26. Pension provisions and similar obligations

Within the Aurubis Group, retirement benefits for employees are provided on the basis of both defined benefit plans and defined contribution plans.

The majority of defined benefit plan obligations in the Aurubis Group relate to Germany and the US. On the one hand, these represent individual contractual direct obligations. On the other hand, the Group provides benefits in the form of defined benefit obligations within collective plans. Both funded and unfunded plans exist.

In Germany, the Group provides eligible employees with pension benefits as well as disability and surviving dependent benefits. These are provided to a great extent through pension and support funds whose assets may solely be utilized to satisfy the Aurubis Group’s pension obligations.

Generally, the amount of the pension benefit per qualified year of service is determined as a percentage of a pensionable salary. In Germany, pensions are reviewed every three years and adjusted, where necessary, in a manner corresponding to the price index development.

In Germany, the company pension plan for new employees was converted to the form of defined contribution plans that are processed by an external pension fund and an insurance company.

Furthermore, a subsidiary in the US grants employees pension, health care and life insurance benefits for the period after retirement under specific conditions related to age and duration of employment with the company. These pension benefits are based on collective agreements that only apply to unionized employees. These represent lifelong pension benefits whose level depends on the duration of employment. The amount of the benefits does not depend on the salary. Health care benefits are provided after the employee leaves the company until an established minimum age. While the pension plans are mainly financed through the specific assets of a separate pension fund, there is no separate fund for the health care and life insurance benefits provided in the US.

Within the Group, actuarial reports were obtained for all pension obligations. The reports take uniform group-wide accounting policies into consideration, while nevertheless reflecting special country-specific circumstances.

In addition to the mortality tables published by Prof. Dr. Klaus Heubeck (“Richttafeln 2005G”), the following market discount rates, salary and pension trends were used as a basis to calculate the pension obligations in Germany:

T 073
     
in % 9/30/2016 9/30/2015
     
Discount rate 1.10 2.40
Expected salary trend 2.75 3.00
Expected pensions trend 1.60 1.80

A discount rate of 3.37 % (previous year: 4.06 %) was taken as a basis for the measurement of the pension provision of Aurubis Buffalo, Inc., Buffalo. Income and pension trends are not relevant for the calculation of the pension obligations of the US subsidiary.

The net pension provision recognized in the consolidated statement of financial position for defined benefit plans as at September 30, 2016 and September 30, 2015 is as follows:

T 074
     
in € thousand 9/30/2016 9/30/2015
     
Present value of pension obligations 638,439 542,981
of which funded 496,440 417,974
– Fair value of plan assets 316,439 321,209
 
Net carrying amount on September 30 322,000 221,772
 
of which: disclosed as assets 0 0
of which: disclosed as liabilities 322,000 221,772

The net liability for benefit obligations, taking into account separate reconciliations for the present value of the defined benefit obligation as well as the plan assets, is derived as follows:

Development of the present value of the pension obligations

T 075
 
in € thousand 9/30/2016 9/30/2015
     
Present value of unfunded benefit obligations 125,007 123,744
Present value of funded benefit obligations 417,974 431,929
     
Present value of the pension obligations as at 10/1 542,981 555,673
Effects deriving from the transfer of obligations 4,982 0
Current service cost 11,186 11,595
Loss from settlements 82 130
Interest cost on the pension obligations 13,954 14,474
Remeasurements 103,066 (251)
Actuarial gains/losses from demographic assumptions (360) 3,609
Actuarial gains/losses from financial assumptions 106,797 (979)
Actuarial gains/losses from adjustments based on experience (3,371) (2,881)
Benefits paid (21,051) (22,176)
Payments for settlements (16,910) (25,422)
Exchange rate difference 149 8,958
 
= Present value of the pension obligations as at 9/30 638,439 542,981

The present value of the defined benefit pension obligation included € 58,930 thousand (previous year: € 66,539 thousand) in obligations for a US subsidiary, € 16,874 thousand (previous year: € 16,881 thousand) of which related to health care and life insurance benefits.

The loss from settlements resulted from the transfer of obligations from the defined benefit pension plans of the US subsidiary to an external insurance company.

