Note 33 - Pension provisions

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 vis-à-vis the employees. Within the Group, there are also a number of benefit-based plans under which the employees are guaranteed a pension corresponding to a percentage of salary.

Provisions for pensions and similar obligations

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 in employment. The largest plans relate to Sweden (representing approximately 40% of the total pension plan), Germany, the UK, the Netherlands, and Belgium. The plans 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 as regards the relationship between the Group and 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). This entails that previously non-reported actuarial losses are reported at the time of transition and that actuarial gains and losses which arise in the future will be reported in 'Other comprehensive income'. Comparison figures for 2012 have been recalculated in accordance with IAS19R.

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 which covers 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 othe 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 (2012: SEK 3 m).

Alecta's surplus may be divided among the policy holders and/or the insured. As per December 31, 2013, Alecta's surplus in the form of the collective funding level amounted to 148% (2012: 129%). 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:

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

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

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

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:

The plan assets are located primarily in UK and Holland. In Holland and Germany, funding consists primarily of insurance contracts which provide a guaranteed annual return with the possibility of a bonus decided on annually by the insurance company. In the UK, 65% of the plan assets are invested in equity instruments, 20% in bonds, and 14% in real estate. A essentially unchanged distribution from previous year.

Contributions to defined benefit plans in 2014 are expected to reach the same level as in 2013.

The weighted average term for pension obligations in 16.4 years.

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.

Through its defined benefit pension plans, Duni is exposed to a number of risk, 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 for obtaining the best return. 

Changes in the yield on the 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 pension obligations are linked to inflation, with higher 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.

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

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