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Lane Clark & Peacock LLP

European Pensions Briefing

This is the first edition of Lane Clark & Peacock

LLP’s European Pensions Briefing. It provides a

high-level analysis of pension issues that senior

corporate management should be aware of. Due

to recent market turmoil, some of these issues may

require action as part of the year-end process for

many companies.

Lane Clark & Peacock LLP (LCP) is a leading

actuarial consultancy at the forefront of advising

companies on pension costs and risks. LCP has

market leading expertise in drawing together the

specialist skills needed to successfully manage

these costs and risks around Europe in a

consistent way that is aligned to the business.

For further information about any of the issues discussed in this

Briefing, please contact Shaun Southern or Alex Waite, or the

partner who normally advises you.

For further copies of the report, please download a copy from our

website www.lcp.uk.com or www.lcpeurope.com, or contact

Kathryn Gant on +44 (0)1962 870 060 or email

[email protected].

This report may be reproduced in whole or in part, without

permission, provided prominent acknowledgement of the source

is given. Although every effort is made to ensure that the

information in this report is accurate, Lane Clark & Peacock LLP

accepts no responsibility whatsoever for any errors, or the

actions of third parties. Information and conclusions are based

on what an informed reader may draw from each company’s

annual report and accounts. None of the companies has been

contacted to provide additional explanation or further details.

This report and the information it contains should not be relied

upon as advice from LCP. Specific professional advice should be

sought to reflect an individual company's circumstances.

© Lane Clark & Peacock LLP December 2008

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This European Pensions Briefing provides Finance Directors, Corporate Treasurers and all companysenior management with a clear and plain language briefing of the key pension issues that they needto be aware of. Recent market turmoil has caused a host of pension-related challenges, some ofwhich may require action as part of the year-end process for many companies.

There are 8 key issues that we have identified as areas that Finance Directors with European entitiesneed to be briefed on:

1. The challenges of IFRS accounting in the current economic climate

2. Underestimating pension liabilities by misjudging future longevity

3. IAS19 is set to change

4. US listed companies aiming for a moving target

5. IFRIC14 – Should this increase my pension liability?

6. Global convergence of investment strategy for pension plans

7. Global Corporate Governance for pension plans

8. Pan-European plans take second place to other solutions

Appendices

2

4

6

8

9

10

9

10

11

13

14

15

1

EUROPEANPENSIONSBRIEFIN

G

Page

EUROPEANPENSIONSBRIEFING


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1. The challenges of IFRS accounting in the current economic climate

IAS19 (the International Financial Reporting Standard (IFRS) covering pensions) is cracking under theextreme market conditions recently witnessed, with many arguing it is no longer fit for purpose. The rangeof possible results for placing a value on future pension obligations has never been wider. Our analysishighlights that there appears to be no clear consensus on where companies are positioning themselveswithin this range.

Our analysis demonstrates that a typical company could choose to disclose anywhere between a 20%deficit and a 10% surplus for its pension plan. For the typical FTSE Global 100 company, this representsa potential balance sheet difference of €2.5bn.

Whilst the wide range of possible answers will make comparability between companies nigh onimpossible – it does mean that companies need to make an informed decision as to where in the rangeis the right place for them. So what has caused the cracks to appear in IAS19? What should you do?

Yield curve blown apart

The discount rate is typically the critical assumption used to value pension liabilities – under IAS19 thishas to be based on “high quality corporate bonds”. Generally, companies have applied a discount ratebased on an AA-rated corporate bond yield curve to discount the cash flows expected from the pensionplan over the coming years.

Figures 1 & 2 opposite illustrate that before the credit crunch this was a relatively simple task with a verynarrow range of possible outcomes. However, looking at the current yields it is hard to even tell if theyield curve slopes up or down over time - it is easy to see how two actuaries plotting a yield curve couldget completely different results. This problem applies equally in the Eurozone, UK and US.

One of the main drivers of this dramatic increase in dispersion comes from bonds in the financial sector.Figure 3 opposite illustrates this clearly for the Eurozone at 30th November 2008.

“Phil CuddefordSenior Consultant, LCP

The market turmoil of recent months means that companies across Europe have to develop a robustapproach to setting their year-end financial assumptions. Small changes in approach can lead tolarge differences in results, to an unprecedented degree at the moment.

“

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GEuropean Pensions Briefing

3

2%

4%

6%

8%

10%

12%

14%

0 2 4 6 8 10 12 14 16 18 20

Duration

Yiel

dUSEuroUK

2%

4%

6%

8%

10%

12%

14%

0 2 4 6 8 10 12 14 16 18 20

Duration

Yie

ld

USEuroUK

Figure 1: 30th June 2007

Before credit crunch

Figure 2: 30th November 2008

0%

2%

4%

6%

8%

10%

12%

14%

0 2 4 6 8 10 12 14 16 18 20

Duration

Yiel

d

FinancialsNon-financials

Figure 3: Euro AA corporate bond yields - 30th November 2008

Most of the disperson is due to financial sector bonds

Source: Merrill Lynch raw data





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“High quality” corporate bonds?

IAS19 requires the discount rate to be set based on the yield available on “high quality corporate bonds”– widely accepted as being AA-rated bonds. Figure 4 shows how the extra yield compared togovernment bonds (often called the credit spread) has grown to 3 or 4 times the pre-credit crunch level– and continues to grow.

Whilst at first sight this may appear to be good news for companies in respect of their pension costs,Finance Directors need to make an informed decision as to whether it makes sense to fully reflect thischange.

Reasons a company may decide against booking all the “good news” now include potential auditorpushback, criticism from users of the accounts, the position of their comparator companies, and thepotential “bad news” at a later date if/when credit spreads revert to more long-term levels.

To illustrate the impact - if UK credit spreads reverted to their pre-credit crunch level, approximately 40%would be added to the reported pension liabilities, with similar impacts across other major Europeanterritories such as the Netherlands, Belgium, Ireland and Germany.

For those involved in acquiring companies with pension liabilities, it is clearly vital that they understandthese issues, to determine the extent to which the true value of pension liabilities may be understated.

