G22 Provisions for pension and other non-current post-employment benefits
Sandvik provides direct pension solutions or participates in defined benefit, defined contribution and other plans for post-employment benefits to all employees. These plans are structured in accordance with local regulations and practices. The Group’s most significant defined-benefit pension plans are described below per country.
Sweden
The Swedish pension plan is funded through a foundation and is based on salary at the time of retirement. It is partly closed for new participants, meaning that only new employees born prior to 1979 have the option of joining the plan. Employees born after 1979 are encompassed by a defined-contribution plan. There are no funding requirements for the defined-benefit plan. Pension payments to retirees are made directly from Sandvik.
The commitment for family pension, also a defined-benefit plan, is insured with Alecta. Sufficient information to use defined-benefit accounting for this plan is not available, and therefore recognized as a defined-contribution plan. At the end of 2023, Alecta reported a preliminary plan surplus of 157 percent (172). The Group’s share of Alecta’s saving premiums is 0.1 percent, the total share of active members in Alecta is 0.5 percent. For 2024, the expected contribution to Alecta is SEK 17 million (29).
The Group’s mutual responsibility as a credit-insured company of PRI Pensionsgaranti in Sweden is classified as a contingent liability and amounts to SEK 72 million (63). This mutual responsibility can only be imposed in the instance that PRI Pensionsgaranti has consumed all of its assets, and it amounts to a maximum of 2 percent of the Group’s pension liability in Sweden.
UK
The main pension plan in the UK is based on salary at the time of retirement and closed for new participants. The plan is funded through a foundation and the funding level is revalued every third year. If the valuation indicates a requirement to increase the funding, Sandvik contributes with funding to the plan over a certain period of time. The plan is governed by trustees and investment decisions are made after consulting with Sandvik. Pension payments to retirees are made from the plan.
US
Sandvik US pensions plan are based on salary at the time of retirement and closed for new participants. The funding level is revalued every year with a target of restoring the funding level over a seven-year period. Those eligible for the pension plan are also eligible for the retiree medical plan at the time of retirement. Pension payments to retirees are made from the plan.
Finland
In Finland, Sandvik sponsors a defined-benefit pension plan funded through a foundation. The benefits offered include an old-age pension and disability pension. In addition to the benefits guaranteed by the Finnish subsidiary, there is also a defined-contribution pension component. Pension payments to retirees are made from the plan.
Germany
Sandvik’s pension plan in Germany contains employer-and employee-financed contributions. The employer provides pension contributions. For each employee, the employer administrates the cash balance in an individual capital account per employee. Pension payments to retirees are generally made directly from Sandvik.
In Germany, there are, in general, no funding requirements. The pension assets are covered as plan assets and protected against insolvency in the Sandvik Pension Trust, a Contractual Trust Arrangement held by Sandvik.
