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JOTUN GROUP
4 PENSIONS AND OTHER LONG-TERM EMPLOYEE BENEFITS
The Group has both defined contribution and defined benefit pension
plans. The majority of the Jotun Group’s pension plans are defined
contribution plans.
DEFINED CONTRIBUTION PLANS
Defined contribution plans comprise arrangements whereby the company’s
obligation is limited to 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. Costs associated
with defined contribution plans are specified in note 3 Payroll expenses.
DEFINED BENEFIT PLANS
Defined benefit plans comprise arrangements whereby the company
is responsible for paying a future pension to the employee based on
pensionable salary at the time the employee retires. The Jotun Group has
defined benefit plans in a limited number of countries, including Norway,
the United Kingdom and in certain countries in South East Asia and the
Middle East. A large part of the Group’s benefit plans are in Norway and
the United Kingdom, about 73 per cent of the total net pension obligation
as of 31 December 2017.
Norway
The defined benefit schemes in Norway were replaced by defined
contribution plans in 2004. Net pension obligations as of 31 December
2017, are primarily related to previous early retirement schemes for Jotun
Group’s senior executives. In addition, there are pension obligations related
to old-age pensions and pension plans for employees who earn more than
twelve times the social security basic amount (12G).
United Kingdom
The defined benefit schemes in the UK were closed for all new members
in 2012. 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.
South East Asia and Middle East
In certain countries in South East Asia and the Middle East, such as
Indonesia, Thailand and India, there are pension schemes based on a final
salary principle in accordance with local regulations. These are included in
net pension obligations.
OTHER SEVERANCE SCHEMES
Other severance schemes 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 obligations related to
operating pension schemes for employees in the Norwegian companies
with an annual basic salary and 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 BofAML index is used as basis for the discount rate. The index
showed an annual yield on its corporate bonds of 2.6 per cent as of 31
December 2017.
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 S2PxA (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.
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 expected return and breakdown of pension plan assets may be seen
in the tables below. Contributions to pension plan assets during 2018 is
expected to be approximately NOK 8.7 million.
BREAKDOWN OF PENSION PLAN ASSETS (FAIR VALUE) AS OF 31 DECEMBER 2017 2016
Cash and cash equivalents, in % 0.3 0.5
Bonds, in % 48.3 47.7
Shares, in % 46.5 47.3
Property, in % 4.9 4.5
Total pension plan assets 100.0 100.0
NORWAY UK INDONESIA
ACTUARIAL ASSUMPTIONS 2017 2016 2017 2016 2017 2016
Discount rate, in % 1.9 1.4 2.6 2.8 7.2 8.3
Expected return, in % 1.9 1.4 2.6 2.8 7.2 8.0
Wage adjustment, in % 2.5 2.25 2.3 2,4 6.0 8.0
Inflation / increase in social security basic amount (G), in % 2.5 2.25 3.3 3.4 3.0 3.0
Pension adjustment, in % 0.5 – 2.5 1.8 3.7 3.3 – –