UPM Annual Report 2023

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ACCOUNTS FOR 2023

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.

Present value of obligation and fair value of plan assets

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:

Pension and other post-employment benefits 2023

Pension and other post-employment benefits 2022

NET DEFINED BENEFIT LIABILITY/ (ASSET)

PRESENT VALUE OF OBLIGATION

FAIR VALUE OF PLAN ASSETS

PRESENT VALUE OF OBLIGATION

FAIR VALUE OF PLAN ASSETS

EURm

Carrying value, at 1 January

850

-340

510

1,790

-1,214

576

2023

2022

Current service cost

— — —

OTHER COUN TRIES TOTAL FINLAND UK GERMANY

OTHER COUN

Past service cost

-1

Gains and losses arising from settlements 1)

EURm

FINLAND

UK GERMANY

TRIES TOTAL

—

62 18 90

Interest expense (+) income (–)

32 36

-15 -15

17 21

-13 -13

Present value of funded obligations

26 -26

320 -297

377 -327

27 -26

316 -300

11 -11

384 -340

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

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

-2

-13

—

-13

—

417

434

—

414

466

Present value of unfunded obligations Net defined benefit liability (+)/ asset (–) Net retirement benefit asset in the balance sheet Net retirement benefit liability in the balance sheet 1)

—

-562

—

-562

445

484

442

510

—

-1

—

-1

—

-1

—

263

445

485

442

511

1) Net retirement benefit liability in the balance sheet includes other long-term employee benefits of EUR 17 million (16 million) in 2023.

-512

263

-249

Benefits paid

-44

— —

-59

— —

Approximately 14% (15%) of UPM’s employees are active members of defined benefit arrangement plans. In 2023, net retirement benefit liability of EUR 36 million of UPM-Kymmene Austria GmbH is presented in liabilities related to assets held for sale, » Refer note 8.4 , and consists of unfunded obligations. 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 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. Previously part of group´s Finnish employees were insured with TyEL foundation (UPM Sellutehtaiden eläkesäätiö) which was classified as a defined benefit plan. In 2022, 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

Settlements paid

-9

-431

431 104

Contributions by the employer

—

-25

—

104

Translation differences

-6

—

-29

Liabilities classified as held for sale (Note 8.4)

-36

—

-36

—

Carrying value, at 31 December

810

-327

484

850

-340

510

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

Actuarial risks

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 6 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 12 million and in Germany by EUR 17 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 91% 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 (14 years) at the end of 2023. 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 approximately EUR 17 million. In Germany the pensions have to be adjusted in accordance with the Consumer Price Index.

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.

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185

UPM ANNUAL REPORT 2023

UPM FINANCIAL REPORT 2023

184

UPM FINANCIAL REPORT 2023

185

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