Retirement arrangements
We operate pension arrangements on behalf of our employees in both the UK and the US and also provide post-retirement healthcare and life insurance benefits to qualifying retirees in the US.
In the UK, the defined benefit section of the National Grid UK Pension Scheme and the National Grid Electricity Group of the Electricity Supply Pension Scheme (National Grid Electricity Supply Pension Scheme) are closed to new entrants. Membership of the defined contribution section of the National Grid UK Pension Scheme is offered to all new employees in the UK.
In the US, we operate a number of pension plans, which provide both defined benefits and defined contribution benefits.
We also provide post-retirement benefits other than pensions to the majority of employees in the US. Benefits include health care and life insurance coverage to eligible retired employees. Eligibility is based on certain age and length of service requirements and in most cases retirees must contribute to the cost of their coverage.
Net pension and other post-retirement obligations
The following table summarises the pension and other post-retirement obligations recorded in the consolidated financial statements:
| Net plan asset/(liability) | UK £m |
US £m |
Total £m |
|---|---|---|---|
| As at 1 April 2007 | (451) | (794) | (1,245) |
| Acquisition of KeySpan | – | (440) | (440) |
| Exchange movements | – | 6 | 6 |
| Pension service cost | (81) | (68) | (149) |
| Expected return less interest | 75 | (12) | 63 |
| Curtailments and settlements | 3 | (81) | (78) |
| Actuarial gains and losses | |||
| – on plan assets | (631) | (280) | (911) |
| – on plan liabilities | 1,252 | 91 | 1,343 |
| Contributions | |||
| – ordinary contributions | 93 | 83 | 176 |
| – additional contributions | 155 | 180 | 335 |
| As at 31 March 2008 | 415 | (1,315) | (900) |
| Plan assets | 13,981 | 3,292 | 17,273 |
| Plan liabilities | (13,566) | (4,607) | (18,173) |
| Net plan asset/(liability) | 415 | (1,315) | (900) |
The amounts recorded in the balance sheet are based on accounting standards which require pension obligations to be calculated on a different basis to that used by the actuaries to determine the funding we need to make into each arrangement.
Other than the acquisition of KeySpan, which resulted in us assuming pension and other post-retirement obligations in connection with current and past employees of KeySpan, the principal movements in net pension obligations during the year arose as a consequence of actuarial gains on plan liabilities, principally as a consequence of using higher discount rates to calculate the present value of these obligations. This was partially offset by actuarial losses on the value of plan assets.
Actuarial position
The last completed full actuarial valuation of the National Grid UK Pension Scheme was as at 31 March 2006. This concluded that the pre-tax funding deficit was £371 million in the defined benefit section on the basis of the funding assumptions. Employer cash contributions for the ongoing cost of this plan are currently being made at a rate of 32.7% of pensionable payroll.
The last completed full actuarial valuation of National Grid Electricity Supply Pension Scheme was as at 31 March 2007. This concluded that the pre-tax funding deficit was £405 million on the basis of the funding assumptions. Employer cash contributions for the ongoing cost of this plan are currently being made at a rate of 20.5% of pensionable payroll, with administration fees paid in addition.
Contributions
In addition to ongoing employer contributions we have agreed to make additional deficit contributions to certain of the above plans as follows:
- National Grid UK Pension Scheme: The actuarial valuation as at 31 March 2007 is currently in progress but has not yet been concluded. In advance of finalising the valuation we have made deficit contributions of £115 million during 2007/08 and £250 million in April 2008. We and the trustees are currently in the process of agreeing a recovery plan in respect of the deficit expected to be included in the valuation; and
- National Grid Electricity Supply Pension Scheme: we have made deficit contributions of £40 million during 2007/08 and £60 million in April 2008. Further deficit payments of £2.5 million will be paid monthly from 1 April 2008 to 31 March 2009, in line with the agreed scheme recovery plan. We expect to pay £90.5 million in early 2009/10, with the remaining deficit payable monthly from April 2012 to March 2017.
In accordance with our funding policy for US pension and other post-retirement benefit plans we expect to contribute approximately £268 million to these plans during 2008/09.
Plan assets
Our plans in both the UK and the US are trustee administered and the trustees are responsible for setting the investment strategy and monitoring investment performance, consulting with us where appropriate.
At 31 March 2008 plan assets totalled £17,273 million (2007: £15,999 million) invested as follows:
Plan assets
£bn
