Barclays 2003 Annual Report Download - page 130

Notes to the Accounts
For the Year Ended 31st December 2003
4 Pensions, post-retirement benefits and other staff costs
Pensions
The UK Retirement Fund (UKRF) comprises four sections:
The 1964 Pension Scheme
Most employees recruited before July 1997 are members of this non-contributory defined benefit scheme. Pensions are calculated by reference to
service and pensionable salary and are normally subject to a deduction from State Pension age.
The Retirement Investment Scheme (RIS)
A defined contribution plan for most new joiners up to 1st October 2003. Between 5.5% and 13.5% of pensionable pay is credited to members’
retirement accounts in addition to contributions paid by the members themselves; precise amounts are dependent upon each member’s age and
contribution decision. This was closed to new entrants on 1st October 2003.
The Pension Investment Plan (PIP)
A defined contribution plan created from 1st July 2001 to provide benefits for certain employees of Barclays Capital. 10% of pay is credited to
members’ retirement accounts.
afterwork
Combines a contributory cash balance element with a voluntary defined contribution element. New employees since 1st October 2003 are eligible to
join afterwork. In addition, the large majority of active members of the RIS (now closed) were transferred to afterwork in respect of future benefit
accrual after 1st January 2004.
In addition, the costs of ill-health retirements and death in service benefits are generally borne by the UKRF for each of the four sections.
Integration of the Woolwich Pension Fund (WPF)
Under the terms of an agreement between the Bank, the Trustees of the WPF and the Trustees of the UKRF, the liabilities in respect of all pensioners
and deferred pensioners, along with consenting active members of the WPF, were transferred into the UKRF on 14th February 2003. Payments were
made on 1st July 2003, with the WPF Trustees transferring assets worth £418m and Woolwich plc making a special contribution of £138m on
4th July 2003.
Formal actuarial valuations of the UKRF are carried out triennially by a professional qualified independent actuary. The most recent formal valuation
was conducted as at 30th September 2001 and expresses the assets and liabilities at market values. However, in light of the changing market
conditions, an interim actuarial review was conducted as at 30th September 2003. The market value of assets at the interim review date was
£10,950m and the valuation revealed a surplus of assets over the accrued liabilities of £158m or 1% after allowing for expected future salary
increases. Whilst this surplus was estimated to be sufficient to allow the Bank to continue its contribution holiday, which commenced in January
1998, for all sections until 2004, it was expected that at this point Bank contributions would recommence at the full rate. The Bank decided to
accelerate these future contributions through a payment of £500m which was paid in December 2003. As a consequence, further contributions
are not expected to be required until at least the start of 2006. The next formal valuation will be conducted as at 30th September 2004, at which
point the position will again be reviewed. Protected Rights contributions in respect of RIS and PIP members have been paid as required by the
contracting-out regulations. The principal financial assumptions underlying the 2003 interim actuarial review were:
Price inflation 2.5% Earnings growth 4.0%
Dividend growth 4.0% Return on future investments – 1964 Scheme 6.5%
Pension increases 2.5% – afterwork 5.5%
The projected unit method was used for the 2003 interim actuarial review. In calculating the surplus of assets over accrued liabilities, assets were
taken at their market value and a discount rate of 6.4% p.a. at 30th September 2003 was used to value the 1964 Pension Scheme accrued liabilities.
This rate of 6.4% was derived by taking a weighted average of the market yields on the day, weighting by reference to the UKRF’s strategic asset
allocation; for the equity component, allowance was made for future dividend growth.
It is the Bank’s policy to allow for the results of a new valuation in its pension charge in the year following the valuation date. Therefore, the 2003
figures shown below reflect the 2002 interim actuarial valuation, with the pensions charge in the accounts being reduced over the remaining service
lives of the members to take account of the surplus.
Without the benefit of the surplus, the 1964 Pension Scheme charge, based on the 2002 interim valuation, would be 21.1% of the pensionable
salaries (on the projected unit method) assessed using the assumption regarding return on new investments, while contributions to the RIS and PIP
would equal the contributions described above plus the costs of ill-health and death in service benefits.
128