RWE outlines discount rate sensitivity

GERMANY – German utility group RWE says a one-percentage-point decrease in the pension discount rate could increase its overall pension obligations by more than €2.5bn.

“An increase or decrease of one percentage point in the discount rate would result in a reduction of €1.51bn or an increase of €1.66bn, respectively, in the pension obligations of the pension plans in Germany,” RWE said in its new 2005 annual report and accounts.

Its UK obligations would be reduced by €750m or increased by €928m.

The report revealed that the discount rate was cut to 4.25% in Germany last year - from 5.00% in 2004.

The foreign plans’ rate was cut to 4.75-5.75% from 5.25-6.25%.

There were unrecognised actuarial losses in 2005 of €1.51bn – although the actual return on plan assets was €1.1bn.

The present value of unfunded benefit obligations grew to €12.2bn at the end of 2005 from €10.9bn a year before.

The fair value of plan assets stands at €7.7bn.

RWE explained that actuarial gains and losses may only be recognised if they exceed 10% of the greater of the total pension obligations or the fair value of the plan assets.

So “changes in the discount rate for the benefit systems in the RWE Group do not generally have an effect on the carrying amount of the provisions in the following fiscal year”.