Annual report 2016

NOTE 19

PENSION COSTS AND LIABILITIES

THE GROUP'S PENSION PLANS

Ferd has established pension schemes in accordance with Norwegian legislation. The employees participate in defined benefit and defined contribution plans complying with the requirements of the mandatory occupational pension.

DEFINED BENEFIT PLANS

Defined benefit plans provide employees with the right to defined future pension benefits. The Group's net obligation in respect of defined benefit pension plans is calculated separately for each pension plan. The obligation is an estimate of future benefits that employees have earned based on years of service and salary at retirement. Benefits are discounted to present value, and the recognised obligation is reduced by the fair value of plan assets for funded pension schemes. Changes in assumptions, staff numbers and variances between estimated and actual salary increases and return on assets result in actuarial gains and losses. Actuarial gains and losses and gains and losses resulting from a curtailment or termination of pension plans are recognised immediately in the income statement.

The defined benefit pension plans consist of group schemes as well as some additional arrangements, including employees with a retirement basis over 12 G, and AFP.

Defined contribution plans

For defined contribution plans, the Group's obligations are limited to making specific contributions. Payments to defined contribution pension plans are recognised as expenses in the income statement when the employees have rendered services entitling them to the contribution.

Other service related long-term benefits

In addition to the pension schemes described above, Ferd has obligations related to future health services for some groups of employees in the USA.

ECONOMIC ASSUMPTIONS

Ferd has defined benefit plans in several countries with varying economic conditions affecting the assumptions that are the basis for calculating pension obligations. The parameters are adapted to conditions in each country. The discount rate is determined as a weighted average of the yields at the reporting date on at least AA rated corporate bonds, or government bonds in cases where there is no market for AA rated corporate bonds. The government bond interest rate is applied for Norwegian schemes. To the extent that the bond does not have the same maturity as the obligation, the discount rate is adjusted. Actuarial assumptions for demographic factors and retirement are based on generally accepted principles in the insurance business. Future mortality rates are based on statistics and mortality tables (K2013).

Economic assumptions in Norwegian companies at 31 December

Discount rate

Expected wage growth

Future expected pension regulation

Expected regulation at base amount (G)

Interval for economic assumptions in foreign companies at 31 December

Discount rate

0.60 - 3.91 %

0.75 - 4.08 %

Expected wage growth

0.00 - 1.00 %

0.00 - 1.00 %

Future expected pension regulation

0.00 - 1.75 %

0.00 - 1.75 %

PENSION OBLIGATIONS

Reconciliation of net liability against balance sheet

NOK 1 000

Pension liabilities for defined benefit pension plans

-176 129

-193 138

Pension assets for defined benefit pension plans

4 415

25 370

Total defined benefit obligation recognised in the Group's balance sheet

-171 714

-167 768

DEFINED BENEFIT PLANS

Specification of recognised liability

NOK 1 000

Present value of unfunded pension liabilities

-64 095

-63 867

Present value of wholly or partly funded obligations

-485 704

-599 766

Total present value of defined benefit obligations

-549 799

-663 633

Fair value of pension assets

378 085

495 865

Total defined benefit obligation recognised in the Group's balance sheet

-171 714

-167 768

Movements in liabilities for defined benefit pension plans

NOK 1 000

Liability for defined benefit pension plans at 1 January

663 967

613 116

Present value of current service cost

11 203

10 533

Interest expenses on the pension liability

17 883

18 435

Demographic estimate deviation on the pension liability

12 173

-17 783

Financial estimate deviation on the pension liability

5 626

Settlement of pension plans

-47 567

Curtailment of pension plans

3 863

-

Change in liability due to acquisition/sale of subsidiaries

-

Benefits paid

-79 635

-43 452

Social security tax

Exchange differences on foreign plans

-31 922

77 894

Liability for defined benefit pension plans at 31 December

549 799

663 967

Expected payments of defined pension liabilities

NOK 1 000

Defined benefit pension expected to fall due year 1-5

235 553

Defined benefit pension expected to fall due year 6-10

135 921

Defined benefit pension expected to fall due year 11-20

170 637

Defined benefit pension expected to fall due year 21-30

7 688

Total benefit pension due

549 799

Movement in fair value of pension assets for defined benefit pension plans

NOK 1 000

Fair value of pension assets at 1 January

496 445

461 090

Expected return from pension assets

13 390

13 584

Financial estimate deviation on the pension assets

15 541

-8 891

Contributions from employer

12 456

12 363

Administration expenses

-3 102

-1 270

Contributions from employees

1 661

1 699

Increase in pension funds due to the acquisition of subsidiaries

-4 071

-

Settlements

-44 734

-2 829

Benefits paid

-76 669

-39 369

Exchange difference on foreign plans

-32 831

59 489

Fair value of pension assets at 31 December

378 085

495 865

Pension assets include the following

NOK 1 000

Of which active market:

Equity instruments

86 717

87 634

120 613

Government stock

153 515

175 005

351 254

Corporate stock

5 908

7 001

6 475

Other debt instruments, including structured debt

1 934

2 018

Property investments

6 559

11 328

Bank deposits

2 093

Other assets

97 355

99 441

3 661

Total pension funds

346 528

378 085

495 865

Actuarial deviations recognised in othercomprehensive income

NOK 1 000

Current year actuarial deviation on pension liabilities (defined benefit schemes)

-12 506

12 157

Current year actuarial deviation on pension funds (defined benefit schemes)

12 138

-8 891

Tax effect (note 9)

3 402

Net actuarial deviation on defined benefit schemes

3 034

2 279

PENSION COSTS

NOK 1 000

Defined benefit plans

27 317

17 893

Defined contribution plans

125 103

115 310

Total pension costs recognised in current year payroll costs

152 421

133 203

DEFINED BENEFIT PLAN PENSION COSTS

Pension costs recognised in income statement

NOK 1 000

Present value of this year's pension earned

11 203

10 533

Contribution from employees

-1 661

-1 699

Curtailment of pension schemes and plan changes

14 859

8 185

Social security tax

Administration costs

3 102

1 270

Total pension costs from benefit schemes recognised in salary costs

27 317

17 893

Interest expense on the pension liability

Expected return on pension funds

Total pension costs from benefit schemes recognised in finance costs