged) to other finance income   Group
2004
£m		 2003
£m
Expected return on schemes’ assets 7 5
Interest on schemes’ liabilities (7) (5)
Net return – –

Analysis of amounts that would have been recognised in the consolidated statement of total recognised gains and losses   Group
2004
£m		 2003
£m
Actual return less expected return on schemes’ assets 9 5
Experience gains/(losses) arising on schemes’ liabilities – (3)
Changes in the assumptions underlying the present value of schemes’ liabilities (11) (7)
Currency translation adjustment   1
Actuarial loss recognised in the consolidated statement of total recognised gains and losses (2) (4)

History of experience gains and losses     Group
  2004 2003 2002
Difference between the actual and expected return on schemes’ assets:      
Amount (£m) 9 5 (11)
Percentage of schemes’ assets 6% 5% 15%
Experience gains and losses on schemes’ liabilities:      
Amount (£m) – (3) (1)
Percentage of the present value schemes’ liabilities 0% 3% 1%
Total amount recognised in the consolidated statement of total recognised gains and losses:      
Amount (£m) (2) (4) (17)
Percentage of the present value of schemes’ liabilities 1% 4% 22%

  31 December 2004 31 December 2003 31 December 2002 31 December 2001
  UK
% 		  Australia
%		 UK
% 		  Australia
%		 UK
% 		  Australia
%		 UK
% 		  Australia
%
The assets in the schemes and expected
rates of return (weighted averages) were:		                  
Long-term rate of return expected                  
Equities 7.5   7.3 7.8 7.6 7.0 7.5 7.4 7.5
Bonds 4.9   4.8 5.1 4.8 4.5 5.5 4.9 5.5
Other 6.0   5.5 6.6   6.1 4.8   5.5 –   5.5
                         
  UK
£m 		Australia
£m 		Total
£m 		UK
£m 		Australia
£m 		Total
£m 		UK
£m 		Australia
£m 		Total
£m 		UK
£m 		Australia
£m 		Total
£m
Assets in schemes
Equities 66 44 110 36 35 71 27 24 51 19 23 42
Bonds 11 16 27 5 14 19 4 12 16 16 12 28
Other 12 10 22 4 5 9 3 4 7 – 5 5
Total market value of assets 89 70 159 45 54 99 34 40 74 35 40 75
Present value of scheme liabilities (114) (70) (184) (58) (50) (108) (43) (36) (79) (39) (25) (64)
(Deficit)/surplus in the scheme (25) – (25) (13) 4 (9) (9) 4 (5) (4) 15 11
Related deferred tax asset/(liability) 8 – 8 4 (1) 3 3 (1) 2 1 (5) (4)
Net pension (liability)/asset (17) – (17) (9) 3 (6) (6) 3 (3) (3) 10 7

Other assets principally comprise property and cash.

If the above amounts had been recognised in the financial statements, the Group's net assets and profit and loss reserve at 31 December would be as follows:
  Group
  2004
£m 		2003
(restated)
£m 		2002
(restated)
£m 		2001
£m
Net assets
Net assets excluding pension (liability)/asset 2,062 1,560 1,769 1,697
FRS 17 pension (liability)/asset (17) (6) (3) 7
Amounts recognised on acquisition 10 – – –
Net assets including FRS 17 pension (liability)/asset 2,055 1,554 1,766 1,704
         
Reserves
Profit and loss reserve excluding net pension (liability)/asset 129 111 330 260
Net pension (liability)/asset (17) (6) (3) 7
Profit and loss reserve including FRS 17 pension (liability)/asset 112 105 327 267

    Group
  2004
£m		 2003
£m
Movement in deficit during the year:    
Deficit in the schemes at the beginning of the year (9) (5)
Current service cost (5) (5)
Curtailment (1) –
Contributions 6 5
Past service cost – –
Other finance income – –
Acquisitions (14) –
Actuarial loss (2) (4)
Deficit in the schemes at the end of the year (25) (9)

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