UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Present value of obligation and fair value of plan assets 2015

The significant weighted actuarial assumptions used as at 31 December Finland

Present value of obligation

Fair value of plan assets

Germany

UK

Other countries

2015 2.13 1.59 1.59 0.88 13.7

2014 1.56 1.25 1.50 2.21 10.3

2015 2.20 1.70 2.50 1.70 11.0

2014 1.62 2.00 2.50 2.00 12.8

2015 3.60 3.25

2014 3.50 3.35

2015 2.94 2.05

2014 2.42 2.12 2.46 1.00 10.9

Other post- employment benefits

Other post- employment benefits

Pension benefits

Pension benefits

Discount rate % Inflation rate %

Total

Total –794

Net 787

EURm

Rate of salary increase % Rate of pension increase %

N/A N/A 2.42

At 1 Jan. 2015

1,548

33

1,581

–794

–

3.10 13.0

3.20 12.0

1.01 10.5

Expected average remaining working years of participants

Current service cost

14

1 –

15

– – –

– – – – –

– – –

15

Curtailments

– 4

– 2

– 2

Past service cost and gains and losses from settlements

–2

Interest expense (+) income (–)

36 54

–

36 53

–21 –21

–21 –21

15 32

The sensitivity analysis of the defined benefit obligation to changes in the significant weighted assumptions

Total included in personnel expenses (Note 7)

–1

Impact on defined benefit obligation

Change in assumption

Increase in assumption

Decrease in assumption

Actuarial gains and losses on defined benefit obligation arising from changes in demographic assumptions Actuarial gains and losses on defined benefit obligation arising from changes in financial assumptions Actuarial gains and losses on defined benefit obligation arising from experience adjustments

Discount rate %

0.5% 0.5% 0.5%

Decrease by 7.6% Increase by 1.2% Increase by 4.7% Increase by 3.1%

Increase by 8.5% Decrease by 1.0% Decrease by 4.3%

13

–

13

–

–

–

13

Rate of salary increase % Rate of pension increase %

–158

–

–158

–

–

–

–158

Life expectancy

Increase by 1 year

–

The weighted average duration of defined benefit obligation at the end of 2015 is 17 years.

7 –

1 –

8 –

–

– –

–

8

Actuarial gains and losses on plan assets

–16

–16

–16

The above analyses assume that assumption changes occur in isolation, holding all other assumptions constant. The same method (projected unit method) has been applied when calculating the pension liability as well as these sensitivities.

Total remeasurement gains (–) and losses (+) included in other comprehensive income

–138

1

–137

–16

–

–16

–153

Benefits paid Settlements

–56

–3

–59

56

3 –

59

– –

The main categories of pension and other post-employment benefit plan assets 2015

– –

– – 1

– –

–

–

Contributions by the employer

–52 –24

–3

–55 –24

–55

2014 Quoted % Unquoted % Total % Quoted % Unquoted % Total %

Translation differences

31

32

– –

8

At 31 Dec. 2015

1,439

31

1,470

–851

–851

619

Money market Europe Debt instruments Europe

1

–

1

1

–

1

25

– – – – – –

25

28

– – – – – –

28

US

3 6

3 6

2 7

2 7

Present value of obligation and fair value of plan assets 2014

Other

Present value of obligation

Fair value of plan assets

Equity instruments Europe

Other post- employment benefits

Other post- employment benefits

13

13

12 11 32

12 11 32

Pension benefits

Pension benefits

US

8

8

Total

Total –717

Net 551

EURm

Other

34

34

Property

At 1 Jan. 2014

1,239

29

1,268

–717

–

Europe

6

4 4

10

3

4 4

7

Total

96

100

96

100

Current service cost

11 –4 –7 43 43

1 – – 1 2

12 –4 –7 44 45

– – –

– – – – –

– – –

12 –4 –7 17 18

Curtailments

Past service cost and gains and losses from settlements

In Finland, plan assets include the company's ordinary shares with a fair value of EUR 1 million (0.7 million). In 2016 contributions to the Group's defined pension plans are expected to be EUR 32 million and to other post-employment plans EUR 4 million.

Interest expense (+) income (–)

–27 –27

–27 –27

Total included in personnel expenses (Note 7)

Actuarial gains and losses on defined benefit obligation arising from changes in demographic assumptions Actuarial gains and losses on defined benefit obligation arising from changes in financial assumptions Actuarial gains and losses on defined benefit obligation arising from experience adjustments

1

–

1

–

–

–

1

Main risk areas related to defined benefit plans The main risks related to the Group’s defined benefit plans are changes in discount rate, asset volatility, inflation, changes in salaries and longevities of the beneficiaries. Discount rates The discount rates are based on corporate bond yields as at reporting date. A decrease in yields increases the defined benefit obligation. An increase of 0.5% in discount rate would decrease Group’s defined benefit obligation by EUR 112 million. Respectively, a decrease of 0.5% in discount rate would increase the obligation by EUR 126 million. 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 96% of total asset values in defined benefit plans within Group. Inflation risk In Finland, the plan’s benefits in payment are tied to TyEL index which depends 80% on inflation and 20% on common salary index. Higher inflation increases the TyEL index which increases the employer’s

payments to the pooling system. Index increments do not increase directly the plan’s liabilities as they are covered through the 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 34 million. In Germany the pensions have to be adjusted in accordance with the Consumer Price Index. Salary risk In Finland the salary risk is related to 10% of employees that are insured through the TyEL Foundation. As all UK defined benefit arrangements are closed to future accrual, changes in salary levels have no impact on the funding posi- tion. In Germany the salaries affect directly to benefit cost in part of the plans and to part of the plans salary changes have no impact. Life expectancy Adjustments in mortality assumption have an impact on Group’s de- fined benefit obligation. An increase in life expectancy by one year will increase the obligation in Finland by EUR 12 million, in the UK by EUR 12 million and in Germany by EUR 19 million.

276

3

279

–

–

–

279

6 –

– –

6 –

–

– –

–

6

Actuarial gains and losses on plan assets

–51

–51

–51

Total remeasurement gains (–) and losses (+) included in other comprehensive income

283

3

286

–51

–

–51

235

Benefits paid Settlements

–47

–3

–50

47

3 –

50

– –

– –

– – 2

– –

–

–

Contributions by the employer

–23 –23

–3

–26 –23

–26

Translation differences

30

32

– –

9

At 31 Dec. 2014

1,548

33

1,581

–794

–794

787

contents

accounts

119

120

UPM Annual Report 2015

UPM Annual Report 2015