Note 33 – Pension obligations

Compensation for pensions and other compensation after employment is mainly paid through contribution-based plans in which regular payments are made to authorities and insurance companies. These independent bodies thereby assume the obligations to the employees. Within the Group, there are also a number of benefit-based plans under which employees are guaranteed a pension corresponding to a percentage of salary.

Provisions for pensions and similar obligations

  Group
SEK m 2016 2015
Defined benefit plans 268 236

Defined benefit plans

Within the Group, there are a number of defined benefit plans where, after completion of employment, the employees are entitled to compensation based on final salary and period of employment. The largest plans relate to Sweden, Germany, the UK, the Netherlands and Belgium. The plans in the UK and the Netherlands are consolidated externally, with the plan assets being held by foundations or similar legal entities. The activities of the foundations are governed by national rules and practice applicable to the relationship between the Group and the manager (or equivalent) of the foundation’s plan assets and the composition of plan assets in terms of different types of assets.

Commencing January 1, 2013, Duni applies the revised IAS 19 Employee Benefits (IAS19R). Consequently, previously non-reported actuarial losses are reported at the time of transition and actuarial gains and losses which arise in the future will be reported in “Other comprehensive income”.

Pension insurance with Alecta

Obligations regarding retirement pensions and family pensions for white-collar staff in Sweden are secured through insurance with the independent insurance company, Alecta. According to a statement issued by the Swedish Financial Reporting Board, URF 3, this is a defined benefit plan covering several employers. Duni does not have access to such information as makes it possible to report this plan as a defined benefit plan. The pension plan according to ITP2, which is secured through insurance with Alecta, is thus reported as a defined contribution plan. The premium for the defined benefit retirement and family pension is calculated on an individual basis and depends, among other things, on salary, previously earned pension entitlement, and expected remaining period of employment. Expected fees for the next reporting period for ITP2 policies taken out with Alecta amount to SEK 3 m (2015: SEK 3 m).

Alecta’s surplus may be divided among the policyholders and/or the insured. As per December 31, 2016, Alecta’s surplus in the form of the collective funding level amounted to 149% (2015: 153%). The collective funding level constitutes the market value of Alecta’s assets as a percentage of the insurance obligations, calculated in accordance with Alecta’s actuarial calculation assumptions, which do not correspond to IAS 19.

The amounts reported in the consolidated balance sheet consist of:

  Defined benefit plans
SEK m 2016 2015
Present value of funded obligations 318 276
Fair value of plan assets -234 -211
Present value of non-funded obligations 184 171
Net debt in the balance sheet 268 236

Total pension expenses reported in the consolidated income statement are as follows:

 SEK m 2016 2015
Costs relating to employment during the current year -7 -7
Interest expenses -12 -12
Interest income 7 7
Total pension expenses regarding defined benefit plans -12 -12
Pension expenses for the year regarding defined contribution plans -39 -31
Total pension expenses for the year, included in personnel expenses (Note 13) -51 -43
The year’s reappraisal of pension plans reported in “Other comprehensive income” -30 10

The expenses regarding defined benefit plans are allocated in the consolidated income statement on the following items:

  Defined benefit plans
SEK m 2016 2015
Operating income -7 -7
Financial net -5 -5
Total expenses from defined benefit plans in the income statement -12 -12

The change in the defined benefit obligation during the year is as follow:

  Defined benefit plans
SEK m 2016 2015
At beginning of year 447 477
Employment expenses during current year 7 7
Interest expenses 12 12
Reappraisals, losses (+)/gains (-) as a consequence of experience-based adjustments of defined benefit obligations 0 -3
Reappraisals, losses (+)/gains (-) as a consequence of changed demographic assumptions 1 -2
Reappraisals, losses (+)/gains (-) as a consequence of changed financial assumptions 60 -16
Exchange rate differences -6 -4
Disbursed benefits -20 -26
Settlements 2
At year-end 502 447

 

Reappraisals entail gains/losses as a consequence of changed demographic assumptions, financial assumptions and experience-based gains/losses.

