Annual report 2014

14 Pension provisions

Pension provisions are recognised for obligations arising from current pensions as well as from commitments under old-age, disability and survivors’ pension plans. The benefits paid by the Group vary from country to country, depending on the respective legal, tax and economic circumstances. The Haniel Group’s company pension schemes comprise both defined contribution plans and defined benefit plans. Other than the payment of the contributions, no further obligations exist in respect of the defined contribution plans. The contributions of the continuing operations are shown under personnel expenses and amounted to EUR 23 million (previous year: EUR 22 million) for the statutory pension insurances and EUR 6 million (previous year: EUR 5 million) for other defined contribution plans.

The majority of the obligations from defined benefit plans exist from benefit plans based on final salaries with adjustments to counter the effect of inflation. They are financed using external pension funds and through provisions. As part of their investment strategies, the funds invest in various investment classes to avoid risk concentration. In addition, the maturity profile of the plan assets is adjusted in line with the expected benefit payment dates.

The majority of the pension obligations are attributable to Germany, the United Kingdom and Switzerland. The characteristics specific to the aforementioned countries are described in greater detail below.

In Germany the obligations are financed through provisions. The obligations are based either on shop agreements or individual contractual arrangements. The majority of the British defined benefit obligations are financed through external funds into which both the employees and the employer contribute. The investment strategies and minimum allocations are determined by the trustees or boards of trustees in coordination with company representatives.

The pension obligations in Switzerland are based on commitments for executives and other employees. They are financed through employee and employer contributions to pension funds. The contributions vary depending on salary and age. Pension increases are factored in depending on the return on plan assets. To cover the pension claims, the plans are subject to minimum funding requirements from which future additional contribution obligations may arise.

The defined benefit obligations are measured using the projected unit credit method. This measurement is based on the following specific parameters for each country:

31 Dec. 2014    31 Dec. 2013
% Germany United
Kingdom
SwitzerlandOthersGermanyUnited KingdomSwitzerlandOthers
Discount rate 2.0 3.61.1 to 1.32.0 to 4.33.74.42.13.3 to 3.8
Salary trend 2.8 3.01.50.0 to 3.02.83.3 to 4.41.50.0 to 3.5
Pension trend 1.8 3.00.00.0 to 2.01.93.3 to 3.40.00.0 to 3.0

The discount rate is determined using an interest rate curve approach for each currency area based on the yields of fixed interest corporate bonds that have an AA rating from at least one respected rating agency. In exceptional cases, if there is not a sufficiently liquid market for such corporate bonds in a currency area, the yields of corresponding government bonds are used instead.

The mortality tables used for the corresponding countries are based on publicly accessible data. In Germany, the measurement is based on the biometric probabilities from the 2005G Heubeck mortality tables.

The average duration of the defined benefit plans during the financial year was 18 years (previous year: 17 years).

Pension provisions are presented in the following items of the statement of financial position:

EUR million 31 Dec. 2014 31 Dec. 2013
Pension provisions 335 247
Other non-current assets 1
Net pension provisions 334 247

The present value of defined benefit obligations developed as follows in the financial year:

EUR million 2014 2013
Present value of defined benefit obligations as at 1 Jan. 356 1,150
Foreign exchange rate adjustments 5 -54
Changes in the scope of consolidation and other changes
Current service cost 12 39
Past service cost -1 -1
Gains and losses arising from settlements
Interest cost 13 42
Actuarial gains and losses 99 34
of which arising from experience adjustments 24
of which arising from changes in demographic assumptions
of which arising from changes in financial assumptions 99 10
Employees’ contributions to plan assets 3 3
Less current pension payments 13 42
Less payments in respect of settlements 3
Reclassification of discontinued operations -815
Present value of defined benefit obligations as at 31 Dec. 471 356

The pension payments are expected to be EUR 13 million (previous year: EUR 10 million) in the next financial year, EUR 55 million in the following 2 to 5 financial years (previous year: EUR 42 million) and EUR 81 million in the next 6 to 10 financial years (previous year: EUR 61 million).

The plan assets developed as follows:

EUR million 2014 2013
Fair value of plan assets as at 1 Jan. 109 569
Foreign exchange rate adjustments 4 -32
Changes in the scope of consolidation and other changes
Return on plan assets 4 21
Gains and losses arising from settlements
Remeasurements of plan assets 18 10
Employer’s contributions to plan assets 4 42
Employees’ contributions to plan assets 3 3
Less current pension payments out of plan assets 5 26
Less payments in respect of settlements
Reclassification of discontinued operations -478
Fair value of plan assets as at 31 Dec. 137 109

Employer contributions to the plan assets are expected to be EUR 5 million in the coming financial year (previous year: EUR 5 million).

The table below shows the plan asset portfolio structure as at the reporting date:

2014 2013 
EUR million with
active market
without
active market
with
active market
without
active market
Cash and cash equivalents 1
Equity instruments 15 11
Debt instruments 29 22
Real estate 1  
Derivatives  
Investment funds  
Asset-backed securities  
Structured debt  
Insurance contracts 92273
Others
Fair value of plan assets as at 31 Dec. 45 923673

The plan assets do not contain any own financial instruments of the Haniel Group or any assets used by the Haniel Group.

The following table presents the development of the net pension provisions. It corresponds generally to the difference between the changes to the present value of defined benefit obligations and the fair value of the plan assets.

EUR million 2014 2013
Net pension provisions as at 1 Jan. 247 581
Foreign exchange rate adjustments 1 -22
Changes in the scope of consolidation and other changes
Current service cost 12 39
Past service cost -1 -1
Gains and losses arising from settlements
Interest cost from compounding the defined benefit obligation 13 42
Return on plan assets 4 21
Actuarial gains and losses in respect of the defined benefit obligation 99 34
of which arising from experience adjustments 24
of which arising from changes in demographic assumptions
of which arising from changes in financial assumptions 99 10
Remeasurements of plan assets 18 10
Employer’s contributions to plan assets 4 42
Less current pension payments 8 16
Less payments in respect of settlements 3
Reclassification of discontinued operations -337
Net pension provisions as at 31 Dec. 334 247

The pension expenses for the financial year are presented in the income statement in personnel expenses in the amount of EUR 11 million (previous year: EUR 11 million), in finance costs in the amount of EUR 9 million (previous year: EUR 9 million), and in the profit after taxes of discontinued operations.

The following table presents how the present value of defined benefit obligations as at the reporting date would have changed given variations in isolated significant actuarial parameters.

EUR million 20142013
0.5 percentage points increase in the discount rate -40-23
0.5 percentage points decrease in the discount rate 4627
0.5 percentage points increase in the salary trend 84
0.5 percentage points decrease in the salary trend -6-6
0.5 percentage points increase in the pension trend 1813
0.5 percentage points decrease in the pension trend -16-13
One year increase in life expectancy 139
One year decrease in life expectancy -12-8