Note 21 Provisions for pensions and similar obligations

Defined-contribution plans

In many countries, Arjo’s employees are covered by defined-contribution pension plans.

The pension plans primarily include retirement pensions. The premiums are paid continuously throughout the year by each Group company to separate legal entities, such as insurance companies. The size of the premium paid by the Group companies is normally based on a set proportion of the employee’s salary.

Defined-benefit plans

Arjo has defined-benefit pension plans in Sweden, Germany, the UK and Italy. The pension plans primarily comprise retirement pensions. Each employer normally has an obligation to pay a lifelong pension. Vesting is based on the number of years of service. The employee must be affiliated with the plan for a certain number of years to achieve full retirement pension entitlement. The pension is financed through payments from each Group company.

Pension commitments are usually calculated at year-end after actuarial assumptions. New calculations are made if substantial changes occur during the year. Gains and losses on changed actuarial assumptions are recognized as part of comprehensive income.

The net value of the defined-benefit commitment is detailed below:

2019‚ SEK M Funded pension plans Unfunded pension plans Total
2019‚ Mkr Fonderade pensionsplaner Ofonderade pensionsplaner

Totalt

Present value of ­commitments Nuvärdet av förpliktelser -2,518 -32 -2,550
Fair value of plan assets Förvaltningstillgångars verkliga värde 2,410 2,410
Net asset/liability in the balance sheet Nettotillgång/skuld i balans­räkningen -108 -32 -140
2018‚ SEK M Funded pension plans Unfunded pension plans Total
2018‚ Mkr Fonderade pensionsplaner Ofonderade pensionsplaner

Totalt

Present value of ­commitments Nuvärdet av förpliktelser -2,015 -27 -2,042
Fair value of plan assets Förvaltningstillgångars verkliga värde 2,067 2,067
Net asset/liability in the balance sheet Nettotillgång/skuld i balans­räkningen 52 -27 25
SEK M 2019 2018
Mkr 2019 2018
Pension commitments Pensionsförpliktelser
Opening balance Ingående balans 25 -61
Costs for service in the current year Kostnader för intjäning under innevarande år -2 -2
Costs for service in previous years Kostnader för intjäning under tidigare år -40
Net interest rate Nettoränta -4 0
Administrative costs pertaining to plan assets Administrativa kostnader avseende ­förvaltningstillgångar 0 0
Return on plan assets Avkastning på förvaltningstillgångar 175 0
Gain/(loss) attributable to changed ­demographic assumptions Vinst/(förlust) till följd av förändrade demografiska antaganden -1 0
Gain/(loss) attributable to changed ­financial assumptions Vinst/(förlust) till följd av förändrade finansiella antaganden -334 141
Experience-based gains/(losses) Erfarenhetsbaserade vinster/(förluster) -11 -28
Restriction in plan surpluses with regard to asset ceilings Restriktion i överskott av planen med avseende på tillgångstak 5 -5
Exchange-rate differences Valutakursdifferenser 2 -2
Fees paid by employer Betalda avgifter av arbetsgivaren 4 21
Paid benefits Utbetalda ersättningar 1 1
Closing balance Utgående balans -140 25

The defined-benefit pension commitment and composition of plan assets

2019‚ SEK M Present value of commitments Fair value of plan assets Net provisions for pensions
2019‚ Mkr Nuvärdet av förpliktelsen Verkligt värde på förvaltningstillgångar Netto­avsättning för pensioner
Sweden Sverige -56 56 0
Germany Tyskland -10 -10
UK Storbritannien -2,462 2,354 -108
Italy Italien -22 -22
Total Summa -2,550 2,410 -140
2018‚ SEK M Present value of commitments Fair value of plan assets Net provisions for pensions
2018‚ Mkr Nuvärdet av förpliktelsen Verkligt värde på förvaltningstillgångar Netto­avsättning för pensioner
Sweden Sverige -49 49 0
Germany Tyskland -8 -8
UK Storbritannien -1,966 2,018 52
Italy Italien -19 -19
Total Summa -2,042 2,067 25
2019 2018
UK Storbritannien

2019

2018

Significant actuarial assumptions, % Väsentliga aktuariella antaganden, %
Discount rate Diskonteringsränta 2.0 2.8
Expected salary increase rate Förväntad löneökningstakt
Expected inflation Förväntad inflation 2.2 2.4

The discount rate corresponds to the interest rate of first-class corporate bonds with a remaining term that is almost equivalent to the actual commitments. The pension plan in the UK is closed which is why no expected salary increase rate is stated.

Sensitivity of defined-benefit commitments to changes in the significant assumptions for 2019, SEK M, UK

SEK M Expected value of pension commitments Changed compared with used calculation assumptions
Mkr Förväntat värde av pensions­förpliktelse Förändring jämfört med använda beräknings­antaganden
Pension commitments according to original valuation Pensionsförpliktelse enligt ­ursprunglig värdering -2,462
Discount rate +1 percentage point Diskonteringsränta + 1 procentenhet -1,973 489
Inflation +1 percentage point Inflation + 1 procentenhet -2,804 -342

 

The sensitivity analyses above are based on a change in one assumption, while all other assumptions remain constant. It is unlikely that this will happen in practice, and changes in some of the assumptions may correlate. The calculation of sensitivity in the defined-benefit commitments for material actuarial assumptions uses the same method (the present value of defined-benefit commitments by applying the Projected Unit Credit Method at the end of the reporting period) as that used in the calculation of pension liabilities.

Composition of plan assets

SEK M 2019 2018
Mkr 2019 2018
Securities Värdepapper 2,393 2,054
Properties Fastigheter 6 6
Cash and cash equivalents and similar assets Likvida medel och övriga liknande tillgångar 4 0
Other Övrigt 7 7
Total Totalt 2,410 2,067

The weighted average term of the pension commitments is 18 years (20).

Information regarding recognition of multi-employer defined-­benefit pension plans, Alecta

The commitment for retirement pensions and family pensions for salaried employees in Sweden is safeguarded through insurance with Alecta. According to a statement from the Swedish Financial Reporting Board, UFR 10, this is a multi-employer defined-benefit plan. For the 2019 fiscal year, the company did not have access to such information that makes it possible to recognize this plan as a defined-benefit plan. The pension plan in accordance with ITP, which is safeguarded through insurance with Alecta, is thus recognized as a defined-contribution plan. Fees for the year for pension insurance covered by Alecta amounted to SEK 4 M (4). Alecta’s surplus can be distributed to the insurers and/or the insured. At year-end 2019, Alecta’s surplus in the form of the collective consolidation level was approximately 148% (142). The collective consolidation level comprises the market value of Alecta’s assets as a percentage of the insurance commitment calculated in accordance with Alecta’s actuarial calculation assumption, which does not correspond with IAS 19.