UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

3.4 Retirement benefit obligations The group operates various pension schemes in accordance with local conditions and practices in the countries of operations. Retirement benefits are employee benefits that are payable usually after the termination of employment, such as pensions and post-employment medical care.

PERFORMANCE SHARE PLANS No. of participants at 31 December 2022

PSP 2019-2021 PSP 2020-2022 PSP 2021-2023 PSP 2022-2024

The pension plans are generally funded through payments to insurance companies or to trustee-administered funds or foundations and classified as defined contribution plans or defined benefit plans. Defined benefit assets and liabilities recognised in the balance sheet are presented below:

Actual achievement

97.31 %

100 %

—

Max no. of shares to be delivered 1) to the President and CEO

91,541 285,463 180,901 557,905

85,589 272,500 160,200 518,289

83,272 275,700 176,100 535,072

80,870 295,000 189,500 565,370

to other members of GET

to other selected members of management Total max no. of shares to be delivered

2022

2021

Share delivery (year)

2022

2023

2024

2025

OTHER COUN TRIES TOTAL FINLAND UK GERMANY

OTHER COUN

Total shareholder return (80%) ESG (20%)

Total shareholder return (100%)

Earning criteria (weighting)

EURm

FINLAND

UK GERMANY

TRIES TOTAL

Present value of funded obligations

27 -26

316 -300

11 -11

384 -340

577 -632

542 -565

15 -15

1,174 -1,214

1) For PSP 2019–2021 and PSP 2020–2022, the gross number of shares actually earned.

Fair value of plan assets Deficit (+)/surplus (–) Present value of unfunded obligations

-2

-55

-23

—

-40

Deferred Bonus Plan The Deferred Bonus Plan (DBP) is targeted at other selected key employees and it consists of annually commencing plans. Each plan consists of a one-year earning period and a two-year restriction period.

UPM shares are awarded based on achievement of group or group and business area EBITDA targets. Prior to share delivery, the share rewards earned are adjusted with dividends and other capital distributions, if any, paid to all shareholders during the restriction period.

—

414

466

—

548

616

Net defined benefit liability (+)/ asset (–) Net retirement benefit asset in the balance sheet Net retirement benefit liability in the balance sheet 1)

442

510

-55

-23

585

576

-1

—

-1

-56

-23

—

-79

DEFERRED BONUS PLANS No. of participants (at grant)

DBP 2019

DBP 2020

DBP 2021

DBP 2022

442

511

—

585

655

390 334

393 330

428 378

451 423

1) Net retirement benefit liability in the balance sheet includes other long-term employee benefits of EUR 16 million (21 million) in 2022.

No. of participants (at 31 December 2022) Max no. of shares to be delivered (at grant)

460,000 180,334

429,558 141,642

459,912 362,295

487,130 395,908

Estimated no. of shares to be delivered at 31 December 2022 1)

Approximately 15% (24%) of UPM’s employees are active members of defined benefit arrangement plans. In 2022, the most significant defined benefit plan in Finland (UPM Sellutehtaiden eläkesäätiö) was replaced with defined contribution arrangement. Following the replacement, UPM's most significant defined benefit arrangements are in the UK and in Germany. The group has defined benefit obligations also in Austria, Holland, France, Canada and in the US. Finland In Finland employers are obliged to insure their employees for statutory benefits, as determined in Employee’s Pension Act (TyEL). TyEL provides the employee with insurance protection for old age, disability and death. Group's Finnish employees are mainly insured with an insurance company and these arrangements qualify as defined contributions plans. At the end of 2021, approximately 21% of group´s Finnish employees were insured with TyEL foundation (UPM Sellutehtaiden eläkesäätiö), that is classified as a defined benefit plan. In 2022, the TyEL foundation was replaced with defined contribution arrangement. The assets and liabilities of the plan were transferred to the insurance company and the

group recognised EUR 69 million settlement loss in the income statement. The cash received on the settlement amounted to EUR 128 million. UK In the UK, the group operates a legacy defined benefit scheme providing benefits that are linked to the salary level near retirement age or an earlier date of leaving service. The scheme is closed both for new members and future accrual for old members. Part of the scheme is a defined contribution plan and is open to all current employees. The UK pension scheme operates under a single trust which is independent from

Share delivery (year)

2022

2023

2024

2025

Group/Business Area EBITDA

Earning criteria

1) For DBP 2019 and DBP 2020, the gross number of shares actually earned

The indicated actuals and estimates of the share rewards under the Performance Share Plan and the Deferred Bonus Plan represent the gross amount of the rewards of which the applicable taxes will be deducted before the shares are delivered to the participants. Accounting policies The group’s long-term share incentive plans are recognised as equity settled or cash-settled share-based payment transactions depending on the settlement. The group classifies the transactions with net settlement features for tax obligations as equity-settled in its entirety. Shares are valued using the market rate on the grant date. The settlement is a combination of shares and cash. The group may obtain the necessary shares by using its treasury shares or may purchase shares from the market. PSP and DBP share deliveries are executed by using already existing shares and the plans, therefore, have no dilutive effect.

the group. Germany

In Germany employees within defined benefit arrangements are entitled to annual pensions on retirement based on their service and final salary. All significant defined benefit plans are closed for new employees.