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

"Sterling Non-Gilts AA 15+yr"

"US Corp AA 15+yr"

"Euro Corp AA 10+ Yr"

Figure 4: Credit spreads - good news?


“David LanePartner, LCP

The credit crunch is causing companies involved in transactions to reassess the riskiness of pensioncommitments. Our M&A practice helps companies to fully understand and react to these issues across a widerange of countries.

“

What should you do?

If your pension liabilities are material, then given the potential impact of your decisions regarding discountrate etc, you need clear guidance on the choices you have and the implications of these – once you havethis you can choose the place within the range which best suits your needs.

Communications with your auditor will also be vital – significant changes to the pension figures just beforegoing to print are usually best avoided. Since there is no “single right answer”, auditors will be lookingfor companies to demonstrate their approach is compliant, robust and consistent, and that theyunderstand the consequences of, for example, taking full credit now for what may turn out to be atemporary and artificial improvement in results.

Some companies set discount rates before the year-end, perhaps at 30th November – this approach maybe brought into question this year if December continues to be as volatile as we have seen throughout2008.

With such a wide range of discount rates possible in almost every country around the world, it would besensible to set an approach centrally on the key issues, and communicate this to each country.Otherwise ensuring consistency across countries will be almost impossible and you may be left withhaving to manually alter figures as the reporting deadlines loom.

In addition to this, there are some country-specific issues which may need to be considered as part ofthe year-end process. A selection of these is set out in the box below:

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5

Some country-specific issues for the year-end process

• China: New Labour Contract law

and retroactive termination indemnities

• France: Social charges on Retirement

Indemnity plan and new severance rules

• Germany: Assumptions for cash balance and

Contractual Trust Arrangement (CTA)-funded plans

• Ireland: Action on IFRIC14 and review of mortality assumptions

• Italy: Termination Indemnity reforms

• Japan: Tax Qualified Pension Plan reforms and plan changes

• Netherlands: Degree of indexation to be granted for 2009; will contributions need to

increase in 2009?

• Sweden: Discount rate - can corporate spreads be used?

• Switzerland: IFRIC14 consensus and discount rate

• Turkey: Increase in retirement age

• UK: Action on IFRIC14 and funding basis impact

• US: Action on IFRIC14 and funding basis impact

• US: Cash balance plan assumptions and credit spreads

• US: Healthcare plan changes (increased deductibles, co-payments)



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2. Underestimating pension liabilities by misjudging future longevity

To value pension liabilities we need to estimate how long people will live and continue to receive theirpension. Higher longevity means larger pension liabilities.

A typical FTSE Global 100 company currently assumes that a UK based male employee aged 45 todaywill live to age 88. Most other countries assume their employees will live significantly less – in some cases5 years less. Are they underestimating their pension liabilities?

Figure 5 opposite shows male life expectancy of the general population across a range of countries andhow this has increased over recent decades. In fact the figures hardly differ by country – what is clear isthat every decade male life expectancy has increased by 1 to 2 years across all countries – if this trendcontinues it will cause a significant pension burden – particularly in countries where pension paymentskeep pace with inflation.

Our analysis of what companies are using for reporting pension liabilities shows some disturbing results:

Few companies have a consistent approach across countries

Many companies simply use local “standard” mortality tables – which can provide some very odd results.One company disclosed that it assumed its employees in France live 5 years longer than its employeesin Germany – does this make any sense?

On the other hand, a number of companies are applying a consistent approach across the globe and wevery much endorse this.

Allowance for “working” population

It is widely accepted that employed people will tend to live longer than the general population whichincludes people unable to work due to illness or disability. In the UK and France it is typical for companiesto assume this difference may equate to 5 years.

However, for many other countries a much lower adjustment is made – perhaps 1 or 2 years. Are theyunderestimating the longevity of their own employees? As a guide an extra 3 years of life expectancyadds 10% to pension liabilities which keep pace with inflation.

Wide range of allowance for future longevity improvements

Figure 6 opposite shows the wide range of average future improvement in longevity assumed over thenext 20 years (based on 2007 disclosures of FTSE Global 100 companies). Effectively this shows howmuch longer someone currently aged 45 is expected to live in retirement than a current pensioner aged65. Are the countries that assume a low level of improvement underestimating pension liabilities?

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7

75

76

77

78

79

80

81

82

83

Por

tuga

l

Den

mar

k

Net

herla

nds

Bel

gium

Ger

man

y

Finl

and

Nor

way US

Spa

in

Italy

Sw

eden

Fran

ce

Can

ada

Sw

itzer

land

Aus

tralia

Japa

n

General population male life expectancy at age 65

Years

1973 1983 1993 2003

Source: LCP analysis of data from the Human Mortality Database (published by University of California, Berkeley, USA, and Max Planck

Institute for Demographic Research, Germany

UK

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Net

herla

nds

Ger

man

y

US

Spa

in

Fran

ce

Can

ada

Sw

itzer

land

Typical allowance for longevity improvements over next 20 years for a 65 year old male

UK

Figure 5: Every 10 years, males live 1 to 2 years longer

Figure 6: No consistency in longevity improvement assumptions “

Benno AmbrosiniPartner, LCP Libera

Swiss companies have traditionallytaken account of longevity in adifferent way to many othercountries. This provides a challengeto Swiss multinationals who want tomanage and report in a consistent,more global, way. “

Source: LCP analysis of data from theHuman Mortality Database (publishedby University of California, Berkeley,USA, and Max Planck Institute forDemographic Research, Germany



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Are companies understating pension liabilities?

Of course it is impossible to know whether the UK and France are overestimating longevity or whetherother countries are underestimating it – only time will tell. However, what is clear is that there is no realevidence for the large differences that exist in the life expectancies assumed across the majorindustrialised economies.

What if practice in the UK is right? Figure 7 estimates by how much other countries are underestimatingtheir pension liabilities if the typical UK assumption were borne out in practice. (Common practice inSwitzerland is to reflect longevity improvements through a small added percentage of liability – this is notallowed for in Figure 7.)

