25 JOTUN GROUP 4 PENSIONS AND OTHER LONG-TERM EMPLOYEE BENEFITS The Group has both defined contribution and defined benefit pension plans. In the defined contribution plans, the cost is equal to the contributions to the employees’ pension savings in the accounting period. The future pension will be determined by the amount of the contributions and the return on the pension savings. In the defined benefit plan, the company is responsible for paying a pension to the employee based on pensionable salary. The cost for the accounting periods shows the employees’ pension entitlement of the agreed future pensions in the accounting year. The majority of the Jotun Group’s pension plans are defined contribution plans. DEFINED CONTRIBUTION PLANS Defined contribution plans comprise arrangements whereby the company makes annual contributions to the employees’ pension plans, and where the future pension is determined by the amount of the contributions and the return on the pension plan assets. Employees in the Jotun Group are mainly covered by pension plans that are classified as contribution plans. Costs associated with defined contribution plans are specified in note 3 Payroll expenses. DEFINED BENEFIT PLANS The Jotun Group has pension plans that are classified as funded benefit plans and unfunded benefit plans, recognised in the Group’s balance sheet. A large part of the Group’s benefit plans are in Norway and the United Kingdom, about 80 per cent of the total net obligation as of 31 December 2016. Norway The schemes define a pension benefit of up to 60 per cent of final salary at retirement, limited up to twelve times the social security basic amount (12G). As of 31 December 2016 the basic amount (1G) is NOK 90 068. The pension liability of the company is linked to changes in Norwegian social security benefits. Other schemes with net pension obligations include the contractual-pension scheme (AFP) and final funding of the old AFP scheme (early retirement). In addition, there are unfunded pension obligations related to social security benefits. Other schemes with net pension obligations include those related to old-age pensions, previous early retirement agreements for Jotun Group’s senior executives, and book liabilities related to contribution-based plans for employees who earn more than twelve times the social security basic amount (12G). United Kingdom The defined benefit schemes in the UK are closed for all members. The net pension obligation represents defined benefit plans related to employees who entered this scheme prior to closing. Defined contribution schemes are established for all new employees. Middle East and South East Asia In other countries like Indonesia and Thailand there are pension schemes based on a final salary principle. These are included in net pension obligations. OTHER SEVERANCE SCHEMES Obligations indicated under “Other severance schemes” (see below) comprise mainly statutory obligations to employees in Jotun companies elsewhere in the world. The obligations fall due for payment when employees leave a Jotun company. The size of the obligations depends, among other, on how many years the employees have worked in the company. Also included are Jotun’s operating pension schemes in the Norwegian companies regarding a pension base exceeding 12 times the basic amount (G). ASSUMPTIONS RELATING TO THE DEFINED BENEFIT PLANS The discount rate is fixed at the rate on high quality corporate bonds with the same lifetime as the pension liabilities. For the schemes in UK, the iBoxx Sterling Corporates AA 15+ index is used as the basis for the discount rate. The index showed an annual yield on its corporate bonds of 2.6 per cent per annum as of 31 December 2016. However, the average term of the collection of bonds within the iBoxx index is significantly shorter than the term of the liabilities of the scheme, and the discount rate has consequently been adjusted accordingly. In countries where there is no deep market in such bonds, the market yields on 10-year government bonds are used, adjusted for actual lifetime of the pension liabilities. The discount rate related to the Schemes in Norway is, for instance, determined using this approach. As a rule, parameters such as wage growth, growth in G and inflation are set in accordance with recommendations in the various countries. The mortality estimate is based on up-to-date mortality tables for the various countries (K2013BE in Norway and S1PxA (YoB) in UK). ACCOUNTING OF ACTUARIAL LOSSES AND GAINS All actuarial losses and gains related to pensions are presented under other comprehensive income in the income statement. NOK 86 million in actuarial losses for the year is mainly due to changes in discount rates for the liabilities in the UK. PENSION PLAN ASSETS Pension plan assets are mainly in bonds and shares. The estimated return will vary depending on the composition of the various classes of assets. The actual return and breakdown of pension plan assets may be seen in the tables below. Contributions to pension plan assets during 2016 are expected to be approximately NOK 6 million. BREAKDOWN OF PENSION PLAN ASSETS (FAIR VALUE) AS OF 31 DECEMBER 2016 2015 Cash and cash equivalents in % 0.5 0.2 Bonds in % 47.7 49.1 Shares in % 47.3 45.5 Property in % 4.5 5.2 Total pension plan assets 100.0 100.0 NORWAY UK ACTUARIAL ASSUMPTIONS 2016 2015 2016 2015 Discount rate in % 1.4 1.9 2.8 3.9 Expected return in % 1.4 1.9 2.8 3.9 Wage adjustment in % 2,25 2.5–3.25 2.4 3.3 Inflation / increase in social security basic amount (G), in % 2.25 2.3 3.4 2.3 Pension adjustment in % 1.8 0.5–2.25 3.3 3.3 INDONESIA 2016 2015 Discount rate in % 8.3 9.0 Expected return in % 8.0 9.0 Wage adjustment in % 8.0 8.0 Inflation / increase in social security basic amount (G), in % 3.0 5.0
Jotun Annual Report 2016
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