Barclays 2009 Annual Report Download - page 59

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 57
Performance
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account represents the contributions payable to the scheme. For defined
benefit schemes, actuarial valuation of each of the scheme’s obligations
using the projected unit credit method and the fair valuation of each of
the scheme’s assets are performed annually in accordance with the
requirements of IAS 19.
The actuarial valuation is dependent upon a series of assumptions,
the key ones being interest rates, mortality, investment returns and inflation.
Mortality estimates are based on standard industry and national mortality
tables, adjusted where appropriate to reflect the Group’s own experience.
The returns on fixed interest investments are set to market yields at the
valuation date (less an allowance for risk) to ensure consistency with the
asset valuation. The returns on UK and overseas equities are based on the
long-term outlook for global equities at the calculation date having regard
to current market yields and dividend growth expectations. The inflation
assumption reflects long-term expectations of both earnings and retail
price inflation.
The difference between the fair value of the plan assets and the present
value of the defined benefit obligation at the balance sheet date, adjusted for
any historic unrecognised actuarial gains or losses and past service cost, is
recognised as a liability in the balance sheet. An asset arising, for example, as
a result of past over-funding or the performance of the plan investments, is
recognised to the extent that it does not exceed the present value of future
contribution holidays or refunds of contributions. To the extent that any
unrecognised gains or losses at the start of the measurement year in relation
to any individual defined benefit scheme exceed 10% of the greater of the
fair value of the scheme assets and the defined benefit obligation for that
scheme, a proportion of the excess is recognised in the income statement.
The Group’s IAS 19 pension deficit across all schemes as at
31st December 2009 was £3,946m (Note 30) (2008: £1,287m). There
are net recognised liabilities of £698m (2008: £1,292m) and unrecognised
actuarial losses of £3,248m (Note 30) (2008: £5m gains). The net
recognised liabilities comprised retirement benefit liabilities of £769m
(2008: £1,357m) and assets of £71m (2008: £65m).
The Group’s IAS 19 pension deficit in respect of the main UK scheme
as at 31st December 2009 was £3,534m (2008: £858m). The most
significant reasons for this change were the decrease in AA corporate bond
yields which resulted in a lower discount rate of 5.61% (31st December
2008: 6.75%) and an increase in the long-term inflation assumption
to 3.76% (31st December 2008: 3.16%). The impact of the change in
assumptions was partially offset by a one-off curtailment credit resulting
from the closure of the UK final salary pension schemes to existing
members, better than expected asset performance, and contributions
paid in excess of the pension expense.
Further information on retirement benefit obligations, including
assumptions, is set out in Note 30 to the accounts on page 236.
Derecognition of financial assets
The Group derecognises a financial asset, or a portion of a financial asset,
where the contractual rights to that asset have expired. Derecognition is also
appropriate where the rights to further cash flows from the asset have been
transferred to a third party and, with them, either:
(i) substantially all the risks and rewards of the asset; or
(ii) significant risks and rewards, along with the unconditional ability to sell
or pledge the asset.
Where significant risks and rewards have been transferred, but the
transferee does not have the unconditional ability to sell or pledge the asset,
the Group continues to account for the asset to the extent of its continuing
involvement (‘continuing involvement accounting’).
To assess the extent to which risks and rewards have been transferred,
it is often necessary to perform a quantitative analysis. Such an analysis will
compare the Group’s exposure to variability in asset cash flows before the
transfer with its retained exposure after the transfer.
A cash flow analysis of this nature typically involves significant
judgement. In particular, it is necessary to estimate the asset’s expected
future cash flows as well as potential variability around this expectation.
The method of estimating expected future cash flows depends on the
nature of the asset, with market and market-implied data used to the
greatest extent possible. The potential variability around this expectation
is typically determined by stressing underlying parameters to create
reasonable alternative upside and downside scenarios. Probabilities are
then assigned to each scenario. Stressed parameters may include default
rates, loss severity or prepayment rates.
Where neither derecognition nor continuing involvement accounting
is appropriate, the Group continues to recognise the asset in its entirety
and recognises any consideration received as a financial liability.
Taxation
The tax charge in the accounts for amounts due to fiscal authorities in the
various territories in which the Group operates includes estimates based
on judgement of the application of law and practice to quantify any liability
arising after taking into account external advice where appropriate.