For the FTSE Global 100 companies in aggregate, this would add a broadly estimated €25bn, doublingthe deficit of about €24bn reported at year-end 2007.

In some locations this issue is potentially of even greater significance than described above – for examplein the US, post retirement medical liabilities in excess of Medicare provision are very significant, aregrowing rapidly and are potentially more sensitive than pensions to the longevity assumption.

Finally, one scary thought before we turn to what you should do – most UK companies will be increasingtheir longevity assumptions over 2008. If they turn out to be right then the global pension liabilities aremuch higher than currently reported.

What should you do?

For the countries that have significant pension liabilities we recommend that a “joined-up” consistentapproach is taken. This could involve a formal discussion at the central level to determine the Group’sview on the outlook for the global longevity of its employees, followed by issuing a framework to localcompanies – perhaps including a minimum life expectancy assumption based on the Group’s overallview. Some companies have already adopted such a robust framework.

-6%

-4%

-2%

0%

2%

4%

6%

8%

Netherlands Germany UK US Spain

France

Canada Switzerland

Estimated % underestimate in liability if typical UK longevity assumptions are correct

Source: LCP analysis

Figure 7: Companies are significantly understating their liabilities in respect of longevity,

compared to the UK

3. IAS19 is set to change

Perhaps one of the most confusing issues for Finance Directors is that the IAS19 goalposts are moving.The International Accounting Standards Board (IASB) recently issued a discussion paper with manyproposed changes. The period for responses closed in September, and responses were generallynegative on most of their proposals.

However, we believe that (along with additional disclosure requirements) the following two changes seemdestined to be applied:

• The elimination of the optional “corridor” method of smoothing the impact of actuarial gains andlosses on both balance sheet and Profit & Loss (P&L); and

• The elimination of the concept of long-term expected return on assets being used in assessing theannual pension cost.

Both of these changes are likely to have a significant impact for many companies, including those thatcurrently apply IAS19 and those that apply Financial Accounting Standards (FAS) 87. They put morewater between IAS19 and FAS87 - at a time when Finance Directors are keen to see reduced GenerallyAccepted Accounting Standards (GAAP) differences.

Our major concern is that accounting standards, whose only purpose should be to ensure that companiesreport in a reliable, transparent and consistent manner, will continue to impact on the way in whichpension plans are managed. In particular, given that the direction of recent and proposed changes is tofurther accentuate the tension between the short term accounting focus and the long term nature of thedefined benefit pension promises, there is significant risk that making these types of changes may onlyhasten the demise of pension provision around the world.

4. US listed companies aiming for a moving target

US Finance Directors need to prepare for a potential future requirement to convert to IAS19. This presentsthe challenge of being an unfamiliar standard with some key differences to the US equivalent (FAS87),compounded by the fact that IAS19 is currently under review with an uncertain destination (see section 3).

The Securities and Exchange Commission (SEC) recently relaxed the requirement for Europeancompanies jointly listed in the US to reconcile their current accounting results to US GAAP. This broughtthe welcome news that companies no longer had to prepare accounts under two separate standards.

This has led to widespread speculation that US companies may be permitted to report under only IFRS,or even for this to become mandatory. In fact, the SEC recently announced a proposed “road map” tomake this optional for 110 of the largest US companies in 2009, with a view to it eventually becomingmandatory for all companies in 2014. This is currently under consultation.

US companies need to start thinking about the pensions aspects of this, to understand the likely impactof transition, any options that may be available, and identify and prepare the significant amount of datathat will be required to effect the transition efficiently and accurately.

Big impact on P&L expected on move from US GAAP to IFRS

Currently a large part of pension expense for companies that report under US GAAP is “spreading” badnews from the past (the “amortisation of losses” component of expense). Under some of the proposedchanges to IAS19 (see section 3), these elements will be excluded from the pension expense. Todemonstrate the potentially large impact for companies moving from US GAAP to IFRS, Figure 8 sets out

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9



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the percentage by which the 2007 pension expense would have improved if the spreading componenthad been excluded.

There are a number of other potentially major sources of impact, for example due to the “asset ceiling”rules of IAS19 which do not exist in the US standard (see section 5).

5. IFRIC14 – Should this increase my pension liability?

A new accounting interpretation (IFRIC14) can potentially force companies to reduce their balance sheetasset in respect of any pension plans in surplus, or even to increase their balance sheet liabilities for plansthat are in deficit according to IAS19.

IFRIC14 clarifies that companies cannot show an asset on their balance sheet in respect of their pensionarrangements if there is no way in which that asset can be recovered, either through a reduction in futureemployer contributions or as a refund at some point. In addition, a company with a balance sheet deficitmay need to increase this deficit if it has promised future contributions at a level that will lead to a futuresurplus, if the company has no way to get benefit from that surplus.

Finance Directors of multinational companies need to quickly ascertain where IFRIC14 may be a materialissue and agree an approach to deal with it. It could be a headache if the auditor raises this shortly afterthe year-end and you try and determine the impact as your reporting deadlines loom.

What do you need to do?

By determining now the likely countries where this could be an issue – typically the UK, Ireland,Switzerland, the Netherlands, Belgium, US and Canada, you can determine whether IFRIC14 impacts thereported figures. In some cases it will be necessary to delve into the detail of a plan’s legaldocumentation to discover whether you have an unconditional right to any surplus arising.

Once the detail is known you can communicate with your auditor and agree an early remedy – therebytaking a potential pressure point out of the reporting timetable.

0

2

4

6

8

10

12

14

< 20% 20% to 40% 40% to 60% 60% to 80% 80% to 100% > 100%

% Reduction in 2007 pension expense if Amortized (Gain)/Loss component excluded (FTSE Global 100 companies under FAS 87)

Num

bero

fcom

pani

es

Figure 8: Typical FAS87 pension costs could reduce significantly on move to IAS19

“

Stu LawrenceSenior Vice PresidentSibson Consulting (LCP’s partner in North America)

US companies initially took a relaxed approach to IAS19 convergence, but with implementation possiblein the next few years, this is growing to be an issue of greater focus. We are looking forward tocontinuing our work with LCP to leverage their considerable expertise in IAS19.

