The longer term investment return is calculated by applying assumed rates of longer term return to investible assets. Rates of longer term investment return for each category of investment asset are based on current and historical real rates of return and current inflation expectations adjusted for consensus economic and investment forecasts. Previously, the return was calculated by reference to actual income receivable during the year and in the case of equity investments involved grossing up dividend receivable by a factor representing the longer term investment return divided by the estimated long term dividend yield. The change in the method of calculation does not have a material impact upon the result and prior year comparatives have not been restated.
The principal assumptions underlying the calculation of the longer term return are:
|
Longer term return |
Dividend yield | ||||
|
2003 % |
2002 % |
2003 % |
2002 % | ||
| UK equities |
8.0 |
7.5 |
3.5 |
3.0 | |
| Fixed interest | - Gilts |
5.0 |
5.0 |
||
| - Other |
5.3 |
5.3 |
|||
Comparison of longer term investment return with actual returns
A comparison of actual returns on investments attributable to general business with sums allocated on a longer term return basis over a five year period is given in the following table.
|
1999-2003 £m |
1998-2002 £m | |
| Actual return attributable to general business |
114.7 |
140.8 |
| Longer term return credited to the General Business Technical Account |
(595.7) |
(605.0) |
| Deficit of actual returns over longer term returns |
(481.0) |
(464.2) |
Index 1 2 3 4 5 6a 6b 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26