UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

Present value of obligation and fair value of plan assets

changing market and economic conditions, or changes in service period of plan participants. Significant differences in actual experience or significant changes in assumptions may affect the future amounts of the defined benefit obligation and future expense.

Key estimates and judgements Several actuarial assumptions are used in calculating the expense and liability related to the defined benefit plans. Statistical information used may differ materially from actual results due to, among others,

Pension and other post-employment benefits 2021

Pension and other post-employment benefits 2020

NET DEFINED BENEFIT LIABILITY/ (ASSET)

NET DEFINED BENEFIT LIABILITY/ (ASSET)

PRESENT VALUE OF OBLIGATION

FAIR VALUE OF PLAN ASSETS

PRESENT VALUE OF OBLIGATION

FAIR VALUE OF PLAN ASSETS

EURm

Actuarial assumptions The weighted average principal assumptions used in the valuations of the defined benefit obligations are detailed below:

Carrying value, at 1 January

1,859

-1,140

719

1,784

-1,092

691

15

— — —

15

14

— — —

14

Current service cost

-2

-2

-2 -6

-2 -6

Past service cost

FINLAND

UK

GERMANY

OTHER COUNTRIES

—

—

Gains and losses arising from settlements

2021 0.80 2.03 2.01 1.02

2020 0.33 1.33 1.33 0.62

2021 1.90 3.40

2020 1.35 2.95

2021 0.82 1.70 2.50 1.70

2020 0.37 1.70 2.50 1.70

2021 1.11 2.00 2.58 1.13

2020 0.67 1.83 2.54 0.87

12 25

-9 -9

3

20 27

-14 -14

7

Interest expense (+) income (–)

Discount rate % Inflation rate %

16

13

Total included in employee costs (Note 3.1) Actuarial gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from experience adjustments Return on plan assets, excluding amounts included in interest expense (+) income (–) Total remeasurement gains (–) and losses (+) included in other comprehensive income

-12

—

-12

-3

—

-3

—

—

Rate of salary increase % Rate of pension increase %

3.25

2.90

-58

—

-58

163

—

163

Expected average remaining working years of participants

15.3

14.1

10.1

11.6

8.2

8.1

8.9

8.6

4

—

4

-21

—

-21

—

-62

-62

—

-90

-90

Sensitivity analysis of defined benefit obligations The sensitivity analysis shows the effect of the change in assumption. The analysis assume that all other assumptions remain unchanged. The projected unit credit method has been applied when calculating the obligation as well as these sensitivities.

EURm

0.5% INCREASE 0.5% DECREASE 2021 2020 2021 2020

-66 -64

-62 64

-128

140

-90 63

50

—

-63

— —

Benefits paid

-145

-156

162

173

Discount rate %

Settlements paid

-4

3

-1

— —

—

13 81 78

15 92 86

-12 -80

-13 -88

Rate of salary increase % Rate of pension increase % Life expectancy +1 year

—

-33 -36

-33

-33 26

-33

Contributions by the employer

39

3

-28

-2

Translation differences

—

—

Carrying value, at 31 December

1,790

-1,214

576

1,859

-1,140

719

Plan assets by categories 2021

A negative change indicates a decrease in the defined benefit obligation. A positive change indicates an increase in the defined benefit obligation.

Assets held by insurance companies 4%

Other assets 2%

Actuarial risks

Plan assets by categories at 31 December

Property 10%

Salary risk The present value of the net retirement benefit assets and liabilities is calculated by reference to the expected future salaries of plan participants. An increase in the salary of the plan participants would increase the plan liabilities. In Finland, the salary risk is minor as well as in the UK, where the changes in salary levels have no impact on the funding position as all defined benefit arrangements in the UK are closed to future accrual. In Germany, an increase of 0.5% in expected future salaries would increase the obligation by EUR 11 million. Life expectancy Adjustments in mortality assumption have an impact on group’s defined benefit obligation. An increase in life expectancy by one year will increase the obligation in Finland by EUR 25 million, in the UK by EUR 26 million and in Germany by EUR 26 million.

Defined benefit plans typically expose the group to the following actuarial risks: Investment risk (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 99% of total asset values in defined benefit plans within group. Interest risk Discount rates used in calculations are based on high-quality corporate bond yield curves in currency in which the benefits are paid. A decrease in the discount rate would increase the plan liabilities. The maturities of yields are reflecting the durations of the underlying obligations. The weighted average duration of group’s defined benefit obligation is 18 years (17 years) at the end of 2021. Inflation risk In the Finnish plan, the inflation risk is not significant as changes in the inflation assumption are mainly covered by the TyEL 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 39 million. In Germany the pensions have to be adjusted in accordance with the Consumer Price Index.

EURm

2021 2020 Quoted Unquoted Quoted Unquoted

Equity instruments 12%

Money market 51%

478

138 253

177 225 295

97

Money market Debt instruments Equity instruments

—

107

Debt instruments 21%

92

56

39 94 62 24

—

123

21

Property

Assets held by insurance companies

— —

52 23

— —

Other assets

Plan assets by categories 2020

Total

570

644

718

423

Assets held by insurance companies 5%

Other assets 2%

In 2021 plan assets include the company's ordinary shares with a fair value of EUR 0 million (2 million). In 2022 contributions of EUR 32 million are expected to be paid to group’s defined benefit plans. In 2021 contributions of EUR 33 million were paid to group’s defined benefit plans.

Money market 24%

Property 10%

Equity instruments 30%

Debt instruments 29%

172

UPM FINANCIAL REPORT 2021 173 UPM ANNUAL REPORT 2021 173

UPM ANNUAL REPORT 2021

UPM FINANCIAL REPORT 2021 172