“

6. Global convergence of investment strategy for pension plans

There have traditionally been large differences in asset allocation around the world, due to a variety oflegal, regulatory and cultural differences.

UK and US pension funds have tended to have a high equity allocation, believing that out-performancewill reduce pension costs. This was aided by investment volatility traditionally being smoothed in pensionreporting.

Dutch and Swiss pension funds have traditionally held fewer equities, reflecting a more cautiousapproach to investment in those countries.

German pension funds have historically held few equities, due largely to regulatory constraints on riskyinvestments in traditional German funding vehicles such as Pensionskasse and a history of not externallyfunding pension liabilities.

However, looking globally, the current trend is towardsmore external funding, and our analysis highlights asharp convergence of investment strategies –perhaps companies are looking at this from aconsistent global approach.

Recently, in the UK and US a higher awareness ofmarket volatility, a tightening of funding requirementsand a greater degree of “marking to market” inaccounting standards, have all combined to lower theappetite for equities.

At the same time, new vehicles in Germany (CTAs) have been established with essentially no regulatoryconstraints on asset allocation. These externally funded pension vehicles have revolutionised theGerman pension investment system, allowing companies for the first time to pre-fund for pensionliabilities in a flexible way. However, it also highlights that companies need to carefully considerinvestment risk. This change has, perhaps, contributed to Germany’s relatively low equity allocationactually becoming lower.

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11

UK

US

Other EU

FranceGermanySwitzerlandNetherlands

-15%

-10%

-5%

0%

5%

10%

15%

20%

Equity allocation in excess of global average in 2006 and 2007 (FTSE Global 100)

2006 2007

Figure 9: Except in Germany, equity allocations are converging to the global average

Alex WaitePartner, LCP

The recent arrival of CTAs has transformed thepensions funding environment in Germany. It willbe interesting to see the extent to whichsophisticated investment for pensions takes off,and there is already some evidence of LiabilityDriven Investment.

“

“



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Asset allocations are unlikely to completely convergearound the world as differences will remain in fundingrequirements and cultural attitudes. For example,pension funds in the Netherlands have to holdincreased levels of solvency buffers for riskierinvestment strategies and therefore there is a lowerappetite for equity investments. There is no suchformal linkage in most other countries for externalfunding, although solvency standards are still evolving.

Looking at the potential impact of possible changes toIFRS – if this moved to measure pension liabilities on arisk-free basis (the UK accounting standard setterrecently proposed this) and reported on a pure mark tomarket basis on both balance sheet and P&L, thenthere would be a clear incentive for companies tominimise volatility by investing entirely in governmentbonds.

What should you do?

We strongly recommend that asset return assumptions for pension reporting purposes are consistentacross countries. One method to achieve this is to centrally set a framework for setting theseassumptions – a number of companies use this approach.

Is it right to have a high weighting of equity investment in one country compared to another country?More and more multinational companies are looking at investment strategy centrally at the global level.By doing so, they can consider the acceptable level of risk as well as improve the efficiency of theirinvestment holdings by using a coordinated and consistent approach across countries.

“

Henk van EmbdenPartner, LCP Netherlands

It will be very interesting to see if a form ofSolvency II is eventually applied tocompany pensions in Europe, along thelines of the new Dutch pension fundingrules.

“

7. Global Corporate Governance for pension plans

Many of the FTSE Global 100 companies have a high proportion of liabilities outside of their homecountry, although not all disclose this information. This is illustrated in Figure 10.

Ensuring you have a sufficient levelof governance across your globalpension plans is therefore veryimportant - but how manycompanies can say they have asuccessful framework in place tomonitor and control pension riskswherever possible?

We set out below an overview of the type of global pension governance framework and processes thatwe recommend multinational companies should implement.

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13

0

5

10

15

20

25

30

35

0 to 5% 5 to 10% 10 to 15% 15 to 20% 20 to 25% > 25%

% Liabilities outside of Home Country

Num

bero

fcom

pani

es

US UK Asia-Pacific Other Europe

Do your global benefit plansmeet the needs of the

workforce?

What are the costsand risks of your

global benefit plans?

How do you manageyour global benefit

plans?

Managinginformation

Global benefitphilosophies &

policies/guidelines

Global governanceframework

Ongoing globalrisk management& monitoring

• Top-down vsbottom-up

• Cost effectiveness• Keeping updated• Right level of detail• Communicating value

to local management

• In line with businessand reward objectives

• Trade off betweenflexibility andprescriptiveness

• Areas include design,investment, financing,funding, accounting,provider selection,pooling, M&A,administration andcommunication

• Multi disciplinaryoversight committee

• Clear roles andresponsibilities for keydecisions

• Internal stakeholderinvolvement

• Clear internal reportingand communication

• Risk metrics, and sizeand allocation of globalrisk tolerance (budget)

• Process to regularlymonitor risk budget

• Global risk matrix• Levers to manage risk

within budget• Keeping track of

developments• Rolling programme of

governance reviews

Figure 10: Many FTSE Global 100 companies have significant

liabilities outside their home country

“

Shaun SouthernPartner, LCP

More and more companies are realising the potential financial significance of their globalpension commitments, and we are at the forefront of this governance activity.

“



www.lcpeurope.com14

8. Pan-European plans take second place to other solutions

A key hope for many multinationals was that Pan-EuropeanPension plans (PEPs) would become a practical reality,providing companies with the opportunity to have a Europe-wide pension plan for all employees.

Despite some progress, there is significant lack of clarity in theEU Directive, inconsistent implementation among memberstates, social and labour laws remain fundamentally different,and last but not least the tax situation remains a dauntingchallenge. It is therefore no surprise that there are to date notrue PEPs involving a significant number of the 27 EU states; infact such plans may never exist. True Pan-European pensionplans remain a distant vision.

