REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2015 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 15
23/03/2016 08:18
- Part 15: For the preceding part double click ID:nRSW9668Sn
qualified actuaries. The present values of the defined benefit obligation and the related interest costs have
been measured using the projected unit credit method.
Funding
A triennial funding valuation of the Pearl Scheme as at 30 June 2012 was completed in May 2013. This showed a deficit as at
30 June 2012 of £480 million, on the agreed technical provisions basis.
On 27 November 2012 the principal employer and the Trustee of the Pearl Scheme entered into a revised pensions funding
agreement (the 'Pensions Agreement'), which forms the basis of the 30 June 2012 triennial valuation. The principal terms of
the Pensions Agreement are:
· annual cash payments into the scheme of £70 million in 2013 and 2014 payable on 30 September, followed by payments of
£40 million each year from 2015 to 2021. The Pensions Agreement includes a sharing mechanism, related to the level of
dividends paid out of PGH2, that in certain circumstances allows for an acceleration of the contributions to be paid to the
Pearl Scheme;
· increased and further contributions may become payable if the scheme is not anticipated to meet the two agreed funding
targets:
(i) to reach full funding on the technical provisions basis by 30 June 2022; and
(ii) to reach full funding on a gilts flat basis by 30 June 2031;
· the Trustee continues to benefit from a first charge over shares in Phoenix Life Assurance Limited, National Provident
Life Limited, Pearl Group Services Limited and PGS2 Limited. Following the repayment of the £425 million loan facility and
£75 million of secured C loan notes on 23 July 2014 (see note E5) the value of the security claim granted under the share
charges is capped at the lower of £600 million and 100% of the Pearl Scheme deficit (calculated on a basis linked to UK
government securities) revalued every three years thereafter, increasing from 60% of the Pearl Scheme deficit; and
· covenant tests relating to the embedded value of certain companies with the Group.
The triennial funding valuation of the scheme as at 30 June 2015 commenced during the year and is expected to be completed
by September 2016.
It should be noted that the terms of the £900 million facility agreement (see note E5) restrict the Group's ability, with
certain exceptions, to transfer assets into the secured companies over which the Trustee holds a charge over shares.
An additional liability of £74 million (2014: £86 million) has been recognised, reflecting a charge on any refund of the
resultant IAS 19 surplus that arises after adjustment for discounted future contributions of £213 million (2014: £245
million) in accordance with the minimum funding requirement. A deferred tax asset of £38 million (2014: £49 million) has
also been recognised to reflect tax relief at a rate of 18% (2014: 20%) that is expected to be available on the
contributions, once paid into the scheme.
Contributions totalling £40 million were paid into the scheme in 2015 (2014: £68 million) and contributions totalling £40
million are currently expected to be paid into the scheme in 2016.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2015
Fair value of scheme assets Defined benefit obligation £m Provision for tax on the economic surplus available as a refund£m Minimum funding requirement obligation £m Total
£m £m
At 1 January 2,279 (2,061) (76) (86) 56
Interest income/(expense) 82 (73) (3) (3) 3
Included in profit or loss 82 (73) (3) (3) 3
Remeasurements:
Return on plan assets excluding amounts included in interest income (85) - - - (85)
Gain from changes in financial assumptions - 55 - - 55
Experience gains - 39 - - 39
Change in provision for tax on economic surplus available as a refund - - (18) - (18)
Change in minimum funding requirement obligation - - - 15 15
Included in other comprehensive income (85) 94 (18) 15 6
Employer's contributions 40 - - - 40
Benefit payments (103) 103 - - -
At 31 December 2,213 (1,937) (97) (74) 105
2014
Fair value of scheme assets Defined benefit obligation£m Provision for tax on the economic surplus available Minimum funding requirement obligation£m Total
£m as a refund £m £m
At 1 January 1,855 (1,908) - (84) (137)
Interest income/(expense) 83 (84) - (4) (5)
Included in profit or loss 83 (84) - (4) (5)
Remeasurements:
Return on plan assets excluding amounts included in interest income 360 - - - 360
Gain from changes in demographic assumptions - 19 - - 19
Loss from changes in financial assumptions - (195) - - (195)
Experience gains - 20 - - 20
Change in provision for tax on economic surplus available as a refund - - (76) - (76)
Change in minimum funding requirement obligation - - - 2 2
Included in other comprehensive income 360 (156) (76) 2 130
Employer's contributions 68 - - - 68
Benefit payments (87) 87 - - -
At 31 December 2,279 (2,061) (76) (86) 56
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
2015 2014
Total Of which not quoted in an active market Total Of which not quoted in an active market
£m £m £m £m
Hedging portfolio 1,891 (24) 1,916 (16)
Equities 122 - 120 -
Fixed interest gilts 130 - 140 -
Other debt securities 941 - 935 -
Properties 191 191 170 170
Private equities 34 34 37 37
Hedge funds 32 32 38 38
Cash and other 99 - 90 -
Obligations for repayment of stock lending collateral received (1,227) - (1,167) -
2,213 233 2,279 229
The actual return on plan assets was a loss of £3 million (2014: £443 million gain).
