UPM Annual Report 2022

ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

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 2022

Pension and other post-employment benefits 2021

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

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

EURm

Carrying value, at 1 January

1,790

-1,214

576

1,859

-1,140

719

Current service cost

11

— — —

11

15

— — —

15

FINLAND

UK

GERMANY

OTHER COUNTRIES

Past service cost

-1

-1

-2

-2

2022 3.25 2.53 2.23 1.77

2021 0.80 2.03 2.01 1.02

2022 4.80 3.25

2021 1.90 3.40

2022 3.32 2.00 2.50 2.00

2021 0.82 1.70 2.50 1.70

2022 3.67 2.51 2.87 1.13

2021 1.11 2.00 2.58 1.13

Gains and losses arising from settlements 1)

62 18 90

62

—

—

Discount rate % Inflation rate %

Interest expense (+) income (–)

-13 -13

5

12 25

-9 -9

3

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

77

16

Rate of salary increase % Rate of pension increase %

—

—

—

—

—

-12

—

-12

3.15

3.25

Expected average remaining working years of participants

-562

—

-562

-58

—

-58

1.9

15.3

9.5

10.1

8.0

8.2

9.0

8.9

50

—

50

4

—

4

—

263

263

—

-62

-62

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 2022 2021 2022 2021

-512

263

-249

-66

-62

-128

Discount rate %

-52

-145

57

162

Benefits paid

-59

59

— —

-64

64

—

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

7

13 81 78

-7

-12 -80

Settlements paid

-431

431 104

-4

3

-1

39 29

-38

Contributions by the employer

—

104

—

-33 -36

-33

—

—

Translation differences

-29

30

1

39

3

Plan assets by categories 2022

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

Carrying value, at 31 December

850

-340

511

1,790

-1,214

576

Assets held by insurance companies 12%

Other assets 5%

1) In 2022, gains and losses on settlement relate to replacement of a defined benefit pension plan in Finland with defined contribution plan.

Plan assets by categories at 31 December

Property 17%

Actuarial risks

Money market 39%

EURm

2022 2021 Quoted Unquoted Quoted Unquoted

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 the UK, 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 7 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 the UK by EUR 11 million and in Germany by EUR 16 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 UK. The asset values of UK arrangements constitute 88% 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 14 years (18 years) at the end of 2022. Inflation risk 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 15 million. In Germany the pensions have to be adjusted in accordance with the Consumer Price Index.

Equity instruments 4%

Money market Debt instruments Equity instruments

97

36 77 15 59

478

138 253

— — —

—

92

56

Debt instruments 23%

Property

—

123

Assets held by insurance companies

—

39

—

52

Other assets

—

16

—

23

Plan assets by categories 2021

Total

97

243

570

644

Assets held by insurance companies 4%

In 2022 plan assets include the company's ordinary shares with a fair value of EUR 0 million (0 million). In 2023 contributions of EUR 27 million are expected to be paid to group’s defined benefit plans. In 2022 contributions of EUR 24 million were paid to group’s defined benefit plans and cash received from settlements amounted to EUR 128 million.

Other assets 2%

Property 10%

Money market 51%

Equity instruments 12%

Debt instruments 21%

180

181

UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022

UPM FINANCIAL REPORT 2022

180

UPM FINANCIAL REPORT 2022

181