Lendlease Annual Report 2021

June 2021 $m June 2020 $m ii. Reconciliation of Defined Benefit Obligations Defined benefit obligations at beginning of financial year 1,324 1,208 Included in Income Statement Interest cost 19 28 Remeasurements Included in Other Comprehensive Income Actuarial loss/(gain) arising from: Financial assumptions (45) 135 Experience adjustments (19) (9) Demographic assumptions (21) 31 Other Benefits paid (33) (41) Effect of foreign exchange rate movements 47 (28) Defined benefit obligations at end of financial year 1,272 1,324 iii. Reconciliation of the Fair Value of Plan Assets Fair value of plan assets at beginning of financial year 1,481 1,347 Included in Income Statement Interest income 22 32 Administration costs (2) (2) Remeasurements Included in Other Comprehensive Income Actual return on plan assets excluding interest income (44) 173 Other Contributions by Group companies 31 5 Benefits paid (33) (41) Effect of foreign exchange rate movements 60 (33) Fair value of plan assets at end of financial year 1,515 1,481 iv. Expense Recognised in the Income Statement Net interest cost (3) (3) Administration costs 2 2 Net defined benefit plan (income)/expense (1) (1) v. Fair Value of Plan Assets Plan assets comprise: Global Equities - 437 Investment funds 431 384 Infrastructure 87 115 Government index linked bonds 956 491 Other assets 41 54 Fair value of plan assets at the end of the financial year 1,515 1,481 The investment funds target an absolute level of return. The plan assets can be categorised as Level 1, where the fair value is determined using an unadjusted quoted price for an identical asset, or Level 2, where the fair value is derived either directly or indirectly from observable inputs, or Level 3, where inputs are unobservable (i.e. for which market data is unavailable). At year end, approximately $1,428 million (June 2020: $1,408 million) and $87 million (June 2020: $73 million) of total plan assets were categorised as Level 2 and Level 3, respectively. UK Construction and Trustees have agreed to a long term strategy for reducing investment risk as and when appropriate. This includes an asset– liability matching policy which aims to reduce the volatility of the funding level of the pension plan by investing in assets that perform in line with the liabilities of the plan so as to protect against inflation being higher than expected. The current targeted benchmark allocation is 67.5 per cent growth assets and 32.5 per cent matching assets (June 2020: 75.0 per cent growth assets and 25.0 per cent matching assets). Note June 2021 $m June 2020 $m Lendlease Superannuation Plan - (1) Lendlease UK Pension Scheme 34a 243 157 Total net defined benefit plan asset 243 156 a. Lendlease UK Pension Scheme Lendlease Construction Holdings (Europe) Limited (UK Construction) sponsors a funded defined benefit pension scheme (the Scheme) for qualifying UK employees. The Scheme is administered by a separate board of Trustees which is legally separate from UK Construction. The Scheme’s Trustees are composed of representatives of both the employer and employees. The Trustees are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the benefits. The Scheme is a funded defined benefit scheme, with the final salary section providing retirement benefits based on final salary and the index linked section providing retirement benefits based on career average salary. A separate section, the Personal Investment Section, provides retirement benefits on a defined contribution basis. The UK Construction’s contributions to members’ Personal Investment Fund accounts are not included in these disclosures. The final salary section closed to future accruals on 31 August 2008 and the index linked section closed to future accruals on 31 January 2012. There were no Scheme amendments affecting defined benefits payable, curtailments or settlements during the year. UK Construction pays four per cent of members’ basic salaries to cover the Scheme’s expected administration costs and costs of benefits payable on death in service. The Scheme expects to pay $5 million in contributions to its defined benefit plan in FY22. Following the triennial valuation for 31 March 2020, deficit repair contributions are not required to be paid as the scheme is in an actuarial surplus. The defined benefit plan is exposed to actuarial risk and market (investment) risk. The following information provides additional detail on risk: June 2021 $m June 2020 $m i. Statement of Financial Position Amounts The amounts recognised in the Statement of Financial Position are determined as follows: Defined benefit obligations (1,272) (1,324) Fair value of plan assets 1,515 1,481 Net defined benefit plan asset 243 157 Section F: Other Notes continued 34. Defined Benefit Plans Accounting Policies Group companies operate pension plans. The plans are generally funded through payments to insurance companies or trustee administered funds as determined by periodic actuarial calculations. A defined benefit plan is a pension plan that defines the amount of pension benefit an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The asset or liability recognised in the Statement of Financial Position in respect of defined benefit plans is the present value of the defined benefit obligation i.e. ‘the pension liability’ at the balance sheet date less the fair value of plan assets. The present value of the pension liability is determined by discounting the estimated future cash outflows using interest rates of high quality corporate or government bonds, that: • Are denominated in the currency in which the benefits will be paid • Have terms to maturity approximating the terms of the related pension liability. The defined benefit obligation is calculated at least annually by independent actuaries using the projected unit credit method, which in simplistic terms proportions the benefit based on service. Management considers the valuation of defined benefit plans undertaken by the actuaries to be an area of estimation uncertainty as a number of key assumptions must be adopted to determine the valuation. Actuarial losses/(gains) will arise where there is a difference between previous estimates and actual experience, or a change to assumptions in relation to demographic and financial trends. These actuarial losses/(gains) are recognised in the period they occur, directly in other comprehensive income as remeasurements. They are included in retained earnings in the Statement of Changes in Equity and in the Statement of Financial Position. Past service costs are recognised immediately in the Income Statement. Notes to Consolidated Financial Statements continued 183 182 Lendlease Annual Report 2021 Financial Statements