C21. Provisions for pensions and employment contracts

Post-employment benefits

TeliaSonera provides defined benefit pension plans to most of its employees in Sweden, Finland and Norway. The pension plans mainly include retirement pension, disability pension and family pension.

Employees in TeliaSonera AB and most of its Swedish subsidiaries are eligible for retirement benefits under the ITP-Tele (ITP 2 plan) defined benefit plan. However, all employees born in 1979 and later are covered by a defined contribution pension plan (the ITP 1 plan). The part of the ITP 2 multi-employer pension plan that is secured by paying pension premiums to Alecta is accounted for as a defined contribution plan as the plan administrator does not provide sufficient information necessary to account for the plan as a defined benefit plan. TeliaSonera’s portion of total premiums in the Alecta ITP 2 plan is 0.1 percent and the share of total number of active insured in ITP 2 is 0.9 percent. Expected contribution to the ITP 2 plan for 2016 is SEK 34 million.

TeliaSonera’s employees in Finland are entitled to statutory pension benefits pursuant to the Finnish Employees Pensions Act, a defined benefit pension arrangement with retirement, disability, unemployment and death benefits (TyEL pension). In addition, certain employees have additional pension coverage through a supplemental pension plan. In Finland, a part of the pension is funded in advance and the remaining part financed as a pay-as-you-go pension (i.e. contributions are set at a level that is expected to be sufficient to pay the required benefits falling due in the same period).

TeliaSonera Norway operates a defined benefit pension, which was closed for new entrants in 2011.

The pension obligations are secured mostly by pension funds, but also by provisions in the statements of financial position combined with pension credit insurance.

TeliaSonera’s defined benefit plan members are approximately divided between the following groups; 19 percent active members, 45 percent vested deferreds and 36 percent retirees.

TeliaSonera’s employees in many other countries are usually covered by defined contribution pension plans. Contributions to the latter are normally set at a certain percentage of the employee’s salary and are expensed as incurred.

Pension obligations and pension expenses

Total amounts recognized in the statements of financial position for pension obligations were as follows.

SEK in millions

Dec 31, 2015

Dec 31, 2014

Present value of funded pension obligations

21,888

26,331

Fair value of plan assets

-25,110

-24,519

Surplus/Deficit of funded plans

-3,222

1,812

Present value of unfunded pension obligations

1,274

1,403

Net assets (-)/provisions (+) for pension obligations

-1,949

3,216

of which recognized as provisions

1,824

3,505

of which recognized as assets

-3,773

-289

Total pension expenses were distributed as follows.

SEK in millions

Jan–Dec 2015

Jan–Dec 2014

Current service cost

368

298

Curtailment of pension obligations

-32

-34

Termination benefits

7

16

Pension premiums, defined benefit/defined contribution pension plans and pay-as-you-go systems

795

635

Pension-related social charges and taxes, other pension expenses

183

145

Less termination benefits (incl. premiums and pension-related social charges) reported as restructuring charges

-23

-21

Total pension expenses in operating income from continuing operations

1,298

1,039

of which defined benefit pension plans

336

264

of which pension premiums paid to the ITP pension plan

32

34

Total pension expenses in operating income, discountinued operations

2

1

Net interest on the net defined benefit liability (asset)

72

-30

Total pension expenses in financial items

72

-30

Remeasurement gains (-)/losses (+)

   

Gain/loss from change in financial assumptions

-4,184

5,698

Experience gains/losses

-423

-271

Gain/loss from change in demographic assumptions

317

17

Return on plan assets (excluding interest income)

-32

-1,490

Total pension expenses recorded in OCI, defined benefit pension plans

-4,322

3,953

The pension expense for 2015 and 2014 was reduced due to curtailment effects, for more information see Note C22 “Other provisions.”

Specifications to defined benefit obligations and fair value of plan assets

Movements in the present value of defined benefit obligations were as follows.

SEK in millions

2015

2014

Opening balance, present value of pension obligations

27,734

22,186

Current service cost

368

298

Interest expenses

787

904

Benefits paid

-1,149

-1,169

Benefits paid, early retirement

-4

-14

Termination benefits

7

16

Curtailment of pension obligations

-32

-34

Operations acquired

15

Remeasurement gains (-)/losses (+)

   

Gain/loss from change in financial assumptions

-4,184

5,698

Experience gains/losses

-423

-271

Gain/loss from change in demographic assumptions

317

17

Exchange rate differences

-274

103

Closing balance, present value of pension obligations

23,162

27,734

Movements in the fair value of plan assets were as follows.

