28 Provisions for pensions and other post-employment benefits


Provisions for pensions are recognized for benefits in the form of retirement, invalidity and dependents’ benefits payable under pension plans. The benefits provided by the Group vary according to the legal, tax and economic circumstances of the country concerned, and usually depend on the length of service and remuneration of the employees.

Group companies provide occupational pensions under both defined contribution and defined benefit plans. In the case of defined contribution plans, the Company makes contributions to state or private pension schemes based on legal or contractual requirements, or on a voluntary basis. Once the contributions have been paid, there are no further obligations for the Company. Current contributions are recognized as pension expenses of the period concerned. In 2009, they amounted to a total of €983 million (previous year: €966 million) in the Volkswagen Group. Of this figure, contributions to the compulsory state pension system in Germany amounted to €806 million (previous year: €804 million).

Most pension plans are defined benefit plans, with a distinction made between pensions financed by provisions and externally funded plans.

The pension provisions for defined benefits are measured using the internationally accepted projected unit credit method in accordance with IAS 19, under which the future obligations are measured on the basis of the ratable benefit entitlements earned as of the balance sheet date. Measurement reflects assumptions as to trends in the relevant variables affecting the level of benefits. All defined benefit plans require actuarial calculations. Actuarial gains or losses arise from changes in the number of beneficiaries and differences between actual trends (for example, in salary and pension increases or changes in interest rates) and the assumptions on which calculations were based. Actuarial gains and losses are recognized in other comprehensive income.

Owing to their benefit character, the obligations of the US Group companies in respect of post-employment medical care in particular are also carried under provisions for pensions and other post-employment benefits. These post-employment benefit provisions take into account the expected long-term rise in the cost of healthcare. A one percentage point increase or decrease in the assumed healthcare cost trends only marginally affects the amount of the obligations. €16 million was recognized in fiscal year 2009 as an expense for healthcare costs (previous year: €17 million). The related carrying amount was therefore €142 million as of December 31, 2009 (previous year: €174 million).

Since 1996, the occupational pension arrangements of the Volkswagen Group in Germany have been based on a specially developed expense-related pension model that is classified as a defined benefit plan under IAS 19. With effect from January 1, 2001, this model was further developed into a pension fund, with the annual remuneration-linked contributions being invested in funds by Volkswagen Pension Trust e.V. as the trustee. By investing in funds, this model offers an opportunity for increasing benefit entitlements, while at the same time fully safeguarding them. For this reason, almost all Group companies in Germany have now joined the fund. Since the fund investments held by the trust meet the criteria of IAS 19 for classification as plan assets, they are deducted from the obligation.

Where the foreign Group companies provide collateral for obligations, this mainly takes the form of shares, fixed-income securities and real estate.

The following amounts were recognized in the balance sheet for defined benefit plans:

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€ million

 

Dec. 31, 2009

 

Dec. 31, 2008

 

Dec. 31, 2007

 

Dec. 31, 2006

 

Dec. 31, 2005

Present value of funded obligations

 

4,120

 

3,240

 

3,330

 

3,235

 

2,959

Fair value of plan assets

 

3,852

 

3,153

 

3,422

 

3,159

 

2,690

Funded status (net)

 

268

 

87

 

–92

 

76

 

269

Present value of unfunded obligations

 

13,552

 

12,743

 

12,532

 

13,652

 

13,618

Unrecognized past service cost

 

36

 

22

 

31

 

23

 

39

Amount not recognized as an asset because of the limit in IAS 19

 

26

 

34

 

31

 

42

 

47

Net liability recognized in the balance sheet

 

13,881

 

12,886

 

12,502

 

13,793

 

13,973

of which provisions for pensions

 

13,936

 

12,955

 

12,603

 

13,854

 

14,003

of which other assets

 

54

 

69

 

101

 

61

 

30

The present value of the obligations is calculated as follows:

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€ million

 

2009

 

2008

Present value of obligations at January 1

 

15,983

 

15,862

Current service cost

 

343

 

324

Interest cost

 

918

 

884

Actuarial gains/losses

 

985

 

–687

Employee contributions to plan assets

 

15

 

17

Pension payments from company assets

 

609

 

576

Pension payments from plan assets

 

117

 

121

Past service cost

 

–33

 

17

Gains from plan curtailments and settlements

 

