Rolls Royce will change the financing of its defined benefit (DB) pension schemes in 2013 so that the post-retirement benefits are calculated on the net surplus or deficit using an AA corporate bond rate.
According to the manufacturer’s 2012 Full year results, if this strategy had been effective in 2012, it would have increased the current service cost of DB post-retirement schemes by £9 million, the past service cost by £5 million, and reduced the net post-retirement scheme financing cost by £55 million. The net deficit at 31 December 2012 would have reduced by £100 million.
At 31 December 2012, Rolls Royce’s pension scheme deficits in the UK totalled £137 million, while overseas schemes totalled £737 million. Contributions by the employer in 2012 totalled £297 million: £250 million to the UK schemes and £47 to the overseas schemes.
Rolls-Royce and the trustees of its pension fund agreed a longevity swap in November 2011 to provide additional security to members of its defined benefit (DB) pension scheme.
The deal reduced the risk on approximately £3 billion of the scheme’s liabilities and covered 37,000 pensioners.