The Group ensures that the investment positions are managed within an asset liability matching ('ALM') framework that has
been developed to achieve long-term investments that are in line with the obligations under the Pearl Scheme. Within this
framework an allocation of 25% of the scheme assets is invested in collateral for interest rate and inflation rate hedging
where the intention is to hedge greater than 90% of the interest rate and inflation rate risk measured on the Technical
Provisions basis.
The Pearl Scheme uses swaps, UK Government bonds and UK Government stock lending to hedge the interest rate and inflation
exposure arising from the liabilities which are disclosed in the table above as 'Hedging Portfolio' assets. Under the
Scheme's stock lending programme, the Scheme lends a Government bond to an approved counterparty and receives a similar
value in the form of cash in return which is typically reinvested into other Government bonds. The Scheme retains economic
exposure to the Government bond, hence the bonds continue to be recognised as scheme assets with a corresponding liability
to repay the cash received as disclosed in the table above.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme's members as follows:
· deferred scheme members: 40% (2014: 40%)
· retirees: 60% (2014: 60%)
The weighted average duration of the defined benefit obligation at 31 December 2015 is 17 years (2014: 17 years).
Principal assumptions
The principal financial assumptions of the Pearl Scheme are set out in the table below:
2015 2014
% %
Rate of increase for pensions in payment (5% per annum or RPI if lower) 2.95 2.90
Rate of increase for deferred pensions ('CPI') 2.05 2.00
Discount rate 3.85 3.65
Inflation - RPI 3.05 3.00
Inflation - CPI 2.05 2.00
The discount rate and inflation rate assumptions have been determined by considering the shape of the appropriate yield
curves and the duration of the Pearl Scheme's liabilities. This method determines an equivalent single rate for each of the
discount and inflation rates, which is derived from the profile of projected benefit payments.
It has been assumed that post-retirement mortality is in line with a scheme-specific table which was derived from the
actual mortality experience in recent years, performed as part of the actuarial funding valuation as at 30 June 2012, based
on the SAPS standard tables for males and for females based on year of use. Future longevity improvements are in line with
current Group best estimate longevity improvements, which are based on CMI 2014 Core Projections and a long-term rate of
improvement of 2% p.a. up to and including age 75 then decreasing linearly to 0% p.a. at age 110. Under these assumptions,
the average life expectancy from retirement for a member currently aged 40 retiring at age 60 is 30.8 years and 33.0 years
for male and female members respectively.
A quantitative sensitivity analysis for significant actuarial assumptions as at 31 December 2015 is shown below:
2015
Assumptions Base Discount rate RPI Life expectancy
Sensitivity level 25bpsincrease 25bpsdecrease 25bpsincrease 25bpsdecrease 1 yearincrease 1 yeardecrease
Impact on the defined benefit obligation (£m) 1,937 (71) 75 54 (52) 54 (54)
2014
Assumptions Base Discount rate RPI Life expectancy
Sensitivity level 25bpsincrease 25bpsdecrease 25bpsincrease 25bpsdecrease 1 yearincrease 1 yeardecrease
Impact on the defined benefit obligation (£m) 2,061 (79) 84 53 (50) 55 (53)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when
calculating the pension asset recognised within the statement of financial position.
The UK Government currently intends to equalise benefits between males and females arising from the accrual of Guaranteed
Minimum Pensions ('GMP') requirements. Legislation will be implemented following completion of the ongoing consultation on
this matter. Once this consultation process has reached a conclusion, the Group will be able to quantify the impact of this
change.
G6.2 PGL Pension Scheme
The PGL Pension Scheme comprises a final salary section and a defined contribution section.
Scheme details
Defined contribution scheme
Contributions in the year amounted to £6 million (2014: £6 million).
