Financial Statements

Notes to the consolidated accounts

5. Investment income

5 (a) Net investment return

	2007 £m	2006 £m
Interest income	1,009	954
Expected return on pension scheme assets net of interest cost	8	9
Dividend income	632	678
Rental income	139	127
Net realised and unrealised gains on assets at fair value:
Financial assets designated on initial recognition	1,032	1,803
Investment properties	(190)	273
Financial derivative instruments	(57)	(147)
Total net investment return	2,573	3,697

5 (b) Longer-term investment return – underlying profit

The longer-term investment return used in arriving at underlying profit before tax is calculated in respect of equity and fixed interest investments by applying the longer-term rate of return for each investment category to the quarterly weighted average of the corresponding assets, after adjusting for the effect of any short-term market movements. The longer-term rates of return are based on assumed gilt and cash returns, adjusted where appropriate to reflect the additional risks associated with the type of investment. The directors have determined the longer-term rates of investment return to be as follows:

	2007 %	2006 %
Equities	8.00	7.25
Government fixed interest	5.00	4.25
Other fixed interest	5.50	4.75

5 (c) Sensitivity of longer-term investment return – underlying profit

	2007 £m	2006 £m
Longer-term investment return:	62	43
After the impact of a 1% increase in the longer-term rates of investment return	85	62
After the impact of a 1% decrease in the longer-term rates of investment return	39	26

5 (d) Comparison of longer-term and actual investment return – underlying profit

	1 January 2003 to 31 December 2007 £m	1 January 2002 to 31 December 2006 £m
Actual investment return attributable to shareholders	403	171
Longer-term investment return	(340)	(378)
Cumulative surplus/(deficit) of actual return over longer-term returns	63	(207)