Note 25 - Pension

Defined benefit scheme

This pension scheme is administered by a pension fund conferring entitlement to specific future pension benefits from age 67. The schemes include children’s pension and disability pension under further rules. The Group’s defined benefit pension scheme assures the majority of employees a pension of 68 percent of final salary up to 12G. The defined benefit scheme is closed to new members.

Defined contribution scheme

Under the defined contribution pension scheme the Group does not provide a future pension of a given size, but pays an annual contribution to the employees’ collective pension savings. Future pension will depend on the size of the contribution and the annual return on the pension savings. The Group has no further obligations with regard to the employee’s labour contribution after the employer’s annual contribution has been paid. Defined contribution schemes are directly expensed. The Group has made a defined contribution pension scheme available to its employees since 1 January 2008.

Early retirement pension scheme

The banking and financial industry has established an agreement on a contractual early retirement pension scheme (“AFP”) for employees from age 62 to 67  Admission of new retirees ceased with effect from 31 December 2010.

Early retirement pension scheme, new arrangement

The Act relating to state subsidies in respect of employees who take out contractual early retirement pension in the private sector (AFP Subsidies Act) entered into force on 19 February 2010. Employees who take out contractual early retirement with effect in 2011 or later will receive benefits under the new scheme. The new AFP scheme represents a lifelong add-on to National Insurance and can be taken out from age 62. The employer’s premium is determined as a percentage of salary payments between 1G and 7.1G. In keeping with the recommendation of the Norwegian Accounting Standards Board, no provision was made in the financial year for the group’s de facto AFP obligation. This is because the office coordinating the schemes run by the main employer and trade union organisations has so far not performed the necessary calculations.

For further details of the Group’s pension schemes see Note 2 on IFRS accounting principles and Note 23 on personnel expenses and emoluments to senior employees and elected officers.

IAS 19R Benefits to employees

As from 1 January 2013 the Group has applied IAS 19R Benefits to Employees and changed the basis for calculation of pension liabilities and pension cost. All estimate deviations shall according to IAS 19R be entered in the statement on other income and expenses. As of 31 December 2013 the Group has utilised the new mortality base table K2013 established by Finanstilsynet on 8 March 2013 (K2013FT) as the basis for its calculations. This is then adjusted for an initial mortality rate and a mortality decline. In its table Finanstilsynet utilised an initial mortality rate of 12 per cent, whereas the Group employs 5 per cent. The decline in mortality is also somewhat adjusted compared with Finanstilsynet’s table, but without significantly affecting the liability. Hence the safety margins in the mortality table utilised, K2013BE, are somewhat lower than K2013FT, but in the Group’s assessment the table that is used gives the best estimate of the pension liability on the balance sheet date.

      2014 2013
Actuarial assumptions Costs Commitment Costs Commitment
Discount rate 4.0 % 2.3 % 3.9 % 4.0 %
Expected rate of return on plan assets 4.0 % 2.3 % 3.9 % 4.0 %
Expected future wage and salary growth 3.5 % 2.5 % 3.3 % 3.5 %
Expected adjustment of basic amount (G) 3.5 % 2.5 % 3.3 % 3.5 %
Expected increase in current pension 0.6 % 0.0 % 0.2 % 0.6 %
Employers contribution  14.1 % 14.1 % 14.1 % 14.1 %
Expected voluntary exit before/after 50 yrs 2/0 % 2/0 % 2/0 % 2/0 %
Estimated early retirement outtake at age 62/64 25/50 % 25/50 % 25/50 % 25/50 %
             
Mortality base table     K2013BE      
Disability     IR73      

 

Parent Bank    Group 
2013 2014 Net pension liability in the balance sheet (NOK million). Financial position 1 Jan 2014 2013
553 613 Net present value of pension liabilities in funded schemes 638 573
-630 -703 Estimated value of pension assets -726 -649
- 4 Opening balance adjustment  5 -
         
-77 -85 Net pension liability in funded schemes -83 -76
4 3 Employer’s contribution 4 5
-73 -82 Net pension liability in the balance sheet -79 -72

 

Distribution of liability between unfunded and funded pension scheme, Group 1.1
 
Group 2014   2013
  Funded Unfunded Total   Funded Unfunded Total
Present value of pension liability in funded schemes 614 24 638   542 31 573
Fair value of pension assets -726 - -726   -649 - -649
Opening balance adjustment 5 0 5   - - -
                    
Net pension liability in the balance sheet before employer's contribution -107 24 -83   -107 31 -76
Employer’s contribution 0 3 4   0 4 5
Net pension liability in the balance sheet after employer's contribution -107 27 -79   -107 35 -72