Defined benefit scheme
The defined benefit section of the PGL Pension Scheme is a final salary arrangement which is closed to new entrants and has
been closed to future accrual by active members since 1 July 2011.
The PGL Scheme is administered by a separate trustee company, PGL Pension Trustee Ltd. The trustee company is comprised of
two representatives from the Group, three member nominated representatives and one independent trustee in accordance with
the trustee company's articles of association. The trustee is required by law to act in the interest of all relevant
beneficiaries and is responsible for the investment policy with regard to the assets plus the day to day administration of
the benefits.
The valuation has been based on an assessment of the liabilities of the PGL Pension Scheme as at 31 December 2015,
undertaken by independent qualified actuaries.
To the extent that an economic surplus will be available as a refund, the economic surplus is stated after a provision for
tax that would be borne by the scheme administrators when the refund is made. Additionally pension funding contributions
are considered to be a minimum funding requirement and, to the extent that the contributions payable will not be available
to the Group after they are paid into the scheme, a liability is recognised when the obligation arises.
Funding
A triennial funding valuation of the PGL Pension Scheme as at 30 June 2012 was completed in September 2013. This showed a
deficit as at 30 June 2012 of £39 million. Following discussions with the Trustee of the PGL Pension Scheme it was agreed
that the existing schedule of cash contributions to the scheme amounting to £59 million would continue to be paid over the
period from October 2013 to August 2017. Contributions totalling £15 million were paid into the scheme in 2015 (2014: £20
million) and contributions totalling £15 million are expected to be paid into the scheme in 2016. Total scheduled future
contributions amount to £25 million at 31 December 2015.
The triennial valuation of the scheme as at 30 June 2015 commenced during the year and is expected to be completed by
September 2016.
In accordance with an agreement dated November 2005, certain of the Group's with-profit funds indemnified the shareholders
in respect of contribution calls equal to their share of the costs of changes in longevity assumptions. In January 2014,
PGH1 received £8 million under this agreement. In June 2014, PGH1 and Phoenix Life Limited ('PLL') entered into an
agreement whereby in exchange for a payment by the PLL with-profit funds to PGH1 of £68 million, PGH1 released the
with-profit funds from any future obligations to indemnify the company. On the same date, the PLL non-profit fund entered
into a longevity swap with the PGL Pension Scheme with effect from 1 January 2014, under which the scheme has transferred
the risk of longevity improvements to PLL. The financial effect of this contract is eliminated on consolidation.
An additional liability has been recognised of £9 million (2014: £13 million) reflecting a charge on any refund of the
resultant IAS 19 surplus that arises after adjustment for discounted future contributions of £24 million (2014: £38
million) in accordance with the minimum funding requirement. A deferred tax asset of £4 million (2014: £8 million) has also
been recognised to reflect tax relief at a rate of 18% (2014: 20%) that is expected to be available on the contributions,
once paid into the scheme.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2015
Fair value of scheme assets Defined benefit obligation £m Provision for tax on the economic surplus available as a refund£m Minimum funding requirement obligation £m Total
£m £m
At 1 January 2,024 (1,457) (184) (13) 370
Interest income/(expense) 73 (52) (6) (1) 14
Administrative expenses (3) - - - (3)
Included in profit or loss 70 (52) (6) (1) 11
Remeasurements:
Return on plan assets excluding amounts included in interest income (40) - - - (40)
Experience gains - 13 - - 13
Gain from changes in financial assumptions - 36 - - 36
Change in provision for tax on economic surplus available as a refund - - (9) - (9)
Change in minimum funding requirement obligation - - - 5 5
Included in other comprehensive income (40) 49 (9) 5 5
Employer's contributions 15 - - - 15
Benefit payments (63) 63 - - -
At 31 December 2,006 (1,397) (199) (9) 401
2014
Fair value of scheme assets Defined benefit obligation Provision for tax on the economic surplus available Minimum funding requirement obligation Total
£m £m as a refund £m £m £m
At 1 January 1,639 (1,366) (96) (17) 160
Interest income/(expense) 75 (60) (4) (2) 9
Administrative expenses (3) - - - (3)
Included in profit or loss 72 (60) (4) (2) 6
Remeasurements:
Return on plan assets excluding amounts included in interest income 277 - - - 277
Gain from change in demographic assumptions - 54 - - 54
Loss from change in financial assumptions - (143) - - (143)
Change in provision for tax on economic surplus available as a refund - - (84) - (84)
Change in minimum funding requirement obligation - - - 6 6
Included in other comprehensive income 277 (89) (84) 6 110
Plan assets previously eliminated on consolidation 74 - - - 74
Employer's contributions 20 - - - 20
Benefit payments (58) 58 - - -
At 31 December 2,024 (1,457) (184) (13) 370
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
2015 2014
Total Of which not quoted in an active market Total Of which not quoted in an active market
£m £m £m £m
Fixed interest gilts 930 - 1,570 -
Index-linked bonds 984 - 373 -
Swaps 3 3 (24) (24)
Properties 98 98 88 88
Hedge funds 83 83 80 80
Cash and other 21 - 354 -
Obligations for repayment of stock lending collateral received (113) - (417) -
2,006 184 2,024 144
The actual return on plan assets was £33 million (2014: £353 million).