Reconciliation of change in present value of defined benefit obligation for funded and unfunded plans
|
2022 |
2023 |
|---|---|---|
Opening Balance, January 1 |
32,799 |
23,167 |
Service cost |
361 |
284 |
Past service cost |
7 |
–8 |
Gain/loss on settlements |
–10 |
–1 |
Settlement |
–501 |
– |
Interest cost |
655 |
1,058 |
Contributions by plan participants |
31 |
33 |
Benefits paid |
–1,265 |
–1,272 |
Remeasurements loss (gain) arising from: |
|
|
- Financial assumptions |
–9,470 |
644 |
- Demographic assumptions |
–2 |
–76 |
- Experience adjustments |
504 |
72 |
Distribution of Alleima |
–2,134 |
– |
Acquisitions |
154 |
68 |
Other |
–2 |
–5 |
Exchange differences |
2,040 |
–279 |
Closing balance, December 31 |
23,167 |
23,865 |
Reconciliation of change in the fair value of plan assets, including asset ceiling
|
2022 |
2023 |
||
|---|---|---|---|---|
Opening Balance, January 1 |
26,891 |
21,001 |
||
Interest income |
578 |
1,003 |
||
Settlement payments from plan assets |
–501 |
– |
||
Contributions by the employer |
193 |
276 |
||
Benefits paid directly by employer |
248 |
233 |
||
Contributions by plan participants |
31 |
33 |
||
Benefits paid |
–1,265 |
–1,272 |
||
Return on plan assets, excl interest income |
–5,353 |
85 |
||
Effect of asset ceiling |
2171) |
34 |
||
Distribution of Alleima |
–1,675 |
– |
||
Acquisitions |
148 |
57 |
||
Other |
–30 |
–8 |
||
Exchange differences |
1,5191) |
–315 |
||
Closing balance, December 31 |
21,001 |
21,127 |
||
|
||||
|
2022 |
2023 |
|---|---|---|
Actual return on plan assets |
–4,484 |
160 |
Consolidation ration, funded plans, % |
100 |
98 |
Consolidation ration, all plans, % |
90 |
88 |
Estimated contributions, next year |
396 |
399 |
|
SE |
GB |
US |
FI |
DE |
Other |
Total |
||
|---|---|---|---|---|---|---|---|---|---|
Amounts included in the balance sheet |
|
|
|
|
|
|
|
||
Present value of funded and unfunded obligations |
4,393 |
5,207 |
5,862 |
3,956 |
2,076 |
1,673 |
23,167 |
||
of which for actives |
1,935 |
– |
1,363 |
1,145 |
764 |
1,160 |
6,367 |
||
of which for vested deferred |
1,361 |
2,102 |
652 |
777 |
308 |
67 |
5,267 |
||
of which for retirees |
1,096 |
3,105 |
3,847 |
2,035 |
1,004 |
445 |
11,532 |
||
Plan assets |
2,531 |
5,320 |
6,395 |
4,624 |
1,562 |
1,267 |
21,699 |
||
Asset ceiling |
– |
– |
–688 |
– |
– |
–10 |
–698 |
||
Total surplus (deficit) |
–1,862 |
113 |
–155 |
668 |
–514 |
–416 |
–2,165 |
||
Pension plans recognized according to local rules |
– |
– |
– |
– |
– |
– |
–218 |
||
Total net liability |
– |
– |
– |
– |
– |
– |
2,383 |
||
Provision for pensions |
– |
– |
– |
– |
– |
– |
3,458 |
||
Over funded pension plans recognized as asset, non-current receivable |
– |
– |
– |
– |
– |
– |
1,074 |
||
Funding level, % |
58 |
102 |
109 |
117 |
75 |
76 |
94 |
||
Net liability for medical plans |
– |
– |
216 |
– |
– |
41 |
257 |
||
Average duration of the obligation, years |
21 |
17 |
11 |
15 |
7 |
N/A |
14 |
||
Amount included in the income statement/other comprehensive income |
|
|
|
|
|
|
|
||
Total service cost |
–103 |
– |
5 |
–132 |
–30 |
–66 |
–326 |
||
Net interest |
–70 |
– |
–23 |
5 |
–11 |
36 |
–63 |
||
Remeasurements |
1,835 |
30 |
27 |
345 |
353 |
816 |
3,405 |
||
Total expense for defined benefits (pretax) |
1,661 |
30 |
9 |
218 |
313 |
785 |
3,016 |
||
Cash flows |
|
|
|
|
|
|
|
||
Contributions by the employer |
3 |
–96 |
– |
–23 |
–49 |
–21 |
–186 |
||
Benefits paid |
–89 |
– |
–29 |
– |
–64 |
–36 |
–218 |
||