 

2013 2014 Pension cost for the year 2014 2013
20 24 Present value of pension accumulated in the year 26 22
-3 -2 Interest cost of pension liabilities  -2 -4
         
17 21 Net defined-benefit pension cost without employer's contribution 23 18
4 4 Employer's contribution - subject to accrual accounting 4 4
21 25 Net pension cost related to defined benefit plans * 27 22
6 8 Early retirement pension scheme, new arrangement  9 7
12 13 Cost of defined contribution pension 26 22
38 46 Total pension cost  62 52
         
3 2 * Of which unfunded pension commitment 2 3

 

 

Other comprehensive income for the period Unfunded Funded Total
  2014 2013 2014 2013 2014 2013
Change in discount rate 1 0 207 -8 208 -8
Change in other economic assumptions 0 0 -68 29 -68 29
Change in mortality table - 0 - 47 - 47
Change in other demographic assumptions - 0 - -6 - -6
Changing other factors, DBO -1 -3 -18 -6 -19 -9
Change in other factors, pension assets - - -8 -43 -8 -43
Other comprehensive income for the period 1 -2 112 13 113 10

 

2013 2014 Movement in net pension liability in the balance sheet 2014 2013
-73 -82 Net pension liability in the balance sheet 1.1 -79 -72
9 109 OCI accounting for the year 113 10
21 25 Net defined-benefit costs in profit and loss account incl. Curtailment/settlement 27 22
-8 -5 Paid-in pension premium, defined-benefit schemes -5 -8
-30 -28 Paid-in pension premium, defined-benefit plans -30 -32
-82 19 Net pension liability in the balance sheet 31.12 26 -79
         
         
2013 2014 Financial status 31.12 2014 2013
613 737 Pension liability  768 638
-698 -721 Value of pension assets -746 -721
-85 16 Net pension liability before employer's contribution 22 -83
3 3 Employer's contribution 4 4
-82 19 Net pension liability after employer's contribution 26 -79
* Presented gross in the Group accounts

 

Distribution of financial status between unfunded and funded pension scheme, Group 31.12
 
Group 2014   2013
  Funded Unfunded Total   Funded Unfunded Total
Pension liability 746 22 768   614 24 638
Value of pension assets -746 - -746   -721 - -721
Net pension liability before employer's contribution 0 22 22   -107 24 -83
Employer's contribution 1 3 4   0 3 4
Net pension liability after employer's contribution   1 25 26   -107 27 -79

 

Fair value of pension liability, Group 2014 2013
OB pension liability (PBO)  638 573
Present value of pension accumulated in the year 26 22
Payout/release from scheme  -45 -32
Interes costs of pension liability 24 22
Actuarial gain or loss 125 53
CB pension liability (PBO) 768 638

 

Fair value of pension assets, Group 2014 2013
OB pension assets 726 649
Paid in                                                                     31 36
Payout/release from fund -45 -32
Expected retur 26 25
Actuarial changes 8 43
CB market value of pension assets 746 721

 

Sensitivity, Group  + 1 pp discount rate  - 1 pp discount rate  +1 pp salary adjustment  - 1 pp salary adjustment  + 1 pp pension adjustment
2014          
Change in accumulated pension rights in cours of year -4 6 4 -4 3
Change in pension liability -111 143 77 -67 93
           
2013          
Change in accumulated pension rights in cours of year -4 5 4 -3 3
Change in pension liability -86 108 58 -52 71

 

2013 2014 Members 2014 2013
889 845 Numbers of persons included in pension scheme 869 913
479 416 of which active 437 500
410 429 of which retirees and disabled 432 413

 

Investment and pension assets in the pension fund 2014 2013
Current bonds 17 % 20 %
Bonds held to maturity 27 % 31 %
Money market 13 % 14 %
Equities 34 % 31 %
Real estate 6 % 2 %
Other 2 % 2 %
Total 100 % 100 %

The pension scheme arrangement is located in its own pension fund, which has a long-term horizon on the management of its capital. The pension fund seeks to achieve as high a rate of return as possible by composing an investment portfolio that provides the maximum risk-adjusted return. The pension fund seeks to spread its investments on various issuers and asset classes in order to reduce company-specific and market-specific risk. The portfolio thus comprises equity investments in Norwegian and foreign shares. The bond portfolio is essentially invested in Norwegian bonds. Bank deposits are placed in Norwegian banks.

Annual report and notes

© SpareBank 1 SMN