However, if taken at face value this paints an overly negativepicture of European convergence, and a number of othersolutions have been developed and implemented, including:

• Offshore plans have been around for a long time, and while not offering all the tax or structuraladvantages of a PEP, are a useful tool in the armoury of a global company to address the pensionneeds of a combination of key employees, internationally mobile employees or employees in locationswhere the company does not have local pension arrangements;

• Cross border asset pooling has been implemented by a number of international companies withcritical mass and a pioneering attitude, and can deliver material cost savings and enhancedgovernance;

• Multinational pooling of insured risks, such as medical or life assurance benefits, can allow companiesto participate in a larger pool for averaging claims, and reduce expenses, to reduce costs andenhance terms on a Pan-European basis; and

• Finally, there have been considerable developments in crossborder plans, which are less ambitious versions of PEPs in thatthey include fewer countries, usually clustered geographicallyor among those with similar cultures or social and labour laws.Further, cross border plans are not necessarily restricted to EUlocations.

PEPs or truly cross border plans are potentially a logical endpoint in a company’s governance journey. Global companiesneed to consider the extent to which this is true for them,understand the barriers and challenges, and set a realistic targetwhere the business need justifies the time and expense ofdeveloping it.

“

Martin HaughPartner, LCP Ireland

Despite the continuing challengesto the emergence of truly Pan-European plans, we are seeingcontinued growth in cross borderplans, including those with home-host combinations in Ireland, theUK and certain other countries.We are also seeing increasedinvestment in international pensionplans based in Ireland.

“

Peter BastiaensPartner, LCP Belgium

Our clients are increasinglyinterested in Pan-European Plans(PEPs), and with Belgium at theforefront of “PEP-friendly”regulation we anticipate furtherpiecemeal developments over thenext few years.

“

“

15

Appendix1–FTSEGlobal100accounting

disclosurelisting

Company

Country

2007

Year-End

Market

valueof

assets

Valueof

liabilities

Liab

ilitiesas

%ofmarket

capitalisation

2007

Surplus/

(deficit)

2006

Surplus/

(deficit)

2007

Service

Cost

2007

Employer

Contrib’ns

2007

Contrib’ns/

Assets

2007

Equities

2007

Equities/

TotalA

ssets

Mortality

Disclosed?

£m£m

£m£m

£m£m

%£m

%

BH

PB

illito

n**

Aus

tral

iaJu

n87

6(8

92)

1%(1

6)(9

6)32

344%

354

40%

YN

atio

nalA

ustr

alia

Ban

kA

ustr

alia

Sep

3,48

8(3

,271

)12

%21

7(3

5)96

122

4%1,

972

57%

NIn

Bev

**B

elgi

umD

ec1,

662

(1,9

46)

25%

(284

)(3

85)

5194

6%84

851

%Y

KB

C**

Bel

gium

Dec

1,12

0(1

,316

)11

%(1

96)

(148

)72

666%

498

45%

NA

PM

olle

r-

Mae

rsk

Gro

up**

Den

mar

kD

ec1,

100

(1,2

69)

11%

(169

)(2

83)

2457

5%59

254

%N

Nok

iaFi

nlan

dD

ec1,

602

(1,6

70)

2%(6

8)(1

13)

9212

07%

184

11%

NA

xaFr

ance

Dec

5,20

0(9

,546

)23

%(4

,346

)(4

,389

)21

746

1%3,

016

58%

ND

anon

eFr

ance

Dec

326

(504

)2%

(178

)(1

43)

157

2%95

29%

NL'

Oré

al*

Fran

ceD

ec1,

111

(1,7

42)

8%(6

31)

(729

)76

124

11%

430

39%

NLV

MH

*Fr

ance

Dec

297

(452

)2%

(155

)(1

72)

2829

10%

151

51%

NS

anof

i-A

vent

is**

Fran

ceD

ec3,

951

(6,2

49)

13%

(2,2

98)

(2,4

32)

174

108

3%2,

015

51%

NTo

tal*

**Fr

ance

Dec

4,86

6(5

,990

)6%

(1,1

24)

(1,5

76)

118

410

8%1,

752

36%

NB

AS

F**

Ger

man

yD

ec8,

852

(8,7

79)

24%

73(4

14)

199

961%

2,65

530

%N

Bay

er**

Ger

man

yD

ec7,

172

(10,

436)

30%

(3,2

64)

(3,9

38)

186

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6%3,

149

44%

ND

aim

ler

*G

erm

any

Dec

10,1

50(1

1,55

9)23

%(1

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)(1

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947

55%

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%N

Deu

tsch

eB

ank*

**G

erm

any

Dec

6,87

6(6

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921

419

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62%

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SA

PG

erm

any

Dec

256

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123

2841

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141

55%

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Sep

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mp

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gK

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Dec

781

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55%

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anon

Jap

anD

ec2,

694

(2,7

07)

9%(1

3)(3

47)

108

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983

36%

NH

ond

aM

otor

Co.

Jap

anM

ar5,

325

(7,0

91)

31%

(1,7

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(2,2

41)

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319

6%2,

814

53%

NM

atsu

shita

Ele

ctric

Ind

ustr

ialC

o.Ja

pan

Mar

7,83

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%(6

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53)

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ishi

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anM

ar2,

162

(1,7

78)

4%38

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934%

1,36

263

%N

Nin

tend

oJa

pan

Mar

83(9

2)0%

(9)

(13)

60

0%N

DN

DN

Nis

san

*Ja

pan

Mar

4,35

9(5

,504

)44

%(1

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)(2

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30

0%N

DN

DN

Son

yJa

pan

Mar

2,87

4(3

,688

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%(8

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77)

151

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9%1,

301

45%

N

Thistableshowsthekeydisclosuresmad

ebyFTSEGlobal100Index

companies.The

source

ofthedataiseach

company’sannualreportandacco

unts

fortheacco

untingperiodendingin2007.

