Barclays 2006 Annual Report Download - page 210

Notes to the accounts
For the year ended 31st December 2006
Barclays PLC
Annual Report 2006
206
35 Retirement benefit obligations (continued)
Assumptions
Obligations arising under defined benefit schemes are actuarially valued using the projected unit credit method. Under this method, where a defined
benefit scheme is closed to new members, such as in the case of the 1964 Pension Scheme, the current service cost expressed as a percentage of
salary is expected to increase in the future, although this higher rate will be applied to a decreasing payroll. The latest actuarial IAS valuations were
carried out as at 31st December using the following assumptions:
UK schemes Overseas schemes
2006 2005 2006 2005
% p.a. % p.a. % p.a. % p.a.
Discount rate 5.12 4.83 6.94 7.42
Rate of increase in salaries 4.08 4.30 5.66 5.93
Inflation rate 3.08 2.75 3.94 4.11
Rate of increase for pensions in payment 2.88 2.75 3.58 3.66
Rate of increase for pensions in deferment 3.08 2.75 2.24 2.97
Initial health care inflation 8.93 10.00 9.93 10.87
Long-term health care inflation 5.00 5.00 5.00 5.03
Expected return on plan assets 6.32 6.30 7.89 8.58
The expected return on plan assets assumption is weighted on the basis of the fair value of these assets. Health care inflation assumptions are
weighted on the basis of the health care cost for the period. All other assumptions are weighted on the basis of the defined benefit obligation at the
end of the period.
The UK Schemes discount rate assumption is based on the yield on the iBoxx (over 15 year) AA corporate bond index.
The overseas health care inflation assumptions relate to the US and Mauritius.
Mortality assumptions
The post-retirement mortality assumptions used in valuing the liabilities of the UKRF were based on the standard tables PA92 as published by the
Institute and Faculty of Actuaries. These tables are considered to be most relevant to the population of the UKRF based on their mortality history. These
were then adjusted in line with both current industry experience and the actual experience of the UKRF’s own pensioners relative to the standard table.
An allowance has been made for future mortality improvements based on the medium cohort projections published by the CMIB. On this basis the
post-retirement mortality assumptions for the UKRF are as follows:
2006 2005 2004 2003
Longevity at 60 for current pensioners (years)
– Males 25.8 25.8 25.7 23.3
– Females 29.5 29.5 29.4 26.4
Longevity at 60 for future pensioners currently aged 40 (years)
– Males 27.1 27.1 27.0 24.9
– Females 30.7 30.6 30.6 27.9
Sensitivity analysis
Sensitivity analysis for each of the principal assumptions used to measure the benefit obligation of the UKRF are as follows:
Impact on UKRF benefit obligation
(Decrease)/ (Decrease)/
Increase Increase
% £bn
0.5% increase to:
– Discount rate (10.5) (1.8)
– Rate of inflation 10.0 1.7
– Rate of salary growth 2.3 0.4
1 year increase to longevity at 60 2.4 0.4
Post-retirement health care
A one percentage point change in assumed health care trend rates, assuming all other assumptions remain constant would have the following
effects for 2006:
1% increase 1% decrease
£m £m
Effect on total of service and interest cost components 1.7 (1.4)
Effect on post-retirement benefit obligation 22.1 (18.7)