nextprevious

27 Provisions for pensions and other post-employment benefits

Provisions for pensions are recognized for commitments 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 2011, they amounted to a total of €1,237 million (previous year: €1,040 million) in the Volkswagen Group. Of this figure, contributions to the compulsory state pension system in Germany amounted to €925 million (previous year: €816 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 prior-year 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 would only marginally affect the amount of the obligations. €16 million (previous year: €16 million) was recognized in fiscal year 2011 as an expense for health care costs. The related carrying amount as of December 31, 2011 was €196 million (previous year: €175 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 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 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:

  Download

 

 

 

 

 

 

 

 

 

 

 

€ million

 

Dec. 31, 2011

 

Dec. 31, 2010

 

Dec. 31, 2009

 

Dec. 31, 2008

 

Dec. 31, 2007

Present value of funded obligations

 

7,228

 

4,885

 

4,120

 

3,240

 

3,330

Fair value of plan assets

 

6,559

 

4,554

 

3,852

 

3,153

 

3,422

Funded status (net)

 

668

 

331

 

268

 

87

 

–92

Present value of unfunded obligations

 

16,023

 

14,986

 

13,552

 

12,743

 

12,532

Unrecognized past service cost

 

33

 

35

 

36

 

22

 

31

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

 

14

 

22

 

26

 

34

 

31

Net liability recognized in the balance sheet

 

16,739

 

15,375

 

13,881

 

12,886

 

12,502

of which provisions for pensions

 

16,787

 

15,432

 

13,936

 

12,955

 

12,603

of which other assets

 

48

 

57

 

54

 

69

 

101

The present value of the obligations is calculated as follows:

  Download

 

 

 

 

 

€ million

 

2011

 

2010

Present value of obligations at January 1

 

19,871

 

17,672

Current service cost

 

391

 

366

Interest cost

 

994

 

972

Actuarial gains/losses

 

821

 

1,352

Employee contributions to plan assets

 

25

 

20

Pension payments from company assets

 

679

 

643

Pension payments from plan assets

 

123

 

114

Past service cost

 

–10

 

3

Gains from plan curtailments and settlements

 

–8

 

–24

Settlements

 

–14

 

Changes in consolidated Group

 

2,056

 

45

Other changes

 

–19

 

0

Foreign exchange differences from foreign plans

 

–54

 

222

Present value of obligations at December 31

 

23,251

 

19,871

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

  Download

 

 

 

 

 

€ million

 

2011

 

2010

Fair value of plan assets at January 1

 

4,554

 

3,852

Expected return on plan assets

 

272

 

247

Actuarial gains/losses

 

–184

 

42

Employer contributions to plan assets

 

391

 

333

Employee contributions to plan assets

 

25

 

21

Pension payments from plan assets

 

123

 

111

Settlements

 

14

 

Changes in consolidated Group

 

1,706

 

18

Other changes

 

–36

 

–1

Foreign exchange differences from foreign plans

 

–30

 

154

Fair value of plan assets at December 31

 

6,559

 

4,554

Investment of the plan assets to cover future pension obligations resulted in income in the amount of €88 million (previous year: €288 million).

Plan assets include €17 million (previous year: €3 million) invested in Volkswagen Group assets and €11 million (previous year: €23 million) 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 in the next fiscal year are expected to amount to €426 million (previous year: €403 million).

Plan assets consist of the following components:

  Download

 

 

 

 

 

%

 

2011

 

2010

Equities

 

24.9

 

29.8

Fixed-income securities

 

58.6

 

52.9

Cash

 

2.6

 

8.0

Real estate

 

3.7

 

4.3

Other

 

10.3

 

5.1

The following amounts were recognized in the income statement:

  Download

 

 

 

 

 

€ million

 

2011

 

2010

Current service cost

 

391

 

366

Interest cost

 

994

 

972

Expected return on plan assets

 

272

 

247

Past service cost

 

–10

 

3

Losses/gains from plan curtailments and settlements

 

–8

 

–24

Net income and expenses recognized in profit or loss

 

1,095

 

1,070

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.

€2,965 million (previous year: €2,248 million) of actuarial gains and losses recognized in the balance sheet was debited to equity.

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:

  Download

 

 

 

 

 

 

 

 

 

 

 

€ million

 

2011

 

2010

 

2009

 

2008

 

2007

Differences between expected and actual developments:

 

 

 

 

 

 

 

 

 

 

as % of present value of the obligation

 

–0.79

 

0.39

 

1.16

 

–1.04

 

–0.48

as % of fair value of plan assets

 

–2.50

 

0.13

 

3.16

 

–10.47

 

–2.44

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

  Download

 

 

 

 

 

 

 

 

 

 

 

Germany

 

Abroad

%

 

2011

 

2010

 

2011

 

2010

Discount rate at December 31

 

4.60

 

4.90

 

5.39

 

6.04

Expected return on plan assets

 

4.14

 

4.25

 

6.78

 

7.56

Salary trend

 

2.80

 

2.70

 

3.81

 

4.32

Pension trend

 

1.55

 

1.52

 

2.67

 

2.76

Employee turnover rate

 

1.10

 

0.80

 

4.20

 

4.16

Annual increase in healthcare costs

 

 

 

6.72

 

6.47

As of fiscal year 2011, weighted average values have been given for all assumptions. The prior-year figures were adjusted.

top
nextprevious
Compare Key Figures
Create your personal overview of important key figures.