The economic value of the PGL Pension Scheme assets as at 31 December 2015, amounted to £2,028 million (2014: £2,047
million). For financial reporting purposes, the carrying value of the insurance policies effected by the PGL Pension Scheme
with the Group have been eliminated on consolidation, resulting in reported assets of the PGL Pension Scheme as at 31
December 2015 of £2,006 million (2014: £2,024 million).
The Group ensures that the investment positions are managed within an asset liability matching (ALM) framework that has
been developed to achieve long-term investments that are in line with the obligations under the pension scheme. Within this
framework an allocation of 85% of the scheme assets is invested in a combination of supranational debt and a liability
hedging portfolio. The Liability Driven Investment ('LDI') portfolio is passively managed against a liability benchmark in
order to hedge the duration and inflation risks.
The PGL Scheme uses swaps, UK Government bonds and UK Government stock lending to hedge the interest rate and inflation
exposure arising from the liabilities. Under the Scheme's stock lending programme, the Scheme lends a Government bond to an
approved counterparty and receives a similar value of cash in return which it typically reinvested into other Government
bonds. The Scheme retains economic exposure to the Government bonds, hence the value of the gilts continues to be
recognised as a scheme asset with a corresponding liability to repay the cash received as disclosed in the table above.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the scheme's members as follows:
· deferred scheme members: 39% (2014: 39%); and
· retirees: 61% (2014: 61%).
The weighted average duration of the defined benefit obligation at 31 December 2015 is 17 years (2014: 17 years).
Principal assumptions
The principal financial assumptions of the PGL Pension Scheme are set out in the table below:
2015 2014
% %
Rate of increase for pensions in payment (7.5% per annum or RPI if lower) 3.10 3.00
Rate of increase for deferred pensions ('CPI') 2.05 2.00
Discount rate 3.85 3.65
Inflation - RPI 3.05 3.00
Inflation - CPI 2.05 2.00
The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves
and the duration of the PGL Scheme liabilities. This method determines an equivalent single rate for each of the discount
and inflation rates, which is derived from the profile of projected benefit payments.
It has been assumed that post-retirement mortality is in line with 86%/94% of S1PA base tables with future longevity
improvements in line with CMI 2014 Core Projections and a long-term rate of improvement of 2% p.a. up to and including age
75 then decreasing linearly to 0% at age 110. Under these assumptions, the average life expectancy from retirement for a
member currently aged 40 retiring at age 62 is 28.4 years and 30.4 years for male and female members respectively.
A quantitative sensitivity analysis for significant actuarial assumptions as at 31 December 2015 is shown below:
2015
Assumptions Base Discount rate RPI Life expectancy
Sensitivity level 25bps increase 25bps decrease 25bps increase 25bps decrease 1 year increase 1 year decrease
Impact on the defined benefit obligation (£m) 1,397 (54) 57 37 (39) 46 (46)
2014
Assumptions Base Discount rate RPI Life expectancy
Sensitivity level 25bps increase 25bps decrease 25bps increase 25bps decrease 1 year increase 1 year decrease
Impact on the defined benefit obligation (£m) 1,457 (60) 63 40 (38) 46 (44)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when
calculating the pension liability recognised within the statement of financial position.
The UK Government currently intends to equalise benefits between males and females arising from the accrual of Guaranteed
Minimum Pension ('GMP') requirements. Legislation will be implemented following completion of the ongoing consultation on
this matter. Once this consultation process has reached a conclusion, the Group will be able to quantify the impact of this
change.
