HSRC Integrated Annual Report 2018/2019

HSRC INTEGRATED ANNUAL REPORT 2018/19 / 117 NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 March 2019 (Continued) 12.5.1.1 Discount Rate GRAP 25 requires that the discount rate used in the valuation be determined by reference to market yields on government bonds as at the reporting date. The currency and term of the government bonds shall be consistent with the currency and estimated term of the post-employment benefit obligations. At the previous valuation date, 31 March 2018, the duration of the liabilities was 6.13 years. The discount rate determined by using the Bond Exchange Zero Coupon Yield Curve as at 31 March 2019 is 8.73% per annum. 12.5.1.2 Healthcare Cost Inflation A healthcare cost inflation rate of 6.36% was assumed. This is 1.5% in excess of the expected inflation over the expected term of the liability, at 4.86%. However, it is the relative levels of the discount rate and healthcare inflation to one another that are important, rather than the nominal values. We have thus assumed a net discount factor of 2.23% per annum. 12.5.1.3 Decrement Assumptions The following pre-retirement mortality table of SA85-90 and post-retirement mortality table of PA(90) in the current valuation has been applied. Assumption Active Employees Continuation Pensioners Mortality SA85-90 (Normal) -1 PA (90) -1 plus 1% future 12.5.2 Key Demographic Assumptions The demographic assumptions were consistent in the previous and current valuation period, and are as noted below: Normal retirement age – 60 years Employment age used for past service period: Actual service entry ages Assumption Active Employees Continuation Pensioners Age difference between spouses Three years Proportion married in retirement Proportion married table Actual marital status used Example at Stated Date Proportion Married (Male and Female) 20 1.30% 25 12.90% 30 48.30% 35 70.20% 40 80.90% 45 84.70% 50 84.90% 55 86.00% 60 90.00% 12.5.3 Continuation Percentages It was assumed, in the previous valuation and current valuation, that continuation of the post-employment healthcare subsidy would be at 100% at retirement age. 12.5.4 Income Brackets at Retirement It is fairly common to expect a continuation pensioner’s income to be lower than the income earned just prior to retirement. The difference between the income after retirement and the income just prior to retirement is referred to as the Net Replacement Ratio (NRR). The NRR is used to reduce the expected salary on retirement. We have assumed a NRR on retirement of 75%. A salary inflation assumption is used to adjust the salary from the current date to the date of retirement. This assumption should be considered in conjunction with the assumed CPI rate.