G21 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. There are no funding requirements for the defined-benefit plan. 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 2024, Alecta reported a preliminary plan surplus of 162 percent (157). 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 2025, the expected contribution to Alecta is SEK 16 million (17).
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 79 million (72). 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. 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.
During 2024, the asset ceiling has been resolved since Sandvik intends to use the remaining surplus (after a gradual run out of the plan) to provide a qualified replacement 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.
The pension increase rate does not follow the inflation but depends on the average yield of the Finnish statutory pension providers and therefore follows more or less directly the interest rate, explaining the remeasurements for 2024.
Germany
The Sandvik 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
|
2023 |
2024 |
|---|---|---|
Opening Balance, January 1 |
23,167 |
23,685 |
Current service cost |
284 |
325 |
Past service cost |
–8 |
–24 |
Gain/loss on settlements |
–1 |
0 |
Interest cost (DBO) |
1,058 |
1,029 |
Contributions by plan participants |
33 |
32 |
Benefits paid |
–1,272 |
–1,299 |
Remeasurements loss/(gain) arising from: |
|
|
- Financial assumptions |
644 |
142 |
- Demographic assumptions |
–76 |
–10 |
- Experience adjustments |
72 |
238 |
Acquisition |
68 |
3 |
Other |
–5 |
–7 |
Exchange differences |
–279 |
1,305 |
Closing balance, December 31 |
23,865 |
25,419 |
Reconciliation of change in the fair value of plan assets, including asset ceiling
|
2023 |
2024 |
|---|---|---|
Opening Balance, January 1 |
21,001 |
21,127 |
Interest income |
1,003 |
967 |
Contributions by the employer |
276 |
184 |
Benefits paid directly by employer |
233 |
243 |
Contributions by plan participants |
33 |
32 |
Benefits paid |
–1,272 |
–1,299 |
Return on plan asset exkl interest income |
85 |
–526 |
Effect of Asset ceiling |
34 |
664 |
Acquisition |
57 |
0 |
Other |
–8 |
–8 |
Exchange differences |
–316 |
1,381 |
Closing balance, December 31 |
21,127 |
22,765 |
Other information
|
2023 |
2024 |
|---|---|---|
Actual return on plan assets |
160 |
906 |
Consolidation ration, funded plans, % |
98 |
95 |
Consolidation ration, all plans, % |
88 |
89 |
Estimated contributions, next year |
399 |
418 |
Unfunded pension commitments |
1,379 |
1,448 |
|
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 medical plans surplus(deficit) |
– |
– |
–204 |
– |
– |
–41 |
–244 |
||
Weighted 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 |
||
|
|||||||||
|
SE |
GB |
US |
FI |
DE |
Other |
Total |
||
|---|---|---|---|---|---|---|---|---|---|
Amounts included in the balance sheet |
|
|
|
|
|
|
|
||
Present value of funded and unfunded obligations |
5,433 |
5,145 |
5,793 |
4,635 |
2,478 |
1,935 |
25,419 |
||
of which for actives |
2,319 |
0 |
1,041 |
1,498 |
1,028 |
1,385 |
7,271 |
||
of which for vested deferred |
1,842 |
2,308 |
650 |
916 |
402 |
51 |
6,169 |
||
of which for retirees |
1,272 |
2,837 |
4,102 |
2,221 |
1,047 |
499 |
11,978 |
||
Plan assets |
2,772 |
5,198 |
6,451 |
5,004 |
1,923 |
1,418 |
22,765 |
||
Total surplus (deficit) |
–2,661 |
53 |
658 |
369 |
–555 |
–517 |
–2,653 |
||
Pension plans recognized according to local rules |
– |
– |
– |
– |
– |
– |
–235 |
||
Total net liability |
– |
– |
– |
– |
– |
– |
–2,888 |
||
Provision for pensions |
– |
– |
– |
– |
– |
– |
4,383 |
||
Over funded pension plans recognized as asset, non-current receivable |