G7. INTANGIBLE ASSETS
GoodwillBusiness combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.Goodwill is measured on initial recognition at cost. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. It is tested for impairment annually or when there is evidence of possible impairment. Goodwill is not amortised. For impairment testing, goodwill is
allocated to the Phoenix Life cash- generating unit. Goodwill is impaired when the recoverable amount is less than the carrying value.Acquired in-force businessInsurance and investment contracts with and without DPF acquired in business combinations and portfolio transfers are measured at fair value at the time of acquisition. The difference between the fair value of the contractual rights acquired and obligations assumed and the liability measured in accordance with the Group's accounting policies for such
contracts is recognised as acquired in-force business.Acquired in-force business is amortised over the estimated life of the contracts on a basis which recognises the emergence of the economic benefits.An impairment review is performed whenever there is an indication of impairment. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the consolidated income statement. Acquired in-force business is also considered in the liability adequacy test for each reporting
period.The acquired in-force business is allocated to the Phoenix Life segment.
Goodwill
Business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the
cost of the acquisition and the fair value of the net identifiable assets acquired.Goodwill is measured on initial
recognition at cost. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. It
is tested for impairment annually or when there is evidence of possible impairment. Goodwill is not amortised. For
impairment testing, goodwill is allocated to the Phoenix Life cash- generating unit. Goodwill is impaired when the
recoverable amount is less than the carrying value.
Acquired in-force business
Insurance and investment contracts with and without DPF acquired in business combinations and portfolio transfers are
measured at fair value at the time of acquisition. The difference between the fair value of the contractual rights acquired
and obligations assumed and the liability measured in accordance with the Group's accounting policies for such contracts is
recognised as acquired in-force business.Acquired in-force business is amortised over the estimated life of the contracts
on a basis which recognises the emergence of the economic benefits.An impairment review is performed whenever there is an
indication of impairment. When the recoverable amount is less than the carrying value, an impairment loss is recognised in
the consolidated income statement. Acquired in-force business is also considered in the liability adequacy test for each
reporting period.The acquired in-force business is allocated to the Phoenix Life segment.
Customer relationshipsIntangible assets include vesting pension premiums and investment management contracts. These are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is reflected in
the consolidated income statement in the year in which the expenditure is incurred.Intangible assets with finite lives are amortised on a straight-line basis over their useful economic lives and assessed for impairment whenever there is an indication that the recoverable amount of the intangible asset is less than its carrying value.Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not
amortised.Present value of future profits on non-participating business in the with-profit fundThe value of the present value of future profits is determined on a realistic basis and is allocated in full to the Phoenix Life segment.
Present value of future profits on non-participating business in the with-profit fund
The value of the present value of future profits is determined on a realistic basis and is allocated in full to the Phoenix
Life segment.
2015
Goodwill Acquired in-force business Customer Present value of future profits Total
£m £m relationships £m £m
£m
Cost or valuation
At 1 January 39 2,048 297 23 2,407
Revaluation - - - (6) (6)
At 31 December 39 2,048 297 17 2,401
Amortisation and impairment
At 1 January - (635) (80) - (715)
Amortisation charge for the year - (84) (15) - (99)
Impairment charge for the year - (64) - - (64)
At 31 December - (783) (95) - (878)
Carrying amount at 31 December 39 1,265 202 17 1,523
Amount recoverable after 12 months 39 1,191 187 17 1,434
2014
Goodwill Acquired in-force Customer relationships and other Present value of future Total
£m business £m profits £m
£m £m
Cost or valuation
At 1 January 96 2,048 448 32 2,624
Discontinued operations disposed of during the year (57) - (151) - (208)
Revaluation - - - (9) (9)
At 31 December 39 2,048 297 23 2,407
Amortisation
At 1 January - (537) (80) - (617)
Discontinued operations disposed of during the year - - 15 - 15
Charge for the year - from continuing operations - (98) (15) - (113)
At 31 December - (635) (80) - (715)
Carrying amount at 31 December 39 1,413 217 23 1,692
Amount recoverable after 12 months 39 1,315 202 23 1,579
G7.1 Goodwill
The carrying value of goodwill has been tested for impairment at the period end. No impairment has resulted as the value in
use of this intangible continues to exceed its carrying value. Value in use has been determined as the present value of
certain future cash flows associated with the management services business of the Phoenix Life segment. The cash flows used
in this calculation are consistent with those adopted by management in the Group's operating plan and, for the period 2020
and beyond, reflect the anticipated run-off of the Phoenix Life insurance business. The underlying assumptions of these
projections include management's best estimates with regards to longevity, persistency, mortality and morbidity.