Settlements paid |
– |
– |
–501 |
– |
– |
1 |
–500 |
||
Major assumptions for the valuation of the liability |
|
|
|
|
|
|
|
||
Longevity, years %1) |
23 |
23 |
22 |
23 |
22 |
N/A |
N/A |
||
Inflation, % |
2.00 |
3.10 |
2.50 |
2.00 |
2.25 |
N/A |
2.40 |
||
Discount rate, % (weighted average) |
3.95 |
4.95 |
5.20 |
4.24 |
4.10 |
N/A |
4.58 |
||
Future salary increase, % (weighted average) |
3.25 |
N/A |
N/A |
3.00 |
3.25 |
N/A |
2.21 |
||
|
|||||||||
|
SE |
GB |
US |
FI |
DE |
Other |
Total |
||
|---|---|---|---|---|---|---|---|---|---|
Amounts included in the balance sheet |
|
|
|
|
|
|
|
||
Present value of funded and unfunded obligations |
4,932 |
5,160 |
5,658 |
3,922 |
2,247 |
1,767 |
23,685 |
||
of which for actives |
2,048 |
0 |
1,080 |
1,162 |
886 |
1,270 |
6,446 |
||
of which for vested deferred |
1,566 |
2,282 |
638 |
773 |
328 |
46 |
5,631 |
||
of which for retirees |
1,318 |
2,878 |
3,939 |
1,987 |
1,033 |
452 |
11,608 |
||
Plan assets |
2,464 |
5,375 |
6,175 |
4,734 |
1,713 |
1,330 |
21,791 |
||
Asset ceiling |
– |
– |
–661 |
– |
– |
–3 |
–664 |
||
Total surplus (deficit) |
–2,468 |
215 |
–144 |
812 |
–535 |
–440 |
–2,558 |
||
Pension plans recognized according to local rules |
– |
– |
– |
– |
– |
– |
–199 |
||
Total net liability |
– |
– |
– |
– |
– |
– |
–2,757 |
||
Provision for pensions |
– |
– |
– |
– |
– |
– |
4,089 |
||
Over funded pension plans recognized as asset, non-current receivable |
– |
– |
– |
– |
– |
– |
1,333 |
||
Funding level, % |
50 |
104 |
97 |
121 |
76 |
75 |
88 |
||
Net liability for medical plans |
– |
– |
204 |
– |
– |
41 |
244 |
||
Average duration of the obligation, years |
22 |
12 |
10 |
16 |
7 |
N/A |
14 |
||
Amount included in the income statement/ other comprehensive income |
|
|
|
|
|
|
|
||
Total service cost |
–75 |
– |
–3 |
–117 |
–23 |
–57 |
–275 |
||
Net interest |
–72 |
8 |
–8 |
29 |
–24 |
–35 |
–101 |
||
Remeasurements |
–559 |
–13 |
–16 |
227 |
–161 |
13 |
–510 |
||
Total expense for defined benefits (pretax) |
–706 |
–5 |
–27 |
139 |
–209 |
–78 |
–886 |
||
Cash flows |
|
|
|
|
|
|
|
||
Contributions by the employer |
–3 |
–106 |
– |
–3 |
–125 |
–39 |
–276 |
||
Benefits paid |
–103 |
– |
–31 |
– |
–65 |
–34 |
–233 |
||
Major assumptions for the valuation of the liability |
|
|
|
|
|
|
|
||
Longevity, years %1) |
23 |
23 |
22 |
23 |
22 |
N/A |
N/A |
||
Inflation, % |
1.75 |
3.05 |
2.50 |
2.00 |
2.00 |
N/A |
2.28 |
||
Discount rate, % (weighted average) |
3.45 |
4.80 |
4.95 |
3.60 |
3.90 |
N/A |
4.24 |
||
Future salary increase, % (weighted average) |
3.00 |
N/A |
N/A |
3.00 |
3.25 |
N/A |
3.14 |
||
|
|||||||||
Risks and cash flows
Three main categories of risks are associated with the Company’s defined-benefit pension plans.
Future pension payments
Greater life expectancy, increased inflation assumptions and higher salaries can increase future pension payments and thus also the liability for the pension obligation.
Return on assets
Low returns of assets in the foundations that are funded may, in the future, result in lower return which are insufficient for covering future pension payments.
Measurement method
The measurement methods, primarily regarding the discount rate, being utilized in the measurement of the present value of the pension obligations. The discount rate, can fluctuate, leading to major changes in the recognized pension liability. The discount rate also affects the interest rate component of the pension liability and that is recognized in net financial items.
