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30 Post-employment and other long term
The Group has several pension arrangements in different countries. Pension cover is based on the legislation and agreement in force in each country. Finnish statutory pensions are accounted for as a defined contribution plan in the group financial statements.
The Group has defined benefit pension plans in Finland, Belgium and Switzerland. The largest plans are in Finland, which account for 98% (previous year: 98%) of the Group's total defined benefit pension obligation. The voluntary pension plan in Finland accounting for most of this has been closed since 1 January 1994. The insured supplementary pension scheme consists of defined benefit group pension insurances, which are very similar in structure, with the exception of retirement age and pension accrual rules.
The group also operates a long-service benefit scheme, which is accounted for as an unfunded defined benefit plan in accordance to IAS 19.
Characteristics of the post-employed defined benefit plans in Finland
The employer has arranged a voluntary post-employed benefit plan in an insurance company to the certain group of employees within the plan, to fulfill a aggregated benefit after retirement.
The voluntary plan's benefit is based on the aggregated benefits determined by the insurance contract. The voluntary benefit is the difference between aggregated benefits and compulsory benefits. The aggregated benefits are at most 60% or 66% of the supplementary pension salary depending on the plan. The supplementary pension salary is calculated based on last 10 years' salaries prior to the pension event adjusted by the index level. The benefits in the plans are old age and disability pensions, survivors' pensions for widows and children, and funeral grants. Old-age pension ages are 60, 62 and 65 years. In some pension schemes, pension cover also includes the right to early old-age pension.
The insurance company collects premiums on yearly basis from the employer. The future premiums are adjusted so that the old age benefit will be fully funded until retirement. The disability and survivor's benefits are also financed by risk premiums collected during the employment period. The premiums with fixed discount rate 3.5% are based on the last known salary without any assumptions on future salary increases. The insurance company guarantees to the assets in the plan the same interest yield they have used in calculating the premiums.
The employer finances the index-linkage by paying an additional premium covering the index increase in the year. Discretionary bonuses from the insurance company will lower the index premium. The insurance company decides annually the amount of the bonus.
Risks to which the plan exposes the employer
The employer´s pension liability depends on the yield of corporate bonds as at the reporting date. According to IAS 19 decrease (increase) in yields increases (decreases) the pension liabilities. However, decrease (increase) in yield also increases (decrease) the fair value of the assets partially offsetting the total impact of change in yield on the net defined benefit pension liability.
The future benefits of the plans is tied to TyEL index, which depends on inflation and common salary index. Higher inflation increases the TyEL index, which leads to an increase in liabilities and annual payments to the insurance company.
If the active employee's salary increases more than the common salary index, the amount of promised benefit and the benefit obligation increases together with annual payments to insurance company.
The longevity risk is borne by the insurance company in case the actual mortality differs from the assumed. Possible adjustments in mortality assumption have an effect to employer's liability according to IFRS. The insurance company bears completely the mortality risk on accrued benefits. The employers has mortality risk only if the insurence company will raise its future benefit accruals premiums because of mortality adjustment.
The insurance company is responsible for the following actuarial risks: the life expectancy, mortality, and onset of disability of the insured.
Defined benefit plans
Cost of defined benefit plans
MEUR 2013 Restated
Current service cost 7 14
Net interest expense on benefit obligation 2 3
Total pension expenses recorded in income statement 9 17
Service cost and net interest expense for the current financial year totaled EUR 7 million (2012: EUR 14 million) and EUR 2 million (2012: EUR 3 million) respectively for pension plans in Finland.
Remeasurements of defined benefit plans
MEUR 2013 Restated
Actuarial gains/losses:
Changes in demographic assumptions - 0
Changes in financial assumptions 46 -90
Return on plan assets, excluding amounts included in net interest expense -42 57
Experience adjustments -3 -5
Total remeasurements recorded in other comprehensive income 1 -38
Remeasurements recorded in other comprehensive income for the current financial year totaled EUR 1 million (2012: EUR –38 million) for pension plans in Finland.
Amounts recognized in the balance sheet
MEUR 2013 Restated
Present value of funded obligations 396 435
Present value of unfunded obligations 8 9
Fair value of plan assets -311 -345
Net liablity (+) / asset (–) 93 99
Changes in fair value of plan assets
MEUR 2013 2012
January 1 345 278
Interest income 9 12
Return on plan assets (excluding amounts included in net interest expense) -42 57
Employer contributions 15 14
Benefits paid -16 -16
December 31 311 345
The assets are the responsibility of the insurance company and a part of the insurance company's investment assets. The distribution in categories is not possible to provide. The actual return on plan assets was EUR –33 million (2012: EUR 69 million)
The fair value of the assets has not materially changed due to the adoption of IFRS 13.
Changes in the present value of the defined benefit obligation
MEUR 2013 Restated
Funded Unfunded Funded Unfunded
January 1 435 9 335 0
Current service cost 7 0 6 9
Interest cost 12 0 15 -
Actuarial changes arising from changes in actuarial assumptions -42 -1 95 -
Benefits paid -16 0 -16 -
December 31 396 8 435 9
The present value of the defined benefit obligation is determined annually by independent actuaries using the project unit credit method. Actuarial assumptions are required for this purpose.
The principal actuarial assumptions used in determining net defined benefit pension obligation
2013 Restated
Discount rate
Finland 3.5% 2.4–2.7%
Other countries 2.3–3.25% 2.0–3.0%
Rate of salary increase
Finland 3.5% 3.5%
Other countries 1.5–2.0% 1.5–2.0%
Insurance company's index rate
Finland 0.5% 0.8%
Other countries - -
Pension index rate
Finland 2.1% 2.1%
Other countries 1.0% 0.0%
A quantitative sensitivity analysis for significant assumptions as at 31 December 2013 is as shown below:
Assumptions Sensitivity Level Impact on the net defined benefit pension obligation
Discount rate
0.25% increase EUR million -4
0.25% decrease EUR million 5
Rate of salary increase
0.25% increase EUR million 4
0.25% decrease EUR million -4
Insurance company's index rate
0.25% increase EUR million -9
0.25% decrease EUR million 9
Pension index rate
0.25% increase EUR million 10
0.25% decrease EUR million -10
The discount rate, salary increase, insurance company's index and pension index were identified as significant actuarial assumptions. The following impacts on the defined benefit obligation are to be expected:
- A 0.25% increase/decrease in the discount rate would lead to a decrease/increase of 3.2% in the defined benefit obligation.
- A 0.25% increase/decrease in the rate of salary increase would lead to a increase/decrease of 1.1% in the defined benefit obligation.
- A 0.25% increase/decrease in the rate of pension index would lead to a decrease/increase of 2.7% in the defined benefit obligation.
The maturity profile of the future benefit payments which are the basis for the calculated defined benefit pension obligations:
Within the next 12 months (next annual reporting period) 18
Between 1 and 5 years 109
Between 5 and 10 years 121
Beyond 10 years 433
Total expected payments 681
The average duration of the defined benefit pension obligation at the end of the reporting period is 13 years.