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UPM Annual Report 2015
UPM Annual Report 2015
119
120
contents
accounts
IN BRIEF
STRATEGY
BUSINESSES
STAKEHOLDERS
GOVERNANCE
ACCOUNTS
Present value of obligation and fair value of plan assets 2015
Present value of obligation
Fair value of plan assets
EURm
Pension
benefits
Other post-
employment
benefits
Total
Pension
benefits
Other post-
employment
benefits
Total
Net
At 1 Jan. 2015
1,548
33
1,581
–794
–
–794
787
Current service cost
14
1
15
–
–
–
15
Curtailments
–
–
–
–
–
–
–
Past service cost and gains and losses from settlements
4
–2
2
–
–
–
2
Interest expense (+) income (–)
36
–
36
–21
–
–21
15
Total included in personnel expenses (Note 7)
54
–1
53
–21
–
–21
32
Actuarial gains and losses on defined benefit obligation
arising from changes in demographic assumptions
13
–
13
–
–
–
13
Actuarial gains and losses on defined benefit obligation
arising from changes in financial assumptions
–158
–
–158
–
–
–
–158
Actuarial gains and losses on defined benefit obligation
arising from experience adjustments
7
1
8
–
–
–
8
Actuarial gains and losses on plan assets
–
–
–
–16
–
–16
–16
Total remeasurement gains (–) and losses (+) included
in other comprehensive income
–138
1
–137
–16
–
–16
–153
Benefits paid
–56
–3
–59
56
3
59
–
Settlements
–
–
–
–
–
–
–
Contributions by the employer
–
–
–
–52
–3
–55
–55
Translation differences
31
1
32
–24
–
–24
8
At 31 Dec. 2015
1,439
31
1,470
–851
–
–851
619
Present value of obligation and fair value of plan assets 2014
Present value of obligation
Fair value of plan assets
EURm
Pension
benefits
Other post-
employment
benefits
Total
Pension
benefits
Other post-
employment
benefits
Total
Net
At 1 Jan. 2014
1,239
29
1,268
–717
–
–717
551
Current service cost
11
1
12
–
–
–
12
Curtailments
–4
–
–4
–
–
–
–4
Past service cost and gains and losses from settlements
–7
–
–7
–
–
–
–7
Interest expense (+) income (–)
43
1
44
–27
–
–27
17
Total included in personnel expenses (Note 7)
43
2
45
–27
–
–27
18
Actuarial gains and losses on defined benefit obligation
arising from changes in demographic assumptions
1
–
1
–
–
–
1
Actuarial gains and losses on defined benefit obligation
arising from changes in financial assumptions
276
3
279
–
–
–
279
Actuarial gains and losses on defined benefit obligation
arising from experience adjustments
6
–
6
–
–
–
6
Actuarial gains and losses on plan assets
–
–
–
–51
–
–51
–51
Total remeasurement gains (–) and losses (+) included
in other comprehensive income
283
3
286
–51
–
–51
235
Benefits paid
–47
–3
–50
47
3
50
–
Settlements
–
–
–
–
–
–
–
Contributions by the employer
–
–
–
–23
–3
–26
–26
Translation differences
30
2
32
–23
–
–23
9
At 31 Dec. 2014
1,548
33
1,581
–794
–
–794
787
The significant weighted actuarial assumptions used as at 31 December
Finland
Germany
UK
Other countries
2015
2014
2015
2014
2015
2014
2015
2014
Discount rate %
2.13
1.56
2.20
1.62
3.60
3.50
2.94
2.42
Inflation rate %
1.59
1.25
1.70
2.00
3.25
3.35
2.05
2.12
Rate of salary increase %
1.59
1.50
2.50
2.50
N/A N/A 2.42
2.46
Rate of pension increase %
0.88
2.21
1.70
2.00
3.10
3.20
1.01
1.00
Expected average remaining working years of participants
13.7
10.3
11.0
12.8
13.0
12.0
10.5
10.9
The sensitivity analysis of the defined benefit obligation to changes in the significant weighted assumptions
Impact on defined benefit obligation
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate %
0.5%
Decrease by 7.6%
Increase by 8.5%
Rate of salary increase %
0.5%
Increase by 1.2%
Decrease by 1.0%
Rate of pension increase %
0.5%
Increase by 4.7%
Decrease by 4.3%
Life expectancy
Increase by 1 year
Increase by 3.1%
–
The weighted average duration of defined benefit obligation at the end of 2015 is 17 years.
The above analyses assume that assumption changes occur in isolation, holding all other assumptions constant. The same method (projected unit
method) has been applied when calculating the pension liability as well as these sensitivities.
The main categories of pension and other post-employment benefit plan assets
2015
2014
Quoted % Unquoted % Total % Quoted % Unquoted % Total %
Money market
Europe
1
–
1
1
–
1
Debt instruments
Europe
25
–
25
28
–
28
US
3
–
3
2
–
2
Other
6
–
6
7
–
7
Equity instruments
Europe
13
–
13
12
–
12
US
8
–
8
11
–
11
Other
34
–
34
32
–
32
Property
Europe
6
4
10
3
4
7
Total
96
4
100
96
4
100
In Finland, plan assets include the company's ordinary shares with a fair value of EUR 1 million (0.7 million). In 2016 contributions to the Group's
defined pension plans are expected to be EUR 32 million and to other post-employment plans EUR 4 million.
Main risk areas related to defined benefit plans
The main risks related to the Group’s defined benefit plans are
changes in discount rate, asset volatility, inflation, changes in salaries
and longevities of the beneficiaries.
Discount rates
The discount rates are based on corporate bond yields as at reporting
date. A decrease in yields increases the defined benefit obligation. An
increase of 0.5% in discount rate would decrease Group’s defined
benefit obligation by EUR 112 million. Respectively, a decrease of
0.5% in discount rate would increase the obligation by EUR 126
million.
Asset volatility
The Group is exposed to changes of assets’ values especially in the
investments of the foundations and schemes in Finland and in the UK.
The asset values of these arrangements constitute 96% of total asset
values in defined benefit plans within Group.
Inflation risk
In Finland, the plan’s benefits in payment are tied to TyEL index which
depends 80% on inflation and 20% on common salary index. Higher
inflation increases the TyEL index which increases the employer’s
payments to the pooling system. Index increments do not increase
directly the plan’s liabilities as they are covered through the pooling
system.
In the UK the pensions in payment are tied to Retail Price Index
whilst being tied to Consumer Price Index during deferment. An
increase of 0.5% in indexes will increase the liabilities by some
EUR 34 million.
In Germany the pensions have to be adjusted in accordance with
the Consumer Price Index.
Salary risk
In Finland the salary risk is related to 10% of employees that are
insured through the TyEL Foundation.
As all UK defined benefit arrangements are closed to future
accrual, changes in salary levels have no impact on the funding posi-
tion.
In Germany the salaries affect directly to benefit cost in part of the
plans and to part of the plans salary changes have no impact.
Life expectancy
Adjustments in mortality assumption have an impact on Group’s de-
fined benefit obligation. An increase in life expectancy by one year
will increase the obligation in Finland by EUR 12 million, in the UK by
EUR 12 million and in Germany by EUR 19 million.