11. Pension plans

11. PENSION PLAN
         
The Group operates Defined benefit plans through insurance companies. The employer has guaranteed to these employees a certain level of benefit after the retirement, which depends on the length of service and the salary basis. The salary basis is an average of last years’ salaries indexed with common salary index. After the retirement the benefit payable is indexed yearly.
         
In Sweden the Group’s risk is only on active employees, but in Finland the Group’s risk covers as well around 1000 non-actives. When a paid-up policy is realized in the Finnish plan, the final benefit is recalculated, which might cause additional expenses to the employer. In addition the effect of index increments between the beginning of the paid-up policy and the retirement date is charged in some cases in the Finnish plan when the retirement begins. According to some insurance policies the employee can retire earlier than at a normal retirement age when certain conditions are fulfilled. These additional expenses are charged when the retirement begins.
         
In Finland the plan covers approximately 250 active employees. During 2016, the Group negotiated changes to the terms of the plan with the insurance company and decided to close its defined benefit plan for future pension accrual. 1 Jan 2017 onwards, defined contribution arrangements will apply to all future service. No further defined benefit pensions, based on final salary, will be earned by the employees. However, the Group will retain its defined benefit obligation in connection with the voluntary pension cover accrued until 31 Dec 2016. As a consequence of these changes a settlement gain of EUR 4,6 million was recognized in 2016 personnel costs and the net defined benefit liability decreased by the corresponding amount. As defined benefit pensions accrued until 31 Dec 2016 are not fully funded, the Group pays higher contribution to the defined contribution plan as of 1 Jan 2017. In addition, active employees have as of 1 Jan 2017 the option to transfer their defined benefit pensions to the defined contribution plan.
         
In Sweden the plan covers approximately 200 active employees. As the Group does not have actuarial or investment risk for those plan members whose employment has ceased, the plan members are removed from the pension plan and a settlement is recognized annually. In 2016, a settlement loss of EUR 1,5 million was recognized in personnel costs and the net defined benefit liability increased by the corresponding amount.
         
         
EUR million   31 Dec 2016   31 Dec 2015
Pension benefit plans        
Present value of funded pension obligations   93.7   96.6
Fair value of plan assets   -87.3   -86.5
Total provisions for pension obligations   6.4   10.1
         
         
Pension benefit plans amounts recognized in profit and loss
         
Service cost        
Current service cost   1.9   2.6
Settlements   -3.1   0.3
Net interest   0.1   0.4
Expense recognized in profit or loss   -1.1   3.3
         
Amounts in other comprehensive income        
Remeasurement        
Gains (-)/losses (+) from change in demographic assumptions   4.4   1.3
Gains (-)/losses (+) from change in financial assumptions   7.7   -21.7
Gains (-)/losses (+) from experience adjustments   -6.8   8.4
Amounts in total comprehensive income   5.3   -12.0
         
         
Amounts recognized in the balance sheet
         
Present value of pension obligations        
At 1 Jan   96.6   114.7
Current service cost   1.9   2.6
Interest expense   2.6   2.5
Benefits paid   -1.7   -1.6
Curtailment and settlement   -11.7   -7.7
Actuarial gains/losses   7.6   -15.0
Exchange rate difference   -1.6   1.1
At 31 Dec   93.7   96.6
         
Fair value of plan assets        
At 1 Jan   86.5   90.8
Interest income   2.5   2.1
Contribution   5.3   5.3
Benefits paid   -1.8   -1.6
Curtailment and settlement   -8.5   -8.0
Actuarial gains/losses   4.9   -3.0
Exchange rate difference   -1.6   0.9
At 31 Dec   87.3   86.5
         
 
The defined benefit obligation and plan assets are composed by country as follows
         
  31 Dec 2016 31 Dec 2015
  Pension
obligations
Plan
assets
Pension
obligations
Plan
assets
Finland 56.5 43.0 58.5 42.1
Sweden 37.2 44.3 38.2 44.4
Total 93.7 87.3 96.7 86.5
         
         
Asset allocation
         
  31 Dec 2016 31 Dec 2015
  EUR million % EUR million %
Plan assets are comprised as follows in Sweden        
Equity instruments 16.8 37.9 15.9 35.8
Debt instruments 18.3 41.3 19.0 42.8
Property 4.7 10.6 4.5 10.1
Other 4.5 10.2 5.0 11.3
Total 44.3 100.0 44.4 100.0
         
In Finland plans assets are considered to include the cover paid to the insurance company and accumulated by the reporting date. The assets are the responsibility of the insurance company and a part of the insurance company's investment assets. The distribution in categories is not possible to provide.
         
         
Actuarial calculation assumptions
         
    31 Dec 2016   31 Dec 2015
Finland        
Discount rate   1.7   2.4
Future salary increases   3.3   3.3
Future pension increases   1.9   1.8
Inflation rate   1.6   1.6
         
Sweden        
Discount rate   2.8   3.3
Future salary increases   3.0   3.5
Future pension increases   1.7   1.5
Inflation rate   1.7   1.5
         
         
Sensitivity analysis
         
Following table shows how possible change in one assumption, holding other assumptions constant, affect to the defined benefit obligation.
         
    Change in
assumption
Increase in assumption Decrease in assumption
Impact on defined benefit obligation in Finland      
Discount rate   0.5% -4.8% 10.0%
Future pension increase   0.5% 9.7% -4.6%
Life expectancy   +1 year 14.2%  
       
Impact on defined benefit obligation in Sweden      
Discount rate   0.5% -11.5% 13.0%
Future salary increase   0.5% 4.2% -4.1%
Future pension increase   0.5% 13.0% -11.6%
Life expectancy   +1 year 4.8%  
         
         
Maturity profile of the defined benefit obligation
         
The weighted average duration of defined benefit obligation is 15 years in Finland and 19 years in Sweden.
         
The following table shows the maturity profile of the future benefit payments which are the basis for the calculated undiscounted defined benefit obligation.
         
EUR million       31 Dec 2016
Maturity under 1 year       1.8
Maturity 1–5 years       11.1
Maturity 5–10 years       18.0
Maturity 10–30 years       69.9
Maturity over 30 years       21.7
        122.5
         
         
Expected contributions in 2017
         
Expected contributions to post-employment benefit plans for the year ending 31 December 2017 are EUR 4.1 million.
         
         
Multi-employer plans
         
The ITP pension plans operated by Alecta in Sweden are multi-employer defined benefit pension plans which pool the assets contributed by various entities that are not under common control and the assets provide benefits to employees of more than one entity. It has not been possible to get sufficient information for the calculation of obligations and assets by employer from Alecta, and therefore this plan has been accounted for as a defined contribution plan in the financial statements. In Tieto 2 651 employees are included in this pension plan. The yearly contribution is around EUR 12 million.