Scheme Funding

Actuarial liabilities and valuation

As required by Financial Reporting Standard 102, ‘The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland’ (FRS 102), the financial statements do not include liabilities in respect of promised retirement benefits.

Under Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which is to have sufficient and appropriate assets to cover its Technical Provisions, which represent the present value of benefits to which members are entitled. This is assessed at least every three years using assumptions agreed between the Trustee and the Company and set out in the Statement of Funding Principles, a copy of which is available to Scheme members on request. Annual updates are presented to the Trustee in other years.

The Scheme Actuary is independent of the Scheme and the Company. He assesses the funding position of the Scheme, i.e. the balance between assets and liabilities.

The latest full valuation was as at the effective date of 31 March 2018. An annual update was performed as at 31 March 2019.

In accordance with the Pensions Act 2004, the Trustee set the method and assumptions for the Scheme Actuary to calculate the Technical Provisions (the amount required by the Scheme to provide for the Scheme’s liabilities on an on-going basis). These Technical Provisions were then agreed by the Company. In setting the method and assumptions, the Trustee took into account both the strength of the Covenant provided by the Company, the other participating employers and the parent company guarantee of up to £1,750m, which it secured from Schneider Electric SE in January 2014.

A summary of the method and key assumptions is given below:


The actuarial method used to calculate the Technical Provisions was the defined accrued benefits method.

Key assumptions

The assumptions agreed with the Company for the 31 March 2018 valuation were as follows:

  • a discount rate set to be the yield available on the nominal fixed interest gilt yield curve plus 1.0 percentage point per annum

  • an RPI inflation assumption derived from nominal and real gilt yield curves

  • a CPI assumption, which has been derived by making a suitable adjustment to the RPI inflation assumption. A deduction of 0.75% per annum has been used for this valuation, which reflects a prudent adjustment given observed past levels and future expectations. The assumption could not be derived directly as there was no reliable market-based method for deriving an assumption for CPI price inflation

  • pension increases assumptions based on the relevant inflation assumption and a model to allow for the pension increase collars (e.g. 3% and 5%) and future inflation volatility of 1.5% per annum

  • the pre-retirement mortality table based on AC00 tables

  • a post-retirement mortality assumption of 102% of the S2PA tables for males and 114% of the S2DA tables for females, both projected in line with the Continuous Mortality Investigation Model (CMI_2016) for future improvements with a 1.5% per annum long-term rate of improvement and a smoothing factor of 8.0.

The agreed assumptions gave rise to a funding surplus of £143m as at 31 March 2018. As the Scheme was in surplus, there was no requirement for deficit funding from the Company for the immediate future.

The next full valuation is expected to have an effective date of 31 March 2021.

Solvency funding position

As at 31 March 2018, it was estimated that the amount required to secure the defined benefit obligations of the Scheme in full with an insurance company, in the event of the Scheme winding up, was £6,442m, which is a shortfall of £1,345m. This figure is just an indication and does not imply that the Trustee or the Scheme Sponsor are considering winding up the Scheme.