The change in fair value of plan assets during the year is as follows:

2016 2015
At beginning of year -211 -211
Anticipated return on plan assets -7 -7
Reappraisals, losses (+)/gains (-) as a consequence of experience-based adjustments of plan assets -20 3
Exchange rate differences 8 2
Employer’s contributions -8 -9
Employees’ contributions -1 -1
Disbursed benefits 5 12
Settlements 0 0
At year-end -234 -211
Experience-based adjustments of plan assets -20 3

The plan assets are located primarily in the UK and the Netherlands. In the Netherlands and Germany, funding consists primarily of insurance contracts which provide a guaranteed annual return with a possibility of a bonus decided on annually by the insurance company. In the UK, 81% (78%) of the plan assets are invested in equity instruments, 10% (7%) in bonds, and 9% (15%) in real estate. The assumed return on the plan assets is stated as the guaranteed return plus the anticipated bonus.

Contributions to defined benefit plans are expected to be on the same level as in 2016.

The weighted average term for pension obligations is 17.1 years.

Actuarial assumptions on the balance sheet date Sweden Germany UK The Netherlands Belgium
Discount rate 2.2% (2.9) 1.4% (1.8) 2.7% (3.9) 1.9% (2.2) 1.5% (2.2)
Expected return on plan assets 1.4% (1.8) 2.7% (3.9) 1.9% (2.2) 1.5% (2.2)
Future annual salary increases 4.1% (4.0) 2.4% (2.5) 2.8% (2.8)
Future annual pension increases 1.65 % (1.45) 1.75% (1.75) 3.35% (3.25) 0.0% (0.0) 0.0% (0.0)
Personnel turnover 0.0% (0.0) 0.0% (0.0) 0.0% (0.0)

The assumptions regarding future lifespan are based on public statistics and experiences from mortality studies in each country, and are established in consultation with actuarial experts. The plans in Sweden and Germany are closed and do only have disbursements.

Through  its defined benefit pension plan, Duni is exposed to a number of risks, the most important of which are the following:

Asset volatility: The plan’s liabilities are calculated applying a discount rate which is based on corporate bonds. If the plan assets do not achieve a corresponding return, a deficit arises. In the short term, this can result in volatility, but since the liability in the pension plan is long-term in nature, investments in, e.g. equity instruments are appropriate for managing the plan efficiently and obtaining the best return. Duni has no independent control over the way in which plan assets are invested. They are held by foundations whose activities are governed by national regulations and practice.

Changes in the yield on bonds: A reduction in the interest rate paid on corporate bonds will result in an increase in the liabilities in the plans.

Inflation risk: Certain of the plan’s obligations are linked to inflation, with high inflation resulting in greater liabilities. Most of the plan assets are either unaffected by inflation (fixed interest on bonds) or have a weak correlation to inflation (equities), entailing that an increase in inflation will also increase the deficit.

Lifespan assumptions: Most of the pension obligations entail that the employees covered by the plan will receive lifelong benefits, and consequently increased lifespan assumptions result in higher pension liabilities. This is particularly important in the Swedish plans, with increases in inflation resulting in greater sensitivity to changes in lifespan assumptions.

Summary per country, 2016, SEK m Sweden Germany UK The Netherlands Belgium Total
Present value of defined benefit obligations 156 55 156 129 6 502
Fair value of plan assets -1 -127 -102 -4 -234
The defined benefit pension plans, per country 156 54 29 27 2 268

 

Discount rate sensitivity in the determined benefit obligation (DBO):
Change in assumption Increase in assumption Decrease in assumption
Discount rate +/- 0.5% Decrease by 8.1% Increase by 9.2%

 

The senstivity analyisis of DBO relates to the entire Group.

If the expected lifespan in the Swedish pension plan were to increase by 1 year from the
assumption, the Swedish pension plan would increase by 5.6%.

If the pension increases in the Swedish pension plan were to increase by 0.5% from the assumption, the Swedish pension plan would increase by 6.5%.

If the pension increases in the Swedish pension plan were to decrease by 0.5% from the assumption, the Swedish pension plan would decrease by 6.0%.

The sensitivity analysis assumes that all other assumptions are unchanged.

  Parent Company
SEK m 2016 2015
Provisions in accordance with the Swedish Pension Obligations (Security) Act
FPG/PRI pensions 100 104
Liability in the balance sheet 100 104
The following amounts are reported in the Parent Company’s income statement:
Earned during the year 0 0
Interest expenses -5 -4
Pension expenses for the year -5 -4

The change in the defined benefit during the year is as follows:

2016 2015
At the beginning of the year 104 107
Net expenses reported in the income statement 5 4
Disbursed benefits -8 -8
Settlements 0 0
At year-end 100 104

The liability in the Parent Company relates to pension obligations at PRI.