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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 24 million (previous year: EUR 23 million) for the statutory pension insurances and EUR 6 million (previous year: EUR 6 million) for other defined contribution plans.

The obligations from defined benefit plans consist primarily of 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 defined benefit obligations are attributable in particular to Germany, the United Kingdom and Switzerland. The characteristics specific to the aforementioned countries are described in greater detail below.

In Germany the defined benefit 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 defined benefit 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. 2015 31 Dec. 2014
% Germany United
Kingdom
SwitzerlandOthersGermanyUnited
Kingdom
SwitzerlandOthers
Discount rate 2.5 3.70.6 to 0.82.2 to 6.82.03.61.1 to 1.32.0 to 4.3
Salary growth rate 2.8 3.11.50.0 to 5.52.83.01.50.0 to 3.0
Pension growth rate 1.8 3.00.00.0 to 4.01.83.00.00.0 to 2.0

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.

As in the previous year, the average duration of the defined benefit plans was 18 years.

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

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EUR million 31 Dec. 2015 31 Dec. 2014
Pension provisions 323 335
Other non-current assets 2 1
Net pension provisions 321 334

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

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EUR million 2015 2014
Present value of defined benefit obligations as at 1 Jan. 471 356
Foreign exchange rate adjustments 12 5
Changes in the scope of consolidation and other changes 11
Current service cost 17 12
Past service cost -1 -1
Gains and losses arising from settlements
Interest cost 10 13
Actuarial gains and losses -31 99
of which arising from experience adjustments -5
of which arising from changes in demographic assumptions
of which arising from changes in financial assumptions -26 99
Employees’ contributions to plan assets 3 3
Less current pension payments 15 13
Less payments in respect of settlements 2 3
Reclassification as held for sale
Present value of defined benefit obligations as at 31 Dec.   475 471

The pension payments are expected to be EUR 13 million (previous year: EUR 13 million) in the next financial year, EUR 63 million in the following 2 to 5 financial years (previous year: EUR 55 million) and EUR 86 million in the next 6 to 10 financial years (previous year: EUR 81 million).

The plan assets developed as follows:

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EUR million 2015 2014
Fair value of plan assets as at 1 Jan. 137 109
Foreign exchange rate adjustments 8 4
Changes in the scope of consolidation and other changes 8
Return on plan assets 4 4
Gains and losses arising from settlements
Remeasurements of plan assets -6 18
Employer’s contributions to plan assets 7 4
Employees’ contributions to plan assets 3 3
Less current pension payments out of plan assets 7 5
Less payments in respect of settlements
Reclassification as held for sale
Fair value of plan assets as at 31 Dec. 154 137

Employer contributions to the plan assets are expected to be EUR 6 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:

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2015 2014
EUR million with
active market
without
active market
with
active market
without
active market
Cash and cash equivalents 3
Equity instruments 12 15
Debt instruments 29 29
Real estate 1  1
Derivatives  
Investment funds 5  
Asset-backed securities  
Structured debt  
Insurance contracts 10492
Others
Fair value of plan assets as at 31 Dec. 50 1044592

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

The table below 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.

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EUR million 2015 2014
Net pension provisions as at 1 Jan. 334 247
Foreign exchange rate adjustments 4 1
Changes in the scope of consolidation and other changes 3
Current service cost 17 12
Past service cost -1 -1
Gains and losses arising from settlements
Interest cost from compounding the defined benefit obligation 10 13
Return on plan assets 4 4
Actuarial gains and losses in respect of the defined benefit obligation -31 99
of which arising from experience adjustments -5
of which arising from changes in demographic assumptions
of which arising from changes in financial assumptions -26 99
Remeasurements of plan assets -6 18
Employer's contributions to plan assets 7 4
Less current pension payments 8 8
Less payments in respect of settlements 2 3
Reclassification as held for sale
Net pension provisions as at 31 Dec. 321 334

The pension expenses for the financial year are presented in the income statement in personnel expenses in the amount of EUR 16 million (previous year: EUR 11 million), in finance costs in the amount of EUR 6 million (previous year: EUR 9 million), and, in the previous year, in the profit after taxes of discontinued operations.

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

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EUR million 20152014
0.5 percentage points increase in the discount rate -39-40
0.5 percentage points decrease in the discount rate 4746
0.5 percentage points increase in the salary growth rate 98
0.5 percentage points decrease in the salary growth rate -7-6
0.5 percentage points increase in the pension growth rate 1918
0.5 percentage points decrease in the pension growth rate -17-16
One year increase in life expectancy 1313
One year decrease in life expectancy -12-12