–3

 

1

Changes in consolidated Group

 

–14

 

485

Other changes

 

25

 

17

Foreign exchange differences

 

178

 

–240

Present value of obligations at December 31

 

17,672

 

15,983

Changes in the composition of the plan assets are shown in the following table:

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€ million

 

2009

 

2008

Fair value of plan assets at January 1

 

3,153

 

3,422

Expected return on plan assets

 

203

 

215

Actuarial gains/losses

 

136

 

–473

Employer contributions to plan assets

 

297

 

277

Employee contributions to plan assets

 

16

 

12

Pension payments from plan assets

 

114

 

121

Changes in consolidated Group

 

–14

 

120

Other changes

 

17

 

–4

Foreign exchange differences

 

157

 

–295

Fair value of plan assets at December 31

 

3,852

 

3,153

Investment of the plan assets to cover future pension obligations resulted in income in the amount of €339 million (previous year: losses of €258 million).

Plan assets include €3 million invested in Volkswagen Group assets and €14 million invested in Volkswagen Group debt instruments.

The rate for the expected long-term return on plan assets is based on the long-term returns actually generated for the portfolio, historical overall market returns and a forecast of expected returns on the securities classes held in the portfolio. The forecasts are based on detailed analyses by actuaries and experts in the investment industry. As the remaining period of service is used as the investment horizon, no major changes were made to assumptions regarding the expected return.

Employer contributions to plan assets are expected to amount to €274 million next year.

Plan assets consist of the following components:

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%

 

2009

 

2008

Equities

 

29.3

 

20.1

Fixed-income securities

 

53.2

 

54.8

Cash

 

7.4

 

18.7

Real estate

 

4.1

 

2.5

Other

 

6.0

 

3.9

The following amounts were recognized in the income statement:

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€ million

 

2009

 

2008

Current service cost

 

343

 

324

Interest cost

 

918

 

884

Expected return on plan assets

 

203

 

215

Past service cost

 

–33

 

17

Losses/gains from plan curtailments and settlements

 

–1

 

2

Losses/gains as a result of application of limit
under IAS 19.58(b)

 

4

 

14

Net income and expenses
recognized in profit or loss

 

1,028

 

1,026

The above amounts are generally included in the personnel costs of the functions in the income statement. Interest cost on pension provisions and the expected return on plan assets are presented in Finance costs.

The net liability recognized in the balance sheet has changed as follows:

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€ million

 

2009

 

2008

Net liability recognized in the balance sheet
at January 1

 

12,886

 

12,502

Changes in consolidated Group

 

0

 

365

Net expense recognized in the income statement

 

1,028

 

1,026

Benefit payments from company assets and contributions to funds

 

910

 

848

Actuarial gains/losses

 

849

 

–214

Other changes

 

40

 

9

Foreign exchange differences

 

–11

 

46

Net liability recognized in the balance sheet
at December 31

 

13,881

 

12,886

The experience adjustments, meaning differences between changes in assets and obligations expected on the basis of actuarial assumptions and actual changes in those assets and obligations, are shown in the following table:

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2009

 

2008

 

2007

 

2006

 

2005

Differences between expected and actual developments:

 

 

 

 

 

 

 

 

 

 

as % of present value
of the obligation

 

1.16

 

–1.04

 

–0.48

 

0.03

 

0.25

as % of fair value of plan assets

 

3.16

 

–10.47

 

–2.44

 

2.57

 

2.12

Calculation of the pension provisions was based on the following assumptions:

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Germany

 

Abroad

%

 

2009

 

2008

 

2009

 

2008

Discount rate
at December 31

 

5.40

 

5.75

 

1.20 – 11.30

 

2.00 – 9.00

Expected return on plan assets

 

5.00

 

5.00

 

4.00 – 11.70

 

2.00 – 11.30

Salary trend

 

2.50

 

2.50

 

1.50 – 8.70

 

1.50 – 10.00

Pension trend

 

1.00 – 1.60

 

1.00 – 1.60

 

0.80 – 6.00

 

0.80 – 5.25

Employee turnover rate

 

0.75 – 1.00

 

0.75 – 1.20

 

2.00 – 18.00

 

1.50 – 5.75

Annual increase
in healthcare costs

 

 

 

4.50 – 8.00

 

4.50 – 7.25

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