31 December 2015

This guide is intended for use by finance directors in discussions with their actuaries and auditors on the actuarial assumptions to be adopted for recognising pension assets and liabilities in financial statements. It is divided into five sections:

  1. Changes in market conditions since 31 December 2014
  2. Expected assumptions at 31 December 2015
  3. Recent developments
  4. Latest information from FTSE 100 company disclosures
  5. Simple guide to IAS 19


  • The FTSE All-Share Total Return Index has increased by 1.0%
  • The MSCI World Index (GBP) has increased by 2.9%
  • The iBoxx >15 year AA corporate bond yield index has increased from 3.41% to 3.68%
  • The FTSE 20 year fixed interest gilt yield index has increased from 2.39% to 2.61%
  • The Bank of England 15-year spot inflation rate has increased from 3.11% to 3.12%

AA corporate bond yields have increased over the year, which will lead to higher discount rates and a lower value being placed on pension liabilities. Expectations of inflation are broadly unchanged so overall we would expect pension liabilities to have decreased over the year. Asset performance has been mixed with equities performing better than bonds but all asset classes fell short of expected long-term returns.

Looking forward to 2016, the recent interest rate rise by the Fed in the US may offer some hope that interest rate rises in 2016 will bring relief to pension plans and defined benefit deficits next year. However, other economic indicators, in particular inflation and economic growth, along with Bank of England rhetoric, does not look promising for defined benefit pension schemes relying on an early rise in interest rates.

Indeed, we believe it is quite possible that we could go through the whole of 2016 without any interest rate rise.

With the added worry for markets of a possible positive Brexit vote, there is every possibility that 2016 will prove to be another very difficult year for defined benefit pension schemes.


The expected range of assumptions at 31 December 2015 is as follows. For the discount rate and inflation assumptions we would expect more mature plans to adopt assumptions towards the lower end of the range indicated and less mature plans to adopt assumptions towards the higher end of the range indicated.

  • Discount rate 3.45% to 3.95%
  • Price inflation (RPI) 3.05% to 3.55%
  • Price inflation (CPI) 1.85% to 3.05%
  • Salary inflation 3.05% to 5.05%

Assumed life expectancy 25 to 30 years for a male now aged 60 (justified by nature of employee population or historic experience). 1 to 2 years higher for a male retiring 20 years from now.

The full report covers:

RECENT DEVELOPMENTS: Alternative approach to measuring interest costs | FRS 102 | Amendments to FRS 102 | Proposed changes to IAS 19 and IFRIC 14 | IFRIC 14 – availability of refunds from a defined benefit plan | Premeasurement on a plan amendment, curtailment or settlement | Discount rated research projects |  Post-employment benefits research project

LATEST INFORMATION FROM FTSE 100 COMPANY DISCLOSURES: Discount rate | Price inflation | CPI inflation | Salary inflation | Mortality

(This analysis is based on the most recent annual report available at 31 December for each FTSE 100 company with a defined benefit pension plan.)

And a Simple Guide to IAS 19: Balance sheet | Income statement | Remeasurements | Disclosure items

Download the report

contact Charles Cowling
Director charles_cowling@jltgroup.com 0161 242 5388