– |
– |
– |
– |
– |
– |
1,495 |
||
Funding level, % |
51 |
101 |
111 |
108 |
78 |
73 |
89 |
||
Net medical plans surplus(deficit) |
– |
– |
–202 |
– |
– |
–44 |
–245 |
||
Weighted average duration of the obligation, years |
22 |
12 |
10 |
17 |
7 |
N/A |
14 |
||
Amount included in the income statement/other comprehensive income |
|
|
|
|
|
|
|
||
Total service cost |
–98 |
– |
–3 |
–123 |
–28 |
–49 |
–301 |
||
Net interest |
–81 |
13 |
–7 |
30 |
–20 |
–32 |
–97 |
||
Remeasurements |
–123 |
–290 |
804 |
–380 |
–55 |
–73 |
–117 |
||
Total expense for defined benefits (pretax) |
–302 |
–277 |
794 |
–473 |
–103 |
–154 |
–514 |
||
Cash flows |
|
|
|
|
|
|
|
||
Contributions by the employer |
–3 |
–101 |
– |
4 |
–40 |
–44 |
–184 |
||
Benefits paid |
–111 |
– |
–21 |
– |
–63 |
–16 |
–211 |
||
Major assumptions for the valuation of the liability |
|
|
|
|
|
|
|
||
Longevity, years %1) |
23 |
23 |
22 |
25 |
22 |
N/A |
N/A |
||
Inflation, % |
2.00 |
3.15 |
2.50 |
2.00 |
2.00 |
N/A |
2.32 |
||
Discount rate, % (weighted average) |
3.55 |
5.55 |
5.55 |
3.60 |
3.20 |
N/A |
4.39 |
||
Future salary increase, % (weighted average) |
3.25 |
N/A |
N/A |
3.00 |
3.25 |
N/A |
3.23 |
||
|
|||||||||
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
Lower returns on assets in the foundations that are funded may, in the future, result in lower returns 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 between periods, and affect expenses and the net pension liability.
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. In Sweden, mortgage bonds are used to determine the discount rate.
Sensitivity analysis
The weighted average duration for the group-funded pension liability is 14 years, whilst the weighted average duration for the interest-bearing assets is 10 years. Due to the asset allocation and differences in duration, Sandvik is exposed to interest rate fluctuations both when discounting the liability and when revaluing the interest-bearing assets.
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 |
GB |
US |
FI |
DE |
Total |
|---|---|---|---|---|---|---|
Life expectancy, +1 year |
225 |
139 |
159 |
176 |
56 |
779 |
Discount rate, –50 bps |
604 |
302 |
302 |
414 |
91 |
1,806 |
Inflation rate, +50 bps |
623 |
100 |
– |
10 |
37 |
772 |
Equities, –20% |
154 |
54 |
129 |
321 |
84 |
750 |
Plan assets
The fair value of plan assets December 31, 2024, included loans of SEK 0 million (0) to Sandvik companies and the value of properties leased to Sandvik of SEK 232 million (202).
% |
2023 |
2024 |
|---|---|---|
Interest bearing securities |
61 |
61 |
Shares |
17 |
17 |
Properties |
9 |
9 |
Other |
9 |
9 |
Cash and cash equivalents |
4 |
4 |
Governance
The defined-benefit and defined contribution-plans are governed through the Pension Supervisory Board (PSB) at Sandvik. 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 Group functions who are approved by the PSB. 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 to establish actuarial assumptions. The GPC meets twice a year.
Investment strategy
The aim of the investment decisions made in the foundations’ managing plan assets are:
- Ensure plan assets are sufficient to cover the foundation’s future pension commitments
- Achieve optimal returns with 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 shall 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. For the upcoming year, the discount rate affects the expense and the estimate of return on plan assets. For the current year, it affects the present value of the defined-benefit obligation. The discount ate is reassessed quarterly. All other assumptions, both financial and demographic, are reassessed at least annually.