Annual Report 2020

6.3 Employee benefits

The Group operates a number of pension schemes as required by law. The group companies in Switzerland participate in PKE Vorsorgestiftung Energie, a legally independent pension scheme which meets the criteria of a defined benefit plan in accordance with IAS 19. Employees of foreign subsidiaries are generally covered by state social security schemes or independent defined contribution pension plans in accordance with national practices. These plans meet the criteria of a defined contribution plan according to IAS 19.

Defined benefit liabilities in the balance sheet

CHF million

31 Dec 2020

31 Dec 2019

Present value of defined benefit obligation

790

770

Fair value of plan assets

759

720

Net defined benefit liabilities

31

50

Reconciliation of net defined benefit liabilities

CHF million

2020

2019

Net defined benefit liabilities at 1 January

50

50

Defined benefit expense recognised in the income statement

7

13

Defined benefit expense recognised in other comprehensive income

– 14

– 2

Contributions by employer to legally independent pension schemes

– 10

– 10

Benefits paid directly by employer

– 1

– 1

Others

– 1

 

Net defined benefit liabilities at 31 December

31

50

Changes in the present value of the defined benefit obligation

CHF million

2020

2019

Present value of defined benefit obligation at 1 January

770

729

Interest expense on defined benefit obligations

1

6

Current service cost

17

14

Past service cost 1

– 10

– 1

Contributions by plan participants

9

8

Benefits paid

– 26

– 57

Remeasurements:

 

 

Financial assumptions

2

59

Demographic assumptions

– 2

Experience adjustments

20

14

Others

7

 

Present value of defined benefit obligation at 31 December

790

770

1 Includes the effects of a reduction of voluntary payments made to retirees to date.

The weighted average duration of the defined benefit obligation as at the reporting date is 14.5 years (previous year: 14.1 years).

Changes in the fair value of the plan assets

CHF million

2020

2019

Fair value of plan assets at 1 January

720

679

Interest income on plan assets

2

5

Contributions by employer to legally independent pension schemes

10

10

Contributions by plan participants

9

8

Benefits paid

– 25

– 56

Remeasurement on plan assets

36

74

Others

7

 

Fair value of plan assets at 31 December

759

720

Asset classes of plan assets

CHF million

31 Dec 2020

31 Dec 2019

Quoted market prices

 

 

Liquidity

6

8

Equity instruments of third parties

289

282

Debt instruments of third parties

238

209

Property funds

37

38

Other investments

80

81

Total plan assets at fair value (quoted market prices)

650

618

Unquoted market prices

 

 

Property not used by the company

109

102

Total plan assets at fair value (unquoted market prices)

109

102

Total fair value of plan assets

759

720

Accounting policies

The defined benefit obligation is calculated annually by independent pension experts using the projected unit credit method. This accrued benefit method prorated on service recognises not only the known benefits and benefits accrued at the reporting date, but also expected future salary and pension increases. The Continuous Mortality Investigation (CMI) model with generation tables as a technical basis is used to reflect mortality rates. Mortality data according to the CMI model is calculated based on a long-term rate of change. The net interest result is recognised directly in finance costs / income; any remaining employee benefit costs are included in employee costs. Actuarial gains and losses are recognised in other comprehensive income as part of equity in the period in which they occur. Past service costs are recognised directly in the income statement as employee costs.

All plans are funded by both employer and employee contributions, as a rule. Employer contributions paid or owed to pension schemes that provide defined contribution pension plans are recognised directly in the income statement.

The calculation of the recognised defined benefit liabilities is based on statistical and actuarial assumptions. Such assumptions can differ substantially from actual circumstances due to changes in market conditions and the economic environment, higher or lower exit rates, longer or shorter lives of plan participants and other estimated factors. Such deviations may have an impact on the defined benefit liabilities recognised in future reporting periods.

Actuarial assumptions

in %

31 Dec 2020

31 Dec 2019

Discount rate

0.15

0.19

Projected interest rate for retirement assets

0.75

0.75

Expected rates of salary increase (weighted average)

0.50

1.00

Estimated long-term rate of change in the CMI model (basis: BVG 2015)

1.25

1.25

Sensitivity analysis

In each case, the sensitivity analysis takes into consideration the influence on the net defined benefit obligation in the event of one assumption changing while all of the other assumptions remain unchanged. This approach does not take into account that some assumptions are dependent on each other.

CHF million

2020

2019

Discount rate

 

 

0.25 % increase

– 28

– 26

0.25 % reduction

29

28

Projected interest rate for retirement assets

 

 

0.25 % increase

6

5

0.25 % reduction

– 6

– 5

Rate of salary increase

 

 

0.25 % increase

3

2

0.25 % reduction

– 3

– 2

Life expectancy

 

 

1 year increase

32

32

1 year reduction

– 32

– 33

Expected contributions by the employer and plan participants for the next period

Employer social security contributions are estimated at CHF 12 million and employee contributions are estimated at CHF 7 million for 2021.

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