SEK in millions

2015

2014

Opening balance, fair value of plan assets

24,519

22,269

Interest income

715

934

Contribution to pension funds

81

77

Payment from pension funds

-80

-473

Operations acquired

12

Remeasurement gains (-)/losses (+)

   

Return on plan assets (excluding interest income)

32

1,490

Exchange rate differences

-169

222

Closing balance, fair value of plan assets

25,110

24,519

Principal actuarial assumptions

The actuarial calculation of pension obligations and pension expenses is based on the following principal assumptions, each presented as a weighted average for the different pension plans. These assumptions are the most significant ones in terms of the risk for changes in TeliaSonera’s pension obligations. The discount rate reflects the interest rate level at which the pension liabilities could be effectively settled and affects the value of the defined benefit obligations.

As in previous years the discount rate for Sweden is determined by the covered bond market. Management adjusts the reference rate derived from the covered bond market yields to reflect any differences between the inflation rate used to estimate expected annual adjustments to pensions and the implied inflation rate indicated by the financial markets at the end of the reporting period. The discount rate for Finland is based on high-quality corporate bonds with long duration. Norway sets the discount rate on the same basis as Sweden.

The expected annual adjustments and increased longevity have an impact on future pension payments and therefore the pension obligation. For Sweden and Norway, management has chosen to use the annual inflation target rates set by the national and European central banks. For Finland, the inflation assumption is derived from long-term inflation swaps. See below for a sensitivity analysis related to a change in the significant assumptions used in calculating the pension provision.

Percentages, except longevity

Dec 31, 2015

Dec 31, 2014

Discount rate

3.57

2.91

Annual adjustments to pensions

1.81

2.00

Longevity

   

life expectancy 65 year old male (year)

20

20

life expectancy 65 year old female (year)

23

23

The sensitivity of the defined benefit obligations to changes in the weighted principal assumptions was as follows.

 

Change in
assumption (p.p.)

Impact on defined benefit obligation
(SEK in millions)

Discount rate

+0.50

-2,087

Discount rate

-0.50

2,236

Annual adjustments to pensions

+0.50

2,127

Annual adjustments to pensions

-0.50

-1,987

Longevity

+1 year

948

The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may by correlated.

Investment strategy

The assets of TeliaSonera’s pension funds constitute pension plan assets and are valued at fair value. These assets are used as prime funding source for the pension obligations, and exist primarily in Sweden and Finland. The pension funds invest the assets in such a manner that the liquidity of the pension funds is ensured. The investment horizons are long-term, and aimed to cover the growth of pension liability. The weighted average duration for the pension obligation plans is approximately 19 years. Investment plans are approved by the boards of the pension funds. The investment activities comply with the rules and regulations issued by the authorities governing pension foundations. The portion of the pension obligations not covered by plan assets is recognized in the statements of financial position.

For the Swedish pension fund (Swedish Fund) which represents approximately 85 percent of the total group plan assets, there is a minimum funding requirement that TeliaSonera apply. As of December 31, 2015, the strategic asset allocation decided by the Board of the Swedish Fund, was 56 percent fixed income, 28 percent equities and 16 percent alternative investments. The alternative investments include hedge funds and private equity. The actual allocation may fluctuate from the strategic allocation in a range up to a specified risk limit. The allocation was successful and the portfolio’s performance was strong throughout the year.

It should be noted that plan-asset allocation, illustrated by capital weighting, will not always describe the characteristics of a portfolio accurately from a risk perspective. Approximately one third of the capital is invested in equity and most of the risk, measured in terms of volatility, came from this asset class. Only a very small part of the total risk originates from the other assets.

Plan-asset allocation

As of the end of the reporting period, plan assets were allocated as follows.

SEK in millions

Asset category

Dec 31, 2015

Dec 31, 2014

Quoted

Unquoted

Total

Percent

Quoted

Unquoted

Total

Percent

Equity instruments

6,925

142

7,067

28

9,001

156

9,157

37

Debt instruments

13,185

419

13,604

54

11,313

348

11,661

48

Real estate

283

283

1

321

321

1

Cash and cash equivalents

286

83

368

1

209

69

278

1

Alternative investments

177

3,462

3,639

15

112

2,860

2,972

12

Other

149

149

1

130

130

1

Total

20,573

4,538

25,110

100

20,635

3,884

24,519

100

of which shares in TeliaSonera AB

15

 

15

0.1

19

 

19

0.1

Future contributions

For companies in Sweden, pension liabilities are secured also by pension credit insurance. This means that, should the net provision for pension obligation increase, each company can choose if and when to contribute to the pension fund or otherwise to recognize a provision. To pension funds outside Sweden, TeliaSonera expects to contribute SEK 87 million in 2016.

© TeliaSonera 2015
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