Future cash flows have been valued using a discount rate of 9.0% (2014: 8.1%) for the management services business of the
Phoenix Life segment.
Impairment tests have been performed using assumptions which management consider reasonable. Given the magnitude of the
excess of the value in use over carrying value, management does not believe that a reasonably foreseeable change in key
assumptions would cause the carrying value to exceed value in use.
Goodwill disposed of during the prior year relates to the disposal of the discontinued operations of Ignis on 1 July 2014
(see note I1.1).
The carrying amount of goodwill allocated to the Phoenix Life segment is £39 million (2014: £39 million).
G7.2 Acquired in-force business
Acquired in-force business represents the difference between the fair value of the contractual rights acquired and
obligations assumed under insurance contracts with and without DPF and the liability measured in accordance with the
Group's accounting policies for such contracts. This intangible is being amortised in accordance with the run-off of the
book of business within the Phoenix Life segment.
The acquired in-force business is allocated to the Phoenix Life segment.
During the year, an impairment charge of £64 million has been recognised in respect of acquired in-force business
originally allocated to contracts issued by PLAL and reinsured to the Group's Bermudan reinsurance captive, Opal Re. As
detailed in note F3.1, the Opal Re reassurance was recaptured during the year and replaced with a new agreement with an
external reinsurer, RGA International. Accordingly, the value of the acquired in-force business associated with these
contracts has been fully impaired.
G7.3 Customer relationships and other
The customer relationships intangible at 31 December 2015 relates to vesting pension premiums which captures the new
business arising from policies in-force at the acquisition date, specifically top-ups made to existing policies and
annuities vested from matured pension policies. The total value of this customer relationship intangible at acquisition was
£297 million and has been allocated to the Phoenix Life segment. This intangible is being amortised over a 20 year period.
The new UK legislation on pension freedoms that came into force in April 2015 is expected to impact the level of future
annuity business written by the Group. This is considered to be an indicator of impairment for the Group's vesting pension
premiums intangible and as a result an impairment test was carried out during the year.
No impairment has resulted as the value in use of the intangible is considered to exceed its carrying value. The value in
use was determined as the present value of certain future cash flows associated with annuities vesting from matured pension
policies. The cash flows used in this calculation are consistent with those adopted by management in the Group's operating
plan for the next five years, and for the period 2020 and beyond, and reflect the anticipated run-off of the Phoenix Life
insurance business. The cash flows are based on long-term future profit margins and risk-free projections of with-profits
maturity payments that are largely consistent with the Group's MCEV basis. The cash flows also include an allowance for
future profits earned by the service companies on the administration of vesting policies. The cash flows reflect
management's best estimate of future take-up rates on guaranteed annuity rate business and non-guaranteed annuity rate
business. Future cash flows have been valued using a discount rate of 11.2%.
The impairment test was carried out using assumptions which management consider reasonable. However, given the limited
experience available to date since the implementation of the pension freedoms, there remains considerable uncertainty as to
the long-term impact on policyholder behaviour of the changes to the annuities rules. Were actual experience with regard to
the take-up rates and profit margins for annuity business to differ significantly from management's current best estimate
assumptions, there is a potential for the carrying value of the intangible to exceed the value in use.
The customer relationships intangible disposed of during 2014 related to the investment management contracts ('IMCs') held
within Ignis, the disposal of which was completed on 1 July 2014 (see note I1.1). Other intangibles of £3 million relating
to capitalised software costs held within Ignis were also disposed of during 2014.
The amortisation charge for customer relationships and other is presented separately in the consolidated income statement.
G7.4 Present value of future profits on non-participating business in the with-profit fund
The principal assumptions used to calculate the present value of future profits are the same as those used in calculating
the insurance contract liabilities given in note F4.1. Revaluation of the present value of future profits is charged or
credited to the consolidated income statement as appropriate.
G8. Property, plant and equipment
Owner-occupied property is stated at its revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment. Owner-occupied property is depreciated over its estimated useful life, which is taken as 50 years. Land is not depreciated. Gains and losses on owner-occupied property are recognised in the statement of consolidated comprehensive income.
2015 2014
£m £m
Owner-occupied property 19 15
Jones Lang Lasalle, an accredited independent valuer, completed a valuation of owner-occupied property at 31 December 2015
on an open market basis in accordance with the Royal Institution of Chartered Surveyors' requirements, which is deemed to
equate to fair value. The fair value measurement for the property of £19 million has been
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