Barclays 2013 Annual Report Download - page 200

Risk review
Market risk continued
Liabilities
The retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS 19R basis these cash flows are sensitive
to changes in the expected long term inflation rate and the discount rate (AA corporate bond yield curve):
 An increase in long term inflation corresponds to an increase in liabilities
 An increase in the discount rate corresponds to a decrease in liabilities
Pension risk is generated through the Group’s defined benefits schemes and this risk is deemed to move to zero over time as the chart below
shows. The chart below outline the shape of the uninflated liability cashflow profile with the majority of the cash flows (approximately 75%) falling
between 0 and 40 years, peaking within the 21 to 30 year band and reducing thereafter. The shape may vary depending on changes in inflation
expectation and mortality and it is updated in line with Triennial Valuation process.
For more detail on liability assumptions see note 37.
0-10 years
11-20 years
21-30 years
31-40 years
41-50 years
51 years+
Proportion of liability cashflows
Risk measurement
In line with Barclays risk management framework, the assets and liabilities of the UKRF are modelled within a VaR framework to show the volatility
of the pension positions on a total portfolio level. This ensures that the risks, diversification benefits and liability matching characteristics of the
UKRF obligations and investments are adequately captured. VaR is measured and monitored on a monthly basis at the pension risk fora such as
the Market Risk Committee, Pension Management Group and Pensions Executive Board. The VaR model takes into account the valuation of the
liabilities based on an IAS 19R basis (see note 37). The Trustees, via their consultants Towers Watson, receive quarterly VaR measures on a
Funding basis.
In addition to this, the impact of Pension risk to the Group is taken into account as part of the stress testing process. Stress testing is performed
internally at least on an annual basis, covering scenario such as European economic crisis and quantitative easing. The UKRF exposure is also
included as part of the regulatory stress tests and exercises indicated the UKRF risk profile is resilient to severe stress events.
Unlike traded market risk, the capital requirement for pension risk is not reflected in risk weighted assets. Instead, the calculation is applied as a
deduction from capital resources which has a similar effect on capital ratios.
Triennial valuation
The last triennial valuation was started with an effective date of 30 September 2010. In compliance with the Pensions Act 2004, the current
valuation is being carried out with an effective date of 30 September 2013. During 2014, the Bank and Trustees will agree a scheme-specific fund.
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198 Barclays PLC Annual Report 2013