Note 33 – Pension obligations

Remuneration for pensions and other post-employment remuneration is mainly paid through defined contribution 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 defined benefit plans under which employees are guaranteed a pension corresponding to a percentage of their salary.

Provisions for pensions and similar obligations:

Group
SEK m 2017 2016
Defined benefit plans 244 268

Defined benefit plans

Within the Group, there are a number of defined benefit plans where, after completion of employment, the employees are entitled to remuneration based on their final salary and period of employment. The largest plans are in Sweden, Germany, the UK, the Netherlands and Belgium. The plans in the UK and the Netherlands are consolidated externally, with the plan assets held by foundations or similar legal entities. The activities of the foundations are governed by national regulations and practices 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.

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

Pension insurance with Alecta

Obligations regarding retirement pensions and family pensions for salaried employees in Sweden are secured through insurance with independent insurance company Alecta. According to a statement issued by the Swedish Financial Reporting Board, URF 3 Classification of ITP plans financed through insurance with Alecta, this is a defined benefit plan covering several employers. Duni does not have access to such information as makes it possible to recognize this plan as a defined benefit plan. The pension plan according to ITP2, which is secured through insurance with Alecta, is thus recognized 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 4 m (2016: SEK 3 m).

Alecta’s surplus may be divided among the policyholders and/or the insured. As at 12/31/2017, Alecta’s surplus in the form of the collective funding level amounted to 154% (2016: 149%). 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 recognized in the consolidated balance sheet consist of:

Defined benefit plans
SEK m 2017 2016
Present value of consolidated obligations 325 318
Fair value of plan assets -261 -234
Present value of non-consolidated obligations 180 184
Net pension liability in balance sheet 244 268

The total pension expenses recognized in the Group’s income statement are as follows:

SEK m 2017 2016
Costs relating to service during the current year -9 -7
Interest expenses -11 -12
Interest income 5 7
Total pension expenses regarding defined benefit plans -15 -12
Pension expenses for the year regarding defined contribution plans -33 -39
Total pension expenses for the year, included in personnel expenses (Note 13) -48 -51
The year’s reappraisal of pension plans recognized in other comprehensive income 4 -30

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

Defined benefit plans
SEK m 2017 2016
EBIT -10 -7
Financial expenses -5 -5
Total expenses from defined benefit plans in the income statement -15 -12

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

Defined benefit plans
SEK m 2017 2016
At the beginning of the year 502 447
Expenses for service during current year 9 7
Interest expenses 11 12
Reappraisals, losses (+)/gains (-) as a consequence of experience-based adjustments of defined benefit obligations -2 0
Reappraisals, losses (+)/gains (-) as a consequence of changed demographic assumptions 0 1
Reappraisals, losses (+)/gains (-) as a consequence of changed financial assumptions -1 60
Exchange rate differences 5 -6
Disbursed benefits -20 -20
At year-end 505 502

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:

SEK m 2017 2016
At the beginning of the year -234 -211
Expected return on plan assets -5 -7
Reappraisals, losses (+)/gains (-) as a consequence of experience-based adjustments of plan assets -15 -20
Exchange rate differences -2 8
Employer’s contributions -9 -8
Employee’s contributions -1 -1
Disbursed benefits 5 5
Settlements 0 0
At year-end -261 -234
Experience-based adjustments of plan assets -15 -20

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, 83% (81%) of the plan assets are invested in equity instruments, 8% (10%) in bonds, and 9% (9%) 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 2017.

The weighted average term for pension obligations is 17.6 years.

Actuarial assumptions on the balance sheet date Sweden Germany UK Netherlands Belgium
Discount rate 2.05% (2.2) 1.5% (1.4) 2.75% (2.7) 1.8% (1.9) 1.5% (1.5)
Expected return on plan assets – 1.5% (1.4) 2.75% (2.7) 1.8% (1.9) 1.5% (1.5)
Future annual salary increases – – 4.05% (4.1) 2.4% (2.4) 2.8% (2.8)
Future annual pension increases 1.7% (1.65) 1.75% (1.75) 3.30% (3.35) 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 only have disbursements.

Through its defined benefit pension plans, Duni is exposed to a number of risks, and the most significant risks are:

Asset volatility: The plan’s liabilities are calculated using a discount rate which is based on corporate bonds. A deficit arises if the plan assets do not achieve a corresponding return. In the short term, this can result in volatility, but since the liability in the pension plan is long-term in nature, investments in instruments such as equity instruments are suited 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 decrease in the interest rate paid on corporate bonds will result in an increase in the liabilities of the plans.

Inflation risk: Some of the plan’s obligations are linked to inflation, with higher inflation resulting in higher 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.

Composition by country, 2017 SEK m Sweden Germany UK Netherlands Belgium Total
Present value of defined benefit obligations 155 53 155 136 6 505
Fair value of plan assets – -1 -143 -113 -4 -261
Total defined benefit pension plans by country 155 52 12 23 2 244
Composition by country, 2016 SEK m Sweden Germany UK 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
Total defined benefit pension plans by country 156 54 29 27 2 268
Discount rate sensitivity in the defined benefit obligation (DBO):
Change in assumption Increase in assumption Decrease in assumption
Discount rate +/- 0.5% Decrease by 9.0% Increase by 8.0%

The sensitivity analysis 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 6.4%.

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 5.9%.

The methods and assumptions upon which the sensitivity analyses are based have not changed since the previous year.

Parent Company
SEK m 2017 2016
Provisions in accordance with the Swedish Pension Obligations (Security) Act
FPG/PRI pensions 97 100
Liability in the balance sheet 97 100
The following amounts are recognized in the Parent Company’s income statement:
Earned during the year 0 0
Interest expenses -5 -5
Pension expenses for the year -5 -5

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

SEK m 2017 2016
At the beginning of the year 100 104
Net expenses recognized in the income statement 5 5
Disbursed benefits -8 -8
Settlements – 0
At year-end 97 100

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