Rolls Royce meets deferred 2020 pension contribution commitments

Rolls Royce made £94m in cash contributions in H1 2021 in order to make up deferred payments from 2020, and has also increased the non-underlying past service credit recognised following the closure of its UK defined benefit (DB) scheme.

According to the group's half year financial accounts, the cash contribution was £94m higher than the pensions charge in the income statement, whilst in contrast, H1 2020 saw contributions of around £94m lower than the income statement, with the overall contributions for 2020 around £160m lower than the charge on the income statement.

The accounts have also confirmed that following the closure of the UK DB scheme at the end of 2020, the group held discussions with employee representatives and the trustee in relation to additional transitional protections that could be granted from the scheme.

As a result, as of 30 June 2021, £7m has been recognised as non-underlying past service credit, reflecting the differences between the final details agreed and the obligation estimated at 31 December 2020, when a non-underlying past-service credit of £67m was recognised.

H1 2021 also saw 236 employed deferred members transfer employment in anticipation of a business disposal, resulting in the recognition of a further £4m non-underlying past service credit.

Despite the closure of the scheme, post-retirement benefits were still highlighted by the company as an area of judgement and source of estimation uncertainty.

The group explained that the size of the net surplus is sensitive to actuarial assumptions, and the number of plan members who take the option to transfer to a lump sum on retirement or who choose the bridging pension option.

In particular, Rolls Royce estimated that a reduction in the discount rate from 1.95 per cent to 1.7 per cent could lead to an increase in DB obligations for the UK pension fund of around £425m, while a one-year increase in life expectancy would increase obligations by around £380m.

In addition to this, the group explained that whilst it is working on the assumption that 40 per cent of members of the RR UK Pension Fund will transfer out of the fund on retirement with a share of funds transfer value, an increase of 5 per cent on this assumption would increase pension obligations by £30m.

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