Coun

try/Reg

ion

Num

ber

Market

valueof

assets

Valueof

liabilities

Liab

ilitiesas

%ofmarket

capitalisation

2007

Surplus/

(deficit)

2006

Surplus/

(deficit)

2007

Service

Cost

2007

Employer

Contrib’ns

2007

Contrib’ns/

Assets

2007

Equities

2007

Equities/

TotalA

ssets

Num

ber

disclosing

mortality

assumptio

ns£m

£m£m

£m£m

£m%

£m%

Fran

ce6

15,7

51(2

4,48

3)10

%(8

,732

)(9

,442

)62

772

35%

7,45

947

%0

Ger

man

y6

50,0

29(5

4,74

2)22

%(4

,713

)(7

,669

)1,

533

1,72

93%

17,3

9435

%1

Net

herla

nds

338

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(37,

377)

31%

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itzer

land

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(54,

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5(1

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clud

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ean

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on7

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28(2

9,06

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3,73

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049

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334

%3

TOTA

L9977

557788,,

770011

((559966

,,335511

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%%((11

77,,6655

00))((55

88,,1188

66))1144

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1199,,00

889933%%

228877,,

665533

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2255


16

Appendix 1 (continued) - FTSE Global 100 accounting disclosure listing

Toyo

taJa

pan

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IN

G G

roup

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ethe

rland

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684)

25%

154

(941

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160

16%

3,57

7 33

%N

P

hilip

sN

ethe

rland

sD

ec14

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(13,

764)

56%

1,12

163

419

524

52%

3,97

8 27

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U

nile

ver

Net

herla

nds

Dec

12,7

04(1

2,92

9)24

%(2

25)

(1,4

60)

242

853

7%7,

337

58%

Y

Ban

co S

anta

nder

*S

pai

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ec8,

717

(17,

554)

26%

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37)

(9,7

51)

154

1,66

719

%3,

020

35%

Y

BB

VAS

pai

nD

ec1,

127

(5,2

78)

11%

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51)

(4,0

88)

3145

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0 9%

Y

Rep

sol Y

PF

Sp

ain

Dec

0(3

3)0%

(33)

(38)

n/a

n/a

n/a

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ND

N

AB

BS

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13%

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9)95

149

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N

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dit

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sse

Sw

itzer

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Dec

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6(7

03)

139

325

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597

24%

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Nes

tlé G

roup

**

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itzer

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Dec

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0,59

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60)

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230

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024

46%

N

Nov

artis

**

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itzer

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Dec

9,19

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638

221

230

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860

42%

Y

Roc

he *

*S

witz

erla

ndD

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461

(6,2

18)

10%

(757

)(1

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)17

092

2%2,

666

49%

Y

UB

S *

*S

witz

erla

ndD

ec11

,895

(11,

470)

24%

425

(324

)20

234

83%

4,76

4 40

%Y

Z

uric

h **

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itzer

land

Dec

6,65

1(6

,939

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88)

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155

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10%

2,26

8 34

%N

A

nglo

Am

eric

an *

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KD

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574

(1,5

47)

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(49)

2935

2%68

2 43

%Y

Ast

raZ

enec

aU

KD

ec4,

492

(5,5

14)

18%

(1,0

22)

(963

)15

017

34%

2,02

0 45

%Y

B

G G

roup

*U

KD

ec59

1(7

92)

2%(2

01)

(245

)52

6210

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2 63

%Y

B

PU

KD

ec21

,418

(19,

989)

17%

1,42

938

342

637

52%

16,0

10

75%

Y

Brit

ish

Am

eric

an T

obac

coU

KD

ec4,

209

(4,3

59)

15%

(150

)(3

58)

7513

83%

1,85

6 44

%Y

D

iage

oU

KJu

n5,

019

(5,4

21)

19%

(402

)(7

77)

9895

2%2,

792

56%

Y

GS

KU

KD

ec10

,182

(10,

338)

15%

(156

)(1

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)24

950

45%

6,24

7 61

%Y

H

SB

C H

old

ings

UK

Dec

15,1

75(1

6,12

8)16

%(9

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13)

401

635

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015

26%

Y

Nat

iona

l Grid

UK

Mar

15,4

68(1

6,12

7)76

%(6

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(1,2

75)

115

276

2%5,

926

38%

Y

Rio

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toU

KD

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235

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)(2

11)

131

117

1%4,

939

60%

Y

Roy

al D

utch

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ll *

UK

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37,6

92(3

0,92

8)23

%6,

764

3,68

659

563

12%

23,2

72

61%

Y

SA

BM

iller

**

UK

Mar

566

(727

)5%

(161

)(1

47)

2114

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8 63

%Y

S

tand

ard

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rter

edU

KD

ec1,

246

(1,3

97)

5%(1

51)

(272

)48

554%

427

34%

Y

Vod

afon

e G

roup

UK

Mar

1,25

1(1

,292

)1%

(41)

(101

)74

554%

902

72%

Y

Xst

rata

UK

Dec

1,25

7(1

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)5%

(112

)(1

08)

2258

5%61

2 49

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3M

US

AD

ec7,

770

(7,5

46)

25%

224

(290

)15

918

82%

3,78

5 49

%Y

A

bb

ot L

abor

ator

ies

US

AD

ec2,

837

(2,8

96)

7%(5

9)(2

70)

125

141

5%1,

986

70%

NA

IGU

SA

Dec

2,04

3(2

,454

)3%

(411

)(5

34)

113

198

10%

1,11

6 55

%N

Altr

ia G

roup

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AD

ec4,

770

(4,3

16)

5%45

494

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661%

3,19

5 67

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Ap

ple

US

AS

epn/

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an/

an/

an/

an/

an/

an/

an/

an/

aN

Boe

ing

US

AD

ec25

,253

(22,

898)

67%

2,35

531

747

729

01%

9,59

6 38

%N

Bris

tol M

yers

Sq

uib

bU

SA

Dec

3,01

4(3

,096

)12

%(8

2)(2

70)

125

162

5%1,

962

65%

NC

ater

pill

arU

SA

Dec

6,61

6(7

,082

)30

%(4

66)

