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Financial statements

20. Long-term employee benefits

 

As at 31-12-2019

As at 31-12-2018

Net defined benefit asset

-18.2

-4.5

Net defined benefit liability

6.3

5.8

Other long-term employee benefit commitments

1.6

1.8

Total

-10.3

3.1

Net defined benefit assets and liabilities

Net defined benefit assets and liabilities relate to post-employment defined benefit arrangements.

Other long-term employee benefit commitments

Other long-term employee benefit commitments relate mainly to anniversary commitments, conditional incentive plans, and health insurance.

Main characteristics of the defined benefit plans

Corbion sponsors defined benefit pension plans in the U.S. and the U.K. Both plans are closed schemes and based on final pay. Further, Corbion sponsors a legal severance payment plan in Thailand. All plans have been established in accordance with the legal requirements of the countries involved. The defined benefit plans are administered by a separate fund that is legally separated from the entity. The board of the pension fund is composed of an equal number of representatives from both employers and (former) employees.
The plans typically expose the group to actuarial risks such as investment risk, interest rate risk, and longevity risk.

  • Investment risk - The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high-quality corporate bond yields; if the return on plan assets falls below this rate, it will create a plan deficit. Currently the plans have a relatively balanced investment in mainly equity securities and debt instruments.

  • Interest rate risk - A decrease in the bond interest rate will increase the plan liability; however, this will be partly offset by an increase in the return on the plan's debt investments.

  • Longevity risk - The present value of the defined benefit liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan's liability.

The defined benefit obligation as per year-end consisted for the vast majority of the UK plan and is summarized below:

  • The Normal Retirement Age (NRA) is 65; however, Section 1 members are able to take their benefits in respect of pre 1 October 2003 service unreduced from age 60.

  • Pensions in deferment increase in line with statutory revaluation with the exception of pre 1 October 2003 benefits for Section 1 members, which have an underpin linked to the level of pension increases in payment (which are linked to Retail Price Index (RPI)).

  • Pensions in payment increase in line with RPI capped at 5% for benefits in respect of pre 1 January 2006 service and RPI capped at 2.5% for benefits in respect of post 31 December 2005 service.

For this scheme a recovery plan has been agreed under which Corbion will make lump sum funding payments of GBP 2.5 million in 2020 and GBP 2.6 million in 2021.

The strategic investment policy of the scheme can be summarized as follows:

  • A strategic asset mix with 50% in return-seeking assets and 50% in matching (bond-type) assets.

  • The return-seeking asset portfolio comprises a mix of equity investments and diversified growth funds.

  • Interest rate and inflation risks are managed through the use of liability-driven investments and corporate bonds of an appropriate duration.

  • Currency risk is managed by implementing a 50% currency hedge on the global equity holding.

The average duration of the defined benefit obligation as at 31 December 2019 is 23 years.

Breakdown of the amounts recognized in respect of defined benefit pension plans in the income statement and statement of comprehensive income

 

2019

2018

Current service costs

0.5

0.5

Net interest expense

-0.4

0.1

Past-service costs

0.3

 

Past-service gain

-8.0

 

Total pension costs recognized in income statement

-7.6

0.6

   

Remeasurements net defined benefit liability

  

- Return on plan assets (excluding amounts included in interest income)

-8.2

5.7

- Actuarial (gains)/losses arising from changes in demographic assumptions

 

-3.0

- Actuarial (gains)/losses arising from changes in financial assumptions

15.3

-3.8

- Actuarial (gains)/losses arising from experience adjustments

-0.9

0.1

Total pension costs recognized in other comprehensive income

6.2

-1.0

Total

-1.4

-0.4

Breakdown of the amounts recognized in the statement of financial position

 

As at 31-12-2019

As at 31-12-2018

Present value of defined benefit obligations

87.5

78.6

Fair value of plan assets

-99.4

-77.3

Funded status

-11.9

1.3

Restrictions on assets recognized

  

Net liability

-11.9

1.3

Movements in defined benefit obligation

 

2019

2018

As at 1 January

78.6

86.7

Current service costs

0.5

0.5

Interest charges

2.2

2.5

Pension payments

-4.2

-4.6

Remeasurement (gains)/losses

  

- Actuarial (gains)/losses arising from changes in demographic assumptions

 

-3.0

- Actuarial (gains)/losses arising from changes in financial assumptions

15.3

-3.8

- Actuarial (gains)/losses arising from experience adjustments

-0.9

0.1

Past-service gain

-8.0

 

Past-service costs

0.3

 

Exchange rate differences

3.7

0.2

As at 31 December

87.5

78.6

Movements in fair value of plan assets

 

2019

2018

As at 1 January

77.3

83.0

Interest income

2.6

2.4

Pension payments

-4.2

-4.6

Contributions from the employer

11.4

2.3

Remeasurement gains/(losses)

  

- Return on plan assets (excluding amounts included in interest income)

8.2

-5.7

Exchange rate differences

4.1

-0.1

As at 31 December

99.4

77.3

The actual return on plan assets was € 10.8 million in the year under review (2018: € 3.3 million negative).

In 2019, a past service gain was recorded due to a change in indexation for the CSM UK pension scheme. For the same scheme, an additional one-time deficit contribution of GBP 7.5 million was agreed in 2019.

The investment strategy is based on the composition of the obligations of the pension schemes. Based on Asset Liability Management models analyses have been performed on a regular basis to define the investment portfolio. At year-end the asset allocation was as follows.

Plan asset classes

 

As at 31-12-2019

As at 31-12-2018

Quoted equity securities

5.9

12.7

Unquoted equity securities

 

12.0

Quoted debt securities

80.2

10.8

Unquoted debt securities

 

0.8

Quoted other securities

13.3

41.0

Total assets

99.4

77.3

The main weighted average actuarial assumptions

 

2019

2018

Discount rate

2.2%

3.2%

Pension growth rate

1.8%

3.1%

Sensitivity of the defined benefit obligation to changes in the weighted principal assumptions

 

Change in assumption

Increase in assumption

Decrease in assumption

Discount rate

0.50%

(8.7)

9.9

Pension growth rate

0.50%

6.2

(5.7)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. To calculate the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method is applied (calculation of the present value of the defined benefit obligation using the projected unit credit method at the end of the reporting period) which is also used to calculate the pension liability recognized within the consolidated statement of financial position.

The anticipated contributions to the defined benefit pension plans in the coming year will amount to € 3.5 million.