Barclays 2004 Annual Report Download - page 142

Notes to the accounts
For the year ended 31st December 2004
4 Pension costs
Pensions
The UK Retirement Fund (UKRF) comprises five sections:
The 1964 Pension Scheme
Most UK 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 and the large majority of existing members of the RIS transferred to
afterwork in respect of future benefit accrual with effect from 1st January 2004. There are now no longer any active members of the RIS.
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.
Career Average Section (Career Average)
The Career Average Section was established in the UKRF with effect from 1st May 2004 following the transfer of the members from the Woolwich
Pension Fund. The Career Average Section is a non-contributory career average scheme and is open to new members who are employees of either
the Clacton or FirstPlus call centres.
In addition, the costs of ill-health retirements and death in service benefits are generally borne by the UKRF for each of the five 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. The bulk of the remaining WPF assets (approximately £56m) were transferred to the UKRF on 14th May 2004 and the
final transfer was completed on 15th June 2004. As part of this final transfer a further special contribution of £2m was paid to the UKRF.
Actuarial valuation of the UKRF
Formal actuarial valuations of the UKRF are carried out triennially by a professional qualified independent actuary, with annual reviews carried out
in the interim. The most recent formal valuation was conducted as at 30th September 2004. The market value of assets was £12,351m and the
valuation revealed a shortfall of assets compared to accrued liabilities of £388m after allowing for expected future salary increases (2003: surplus
of assets compared to accrued liabilities of £158m). The impact of the change in mortality assumptions was to increase accrued liabilities by
£750m. Following the initial results of the valuation, the Bank made a contribution of £250m to the pension fund on 29th December 2004 to
cover the cost of benefits accrued in 2004. The next formal valuation will be conducted as at 30th September 2007, at which point the position
will again be reviewed. Protected Rights contributions in respect of RIS and PIP members have been paid during 2004 as required by the
contracting-out regulations.
The principal financial assumptions underlying the 2004 actuarial review were:
Price inflation 2.75% Return on future investments:
Pension increases 2.75% 1964 Scheme 6.5%
afterwork 6.14%
Earnings growth 4.25% Discount rate for assessing accrued liabilities:
afterwork Credit Account revaluation rate 3.55% 1964 Scheme 6.31%
afterwork 6.14%
The projected unit method was used for assessing the level of future contributions. In calculating the shortfall of assets compared to accrued
liabilities, assets were taken at their market value and the discount rates used for assessing the accrued liabilities were 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.
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