(767

)13

429

0%4,

492

68%

NC

hevr

onU

SA

Dec

5,91

3(6

,523

)7%

(610

)(8

18)

193

159

3%3,

628

61%

NC

isco

Sys

tem

sU

SA

July

61(1

15)

0%(5

4)(6

4)N

DN

Dn/

aN

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aN

The

Coc

a-C

ola

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pan

yU

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Dec

1,71

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(45)

(105

)62

302%

997

58%

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ell

US

AFe

bn/

an/

an/

an/

an/

an/

an/

an/

an/

an/

aN

The

Dow

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mic

al C

omp

any

US

AD

ec8,

076

(7,8

13)

42%

263

(455

)14

592

1%4,

119

51%

ND

u P

ont

US

AD

ec11

,324

(11,

118)

56%

206

(480

)19

213

91%

6,22

8 55

%N

EM

CU

SA

Dec

211

(170

)1%

4124

00

0%14

8 70

%N

E

mer

son

US

AS

ep1,

902

(1,7

17)

8%18

588

3165

3%1,

240

65%

N

Company

Country

2007

Year-End

Market

value of

assets

Value of

liabilities

Liab

ilities as

% of market

capitalisation

2007

Surplus/

(deficit)

2006

Surplus/

(deficit)

2007

Service

Cost

2007

Employer

Contrib’ns

2007

Contrib’ns/

Assets

2007

Equities

2007

Equities/

Total A

ssets

Mortality

Disclosed?

£m£m

£m£m

£m£m

%£m

%


17

* C

omp

any

uses

cor

ridor

met

hod

for

rec

ogni

sing

gai

ns/lo

sses

und

er IA

S19

** C

omp

any

rest

ricts

bal

ance

she

et a

sset

s d

ue t

o irr

ecov

erab

le s

urp

lus

und

er IA

S19

The

2007

and

200

6 fig

ures

are

tak

en f

rom

the

com

pan

ies’

rep

orte

d p

ensi

ons

dis

clos

ures

in t

he p

ublis

hed

acc

ount

s fo

r th

e ac

coun

ting

per

iod

s en

din

g in

200

7 an

d 2

006

resp

ectiv

ely.

Pen

sion

liab

ilitie

s ex

clud

e p

ost-

retir

emen

t m

edic

al p

lans

and

oth

er p

ost-

emp

loym

ent

ben

efits

whe

re t

hese

are

dis

clos

ed s

epar

atel

y.P

ensi

on p

lan

asse

ts in

clud

e re

imb

urse

men

t rig

hts

and

oth

er s

egre

gate

d a

sset

s w

here

the

se a

re s

how

n in

the

pen

sion

s d

iscl

osur

es.

Th

ey e

xclu

de

any

othe

r co

mp

any

asse

ts t

hat

may

be

incl

uded

els

ewhe

re o

n co

mp

any

bal

ance

she

et in

ord

er t

o fu

nd p

ensi

on o

blig

atio

ns.

The

surp

lus/

(def

icit)

are

bef

ore

tax

and

rep

rese

nt t

he d

iffer

ence

bet

wee

n th

e as

sets

and

liab

ilitie

s.Fo

r co

mp

anie

s th

at r

epor

t un

der

IAS

19 (o

r ot

her

sim

ilar

loca

l sta

ndar

ds)

no

acco

unt

is t

aken

of,

whe

re a

pp

licab

le,

any

unre

cogn

ised

bal

ance

she

et it

ems

or r

estr

ictio

ns t

o b

alan

ce s

heet

ass

ets.

All

anal

ysis

and

pro

ject

ions

has

bee

n b

ased

on

the

com

pan

ies

in t

he F

TSE

Glo

bal

100

Ind

ex a

s at

31s

t D

ecem

ber

200

7.

No

allo

wan

ce is

mad

e fo

r ch

ange

s to

con

stitu

ent

mem

ber

s in

200

7 an

d 2

008.

Sin

ce 3

1st

Dec

emb

er 2

007,

Gile

ad S

cien

ces,

Mos

aic

Com

pan

y, P

hilip

Mor

ris In

tern

atio

nal,

Tran

soce

an a

nd A

pac

he C

orp

hav

e en

tere

d t

he In

dex

.S

ince

31s

t D

ecem

ber

200

7, S

AB

Mill

er,

Dow

Che

mic

al,

EM

C C

orp

, M

otor

ola

and

Sch

erin

g-P

loug

h ha

ve le

ft t

he In

dex

.M

arke

t ca

pita

lisat

ions

wer

e ta

ken

from

the

FTS

E G

lob

al 1

00 In

dex

con

stitu

ent

rep

ort

pub

lishe

d a

s at

31s

t D

ecem

ber

200

7.R

oche

, N

ews

Cor

p,

Roy

al D

utch

She

ll an

d A

P M

olle

r ha

ve t

wo

lines

of

shar

es.

The

mar

ket

cap

italis

atio

n is

the

sum

of

bot

h lin

es.

Rio

Tin

to,

Uni

leve

r an

d B

HP

Bill

iton

are

liste

d a

s se

par

ate

com

pan

ies

in t

wo

coun

trie

s. T

he c

ount

ry id

entif

ied

with

the

com

pan

y is

the

cou

ntry

whe

re t

he c

omp

any’

s m

arke

t ca

pita

lisat

ion

is h

ighe

r.

How

ever

the

com

bin

ed m

arke

t ca

pita

lisat

ion

for

bot

h en

titie

s is

sho

wn.

McD

onal

d’s

and

Rep

sol Y

PF

only

dis

clos

e a

net

pen

sion

s lia

bili

ty.

Ap

ple

, D

ell,

Goo

gle,

Ora

cle,

Qua

lcom

m d

o no

t ap

pea

r to

pro

vid

e an

y m

ater

ial d

efin

ed b

enef

it ar

rang

emen

ts.

