Barclays 2004 Annual Report Download - page 98

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The principal financial assumptions used to derive the pensions charge
for 2004 were as follows:
Price inflation 2.75%
Pension increases 2.75%
Earnings growth 4.25%
afterwork Credit Account revaluation rate 3.75%
Return on future investments:
1964 Scheme 7.0%
afterwork 6.75%
Discount rate for assessing accrued liabilities:
1964 Scheme 6.6%
afterwork 6.75%
In calculating the pension expense for the UK schemes and in
determining the expected rate of return, the Group uses the value of
assets at the start of the year. The UK Schemes’ assets were allocated
48% to equities, 12% to corporate bonds, 18% to UK gilts, 10% to
property and 12% to other investments at 31st December 2004 and
49% to equities, 11% to corporate bonds, 20% to UK gilts, 9% to
property and 11% to other investments at 31st December 2003.
The year-end allocations are within the schemes’ target ranges.
Shareholders’ Interest in the Retail Long-term Assurance Fund
Changes in the net present value of the profits inherent in the in-force
policies of the retail long-term assurance fund are included in the
profit and loss account. In estimating the net present value of the
profits inherent in the in-force policies, the calculations use assumed
economic parameters (future investment returns, expense inflation
and risk discount rate), taxation, mortality, persistency, expenses and
the required levels of regulatory and solvency capital. The returns on
fixed interest investments are set to market yields at the period end.
The returns on UK and overseas equities and property are set relative
to fixed interest returns. The expense inflation assumption reflects
long-term expectations of both earnings and retail price inflation.
The risk discount rate is set to market yields on Government securities
plus a margin to allow for the risks borne. The mortality, persistency and
expense assumptions are chosen to represent best estimates of future
experience and are based on current business experience. As with the
pension calculation, there is an acceptable range in which these
estimates can validly fall, and the income recognised in the accounts
could be significantly altered if different estimates had been chosen.
Tax
The taxation charge in the accounts for amounts due to fiscal
authorities in the various territories in which the Group operates
includes estimates based on a judgement of the application of law and
practice in certain cases to determine the quantification of any liability
arising. In arriving at such estimates, management assesses the
relative merits and risks of the tax treatment assumed taking into
account statutory, judicial and regulatory guidance and, where
appropriate, external advice.
All of the Group’s significant accounting policies, including those
mentioned above, and information about the estimation techniques
used to enable the accounting policies to be applied, are set out on
pages 124 to 130.
Financial review
Critical accounting estimates