Outlined below is a brief description of the various data and calculation items used in Model Solutions.

Assets

The total market value of the assets invested in all defined benefit pension schemes in the UK at the given date.

Assets are split into three categories:

• Equity/Property -  assets held to achieve real investment returns, in exchange for a higher risk
• Bonds - mainly Corporate Bond holdings
• Gilt/Cash - Fixed interest and Index linked Government bonds, plus cash and other, low risk, ‘fixed interest’ investments

Liabilities

The size of the liabilities represents the present value of all future benefit payments to be made to the members of UK defined benefit pension schemes in respect of service  to date. The present value is the sum of all future payments discounted back to the given date.

Liabilities are split into categories depending on the members’ current status

• Active - in pensionable service, and accruing benefits, in the scheme
• Deferreds – left pensionable service, not yet drawing a pension
• Pensioners - in receipt of a pension from the scheme

Valuation Assumptions

As at 31 December 2009, these are the mean assumptions that Xafinity assess  applied for company accounting (FRS17) purposes. They have been tested against various surveys.

As at 31 December 2010, these are those expected to apply at the year end. They can be varied by the user with the results adjusting accordingly.

• Discount Rate - the rate used to put a present value on payments to be made in the future. The further a payment is in the future the smaller the present value is due to the compound interest effect of the discount rate. Under FRS17 rules apply as to the level of the Discount Rate
• Inflation - Assumed rate of increase in the Retail Price Index (RPI) in the future, not ‘current’ rate, which reflect previous 12 months price rises. Usually derived from comparing Index linked and fixed interest Gilts.
• Life Expectancy - The number of years an active member is expected to live after retirement. For example a figure of 24 implies that an active member, now say 45, who lives to retirement will then draw a pension for a further 24 years.

Market Conditions

• FTSE100 - The level of the FTSE 100 index. This index comprises the 100 most highly capitalised blue chip companies, representing approximately 81% of the UK market.
• Corporate Bond Yield - A measure of the rate of return achievable on high quality corporate bonds.
• Gilt Yield - A measure of the rate of return achievable on government issued bonds.

Funding Position

This compares the level of invested assets held by UK defined benefit pension scheme with the present value of their liabilities. If there are insufficient assets then there is said to be a deficit (the difference is shown in brackets). If assets exceed the liability there is said to be a surplus (difference not in brackets).