Discount rate
To determine the discount rate, AA credit rated corporate bonds are used that correspond to the duration of the pension obligation. If there is no deep market for corporate bonds, government bonds are used as the basis for determining the discount rate. Mortgage bonds are used in Sweden to determine the discount rate.
Sensitivity analysis
A sensitivity analysis of the most important assumptions affecting the recognized pension liability is provided below. Note that this sensitivity analysis is not intended to be the expression of an opinion by the company regarding the probability of such events occurring.
|
SE |
UK |
US |
FI |
DE |
Total |
|---|---|---|---|---|---|---|
Life expectancy, +1 year |
184 |
156 |
148 |
139 |
51 |
678 |
Discount rate –50 bps |
537 |
332 |
297 |
317 |
82 |
1,565 |
Inflation rate + 50 bps |
526 |
110 |
– |
9 |
28 |
673 |
Equities –20% |
140 |
68 |
122 |
305 |
75 |
710 |
Plan assets
The fair value of plan assets December 31, 2023, included loans of SEK 0 million (0) to Sandvik companies and the value of properties leased to Sandvik of SEK 202 million (204).
% |
20221) |
2023 |
||
|---|---|---|---|---|
Interest bearing securities |
59 |
61 |
||
Shares |
17 |
17 |
||
Properties |
11 |
9 |
||
Other |
9 |
9 |
||
Cash and cash equivalents |
4 |
4 |
||
|
||||
Governance
The defined-benefit and defined contribution-plans are governed through Sandvik’s Pension Supervisory Board (PSB). The PSB meets twice a year and has the following areas of responsibility:
- Implement policies and directives
- Ensure efficient administration of the major pension plans and efficient management of reserved plan assets
- Approve establishment of new plans, material changes or closure of existing plan
- Approve guidelines for management of assets
The Group Pension Committee (GPC) is an operating body, which is also preparatory to the PSB. It has representatives from countries with large defined-benefit plans and relevant Group functions. The GPC’s task is to monitor developments in countries, submit proposals on changes to pension plans to the PSB and approve the principle of how actuarial assumptions are established. The GPC meets twice a year.
Investment strategy
The aims of the investment decisions made in the foundations' managing plan assets are as follows:
- Ensure that the plan assets are sufficient to cover the foundation’s future pension commitments
- Achieve optimal returns while taking into account a reasonable level of risk
Each foundation must have a written investment policy approved by the GPC. Reviews are performed annually. The foundation makes its own decisions on its investment strategy and takes into consideration the composition of the pension commitments, requirements of cash and cash equivalents, and available investment opportunities. The investment strategy is to be long-term and in line with the guidelines established by the PSB. An investment committee is to be in place.
§ Accounting principles
Defined-contribution plans
A defined-contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.
Defined-benefit plans
The Group’s net obligation in respect to defined-benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have vested in return for their service in the current and prior periods. This benefit is discounted to its present value. In addition, the fair value of any plan assets is assessed. The calculation is performed annually by a qualified actuary.
The above method of accounting is applied to the most significant defined-benefit plans in the Group. A number of plans, which neither individually nor in the aggregate are significant in relation to the Group’s total pension obligations, are still recognized in accordance with local regulations.
In measuring the present value of pension obligations and the fair value of plan assets, actuarial gains and losses may accrue either because the actual outcome differs from earlier assumptions (so called experience adjustments) or the assumptions are changed. These actuarial gains and losses are recognized in the balance sheet and in profit or loss under other comprehensive income.
! Critical estimates and key judgments
Post-employment benefits
Actuarial assumptions are used to measure pension obligations and they significantly affect the recognized net liability and the annual pension cost. One critical assumption – the discount rate – is essential for the measurement of both the expense of the year and the present value of the defined-benefit obligations’ current year. The discount rate is used both for calculating the present value of the obligation and as an estimate for the return on plan assets. The discount rate is reviewed quarterly, which affects the net liability, and annually, which also affects the expense for the coming year. All other assumptions, both financial and demographic, are reviewed at least annually.