The UK schemes each use a duration speci c discount rate derived from the Mercer pension discount yield curve, which is based on corporate bonds with two or more AA-ratings. The European discount rate was calculated with reference to Aon Hewitt’s German discount rate yield curve. For the USA, the discount rate referenced the Citigroup intermediate pension liability index, the Merrill Lynch US corporate AA 10+ years index and the Towers Watson Rate:LINK benchmark. The approach taken in each territory is consistent with prior year. The underlying mortality assumptions for the major schemes, are as follows:
The key current year mortality assumptions for both GKN1 and GKN2 use S1NA year of birth mortality tables (adjusted for GKN experience) with CMI 2013 improvements and a 1.25% p.a. long term improvement trend. These assumptions give the following expectations for each scheme: for GKN1 a male aged 65 lives for a further 21.8 years and a female aged 65 lives for a further 23.9 years while a male aged 45 is expected to live a further 23.6 years from age 65 and a female aged 45 is expected to live a further 25.8 years from age 65. For GKN2 a male aged 65 lives for a further 22.8 years and a female aged 65 lives for a further 25.2 years while a male aged 45 is expected to live a further 24.7 years from age 65 and a female aged 45 is expected to live a further 27.1 years from age 65.
In the US, RP-2014 tables have been used while in Germany the RT2005-G tables have been used. In the US, the longevity assumption for a male aged 65 is that he lives a further 21.2 years (female 23.2 years) while in Germany a male aged 65 lives for a further 18.6 years (female 22.8 years). The longevity assumption for a US male currently aged 45 is that he also lives for a further 22.9 years once attaining 65 years (female 24.9 years), with the German equivalent assumption for a male being 21.5 years (female 25.5 years). These assumptions are based on the prescribed tables, rather than GKN experience.
Assumption sensitivity analysis
The impact of a one percentage point movement in the primary assumptions (longevity: 1 year) on the de ned bene t obligations as at 31 December 2015 is set out below:
UK Liabilities m Americas Liabilities m Europe Liabilities m ROW Liabilities m
Discount rate + % Discount rate - % Rate of inflation + % Rate of inflation - % Life expectancy + year Life expectancy - year Health cost trend + % Health cost trend - %
( ( (
) ) ) ( )
) ( ) – ( ) ( )
( ( ( – –
) ) )
( ) – – – – – –
The above sensitivity analyses are based on isolated changes in each assumption, whilst holding all other assumptions constant. In practice, this is unlikely to occur, and there is likely to be some level of correlation between movements in di erent assumptions. In addition, these sensitivities relate only to potential movement in the de ned bene t obligations. The assets, including derivatives held by the schemes, have been designed to mitigate the impact of these movements to some extent, such that the movements in the de ned bene t obligations shown above would, in practice be partly o set by movements in asset valuations. However, the above sensitivities are shown to illustrate at a high level the scale of sensitivity of the de ned bene t obligations to key actuarial assumptions. The same actuarial methods have been used to calculate these sensitivities as are used to calculate the relevant balance sheet values, and have not changed compared to the previous period.
Judgements and estimates Buy-in