Whe

re a

com

pan

y ha

s re

por

ted

fig

ures

in it

s ac

coun

ts in

a c

urre

ncy

othe

r th

an S

terli

ng,

all f

igur

es f

or t

hat

year

hav

e b

een

conv

erte

d t

o S

terli

ng u

sing

exc

hang

e ra

tes

app

rop

riate

as

at t

he c

omp

any’

s

bal

ance

she

et d

ate.

As

at 3

1st

Dec

emb

er 2

007

the

follo

win

g ex

chan

ge r

ates

wer

e us

ed:

1 G

BP

= 2

.0 U

SD

= 1

.4 E

UR

= 2

.2 C

HF

= 1

0.1

DK

K =

224

.3 J

PY

= 1

5.6

HK

D =

2.3

AU

D.

As

at 3

1st

Dec

emb

er 2

006

the

follo

win

g ex

chan

ge r

ates

wer

e us

ed:

1 G

BP

= 2

.0 U

SD

= 1

.5 E

UR

= 2

.4 C

HF

= 1

1.1

DK

K =

233

.3 J

PY

= 1

5.2

HK

D =

2.5

AU

D.

Exx

onM

obil

US

AD

ec13

,923

(17,

292)

7%(3

,369

)(4

,146

)40

61,

235

9%9,

582

69%

NG

EU

SA

Dec

33,6

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6,01

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%7,

586

4,52

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543

41%

18,0

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NG

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514

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Dec

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Company

Country

2007

Year-End

Market

value of

assets

Value of

liabilities

Liab

ilities as

% of market

capitalisation

2007

Surplus/

(deficit)

2006

Surplus/

(deficit)

2007

Service

Cost

2007

Employer

Contrib’ns

2007

Contrib’ns/

Assets

2007

Equities

2007

Equities/

Total A

ssets

Mortality

Disclosed?

£m£m

£m£m

£m£m

%£m

%


www.lcpeurope.com18

Largest deficits1

Appendix 2 – FTSE Global 100 accounting risk measures

Name 2007 2007 2007 Liabilities/Liabilities £m Market Cap £m Market Cap %

Largest liabilities compared to market capitalisation

Banco Santander 8,837 9,751

Axa 4,346 4,389

BBVA 4,151 4,088

ExxonMobil 3,369 4,146

Bayer 3,264 3,938

Sanofi-Aventis 2,298 2,432

National Grid 16,127 21,283 76%

Boeing 22,898 33,939 67%

IBM 43,628 74,579 58%

Du Pont 11,118 19,846 56%

Philips 13,764 24,695 56%

Nissan 5,504 12,450 44%

Name 2007 2006Liabilities £m Liabilities £m

IBM 43,628 43,873

Royal Dutch Shell 30,928 30,736

GE 26,015 26,709

Boeing 22,898 23,266

BP 19,989 19,962

Siemens 17,447 18,085

Largest liabilities

Name 2007 2007 2007 Deficit/ 2005 Liabilities/Deficit £m Market Cap £m Market Cap % Market Cap %

Largest deficit1 compared to market capitalisation

Banco Santander 8,837 67,987 13%

Axa 4,346 41,821 10%

BBVA 4,151 45,924 9%

Bayer 3,264 34,986 9%

Nissan 1,145 12,450 9%

Honda Motor Co. 1,766 23,128 8%

¹ These deficits take into accountassets shown in the companies’disclosures including reimbursementrights and other segregated assetswhere these are shown in the pensionsdisclosures. They exclude any othercompany assets that may be includedelsewhere on company balance sheetin order to fund pension obligations.

Name 2007 2006Deficit £m Deficit £m

www.lcpeurope.com


19

Name 2007 2007 2007 Equity/Equity £m Market Cap £m Market Cap %

Largest equity allocation compared to market capitalisation

IBM 25,356 74,579 34%

Du Pont 6,228 19,846 31%

Boeing 9,596 33,939 28%

National Grid 5,926 21,283 28%

The Dow Chemical Company 4,119 18,814 22%

Caterpillar 4,492 23,265 19%

Largest employer contribution compared to service cost

Name Contribut’ns

£m

Service Cost

£m

2007 Contribut’ns/

Service Cost %

Banco Santander 1,667 154 1082%

Zurich 665 155 429%

Unilever 853 242 352%

Total 410 118 348%

ExxonMobil 1,235 406 304%

Xstrata 58 22 270%

Name 2007 2007 2007 Assets/Assets £m Liabilities £m Liabilities %

Highest funding levels

Appendix 2 (continued) - FTSE Global 100 accounting risk measures

GE 33,601 26,015 129%

EMC 211 170 124%

Mitsubishi 2,162 1,778 122%

Royal Dutch Shell 37,692 30,928 122%

Hewlett Packard 6,820 6,013 113%

IBM 49,197 43,628 113%

* No regulated business is carried out from this officeAll rights to this document are reserved to Lane Clark & Peacock LLP. This report may be reproduced in whole or in part, without permission, provided prominent acknowledgement of the source is given.LCP is a limited liability partnership registered in England and Wales with registered number OC301436. LCP is a registered trademark in the UK (Regd. TM No 2315442) and in the EU (Regd. TM No 02935583).All partners are members of Lane Clark & Peacock LLP. A list of members’ names is available for inspection at 30 Old Burlington Street W1S 3NN, the firm’s principal place of business and registered office.The firm is regulated by the Institute of Actuaries in respect of a range of investment business activities. LCP is part of the Alexander Forbes group of companies, employing over 4000 people internationally.

www.lcp.uk.com www.lcpeurope.com

*

UK


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UK


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Office 2

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Tel: +353 (0)1 614 43 93

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Netherlands


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Netherlands

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Switzerland

LCP Libera AG

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Postfach

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Switzerland

Tel: +41 (0)43 817 73 00

Fax: +41 (0)43 817 73 99

Switzerland

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Postfach

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Switzerland

Tel: +41 (0)61 205 74 00

Fax: +41 (0)61 205 74 99

A member of the Multinational Group ofActuaries & Consultants. www.mgac.orgMain offices in: AFRICA AUSTRALIAEUROPE AND NORTH AMERICA

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