Development of the plan assets

T 076
     
in € thousand 2015/16 2014/15
     
Fair value of the plan assets as at 10/1 321,209 325,034
Effects deriving from the transfer of assets 4,460 0
Interest income 8,484 8,853
Remeasurement effects 7,873 16,472
Benefits paid (14,298) (16,477)
Payments for settlements (16,910) (25,422)
Contributions made by employer 5,376 5,782
Exchange rate difference 245 6,967
 
Fair value of the plan assets as at 9/30 316,439 321,209

Development of the net liability

T 077
     
in € thousand 2015/16 2014/15
     
Net liability as of 10/1 221,772 230,639
Loss deriving from the transfer of obligations 522 0
Current service cost 11,186 11,595
Loss from settlements 82 130
Net interest result 5,470 5,621
Remeasurement effects 95,193 (16,723)
Benefits paid (6,753) (5,699)
Employer contributions to the plan (5,376) (5,782)
Exchange rate difference (96) 1,991
 
Net liability as at 9/30 322,000 221,772

The remeasurement effects are directly recorded in other comprehensive income and are disclosed under generated group equity. The net interest result is disclosed under interest expense. In contrast, the other components of the pension expenses (current and past service cost and the loss deriving from settlements) are recorded in personnel expenses.

In Germany, the defined benefit plans are primarily administered through processes in operation within the pension fund and the benefit fund. In this context, the pension fund is overseen by the German Federal Financial Supervisory Authority (BaFin).

Regulations related to the pension fund’s capital investment portfolio are established by the “Ordinance on the Investment of Restricted Assets of Insurance Undertakings (Investment Ordinance)”. The Investment Ordinance regulates the permitted quantitative distribution and mix of capital investments for the pension fund. A large portion of the pension fund’s assets are invested in a segmented special fund. The contributions are calculated in accordance with the current technical business plan.

The risk capital investments (equity instruments and debt instruments with a rating lower than investment grade) may account for a maximum of 35 % of the carrying amount of the coverage assets. The real estate rate is 25 % of the coverage assets’ carrying amount. Derivatives are primarily used for hedging purposes. The risk of longevity is taken into account by the actuary, after performing a review, by adjusting the biometric parameters where necessary.

The benefit fund is also oriented to the Investment Ordinance with respect to permitted capital investments. The contributions are within the range of the tax-related possibilities.

In the US, the defined benefit plan is financed by outsourced fund assets. The investment strategy in the US aims at a distribution of the plan assets comprising 60 % shares and 40 % fixed rate securities. In order to avoid an uncontrollable risk concentration, investment in other asset classes (e.g. commodities, real estate, venture capital) is not permitted.

The plan assets in the Group are made up as follows:

T 078
     
in € thousand 9/30/2016 9/30/2015
     
Cash and cash equivalents 16,464 10,030
Equity instruments 50,532 56,623
Debt instruments 114,488 126,792
Real estate 127,247 119,160
Reinsurance 3,279 2,875
Other current net assets 4,429 5,729
 
Total plan assets 316,439 321,209

The plan assets include neither internal financial instruments nor real estate used internally. The equity and debt instruments held via security funds are allocated to their corresponding investment classes in the overview.

Market prices are generally available for the equity instruments as a result of their respective quotations on an active market. The fair value of € 50,532 thousand (previous year: € 56,623 thousand) included € 20,272 thousand (previous year: € 27,054 thousand) for plan assets for a US subsidiary.

The debt instruments are also regularly traded on an active market. The fair value of € 114,488 thousand (previous year: € 126,792 thousand) includes € 13,436 thousand (previous year: € 18,210 thousand) for plan assets of a US subsidiary.

Real estate is held directly and is located exclusively in Germany. There is no active market from which market prices can be derived.

The Company is subject to various risks in connection with the defined benefit plans. The Company is subject to the general actuarial risks in particular, such as the risk of longevity, the risk of interest rate changes and, to a small extent, a risk of inflation.

Sensitivity analysis

The following sensitivity analysis shows the effect of changes in the parameters on the present value of the defined benefit obligations. Each change in a significant actuarial assumption was analyzed separately, i.e. if one parameter varied, the other parameters remained constant. Possible correlation effects between the individual assumptions were not taken into consideration:

T 079
 
    Effect on obligation
    9/30/2016 9/30/2015
in € thousand Change in
parameter
Increase Decrease Increase Decrease
           
Actuarial interest rate ± 50
basis points
(52,939) 59,590 (40,804) 45,396
Expected salary development ± 50
basis points
11,882 (12,325) 9,057 (9,513)
Expected pension development ± 50
basis points
36,471 (34,278) 27,133 (25,783)
Life expectancy ±
1 year
29,212 (30,242) 22,021 (23,125)

The following duration terms are expected for undiscounted pension payments in the future:

T 080
     
in € thousand 9/30/2016 9/30/2015
     
Less than 1 year 21,323 21,532
Between 1 and 5 years 90,550 93,859
More than 5 years 706,955 752,505
 
Total 818,828 867,896

The weighted average duration of obligations from defined benefit plans as at September 30, 2016 was
17.7 years (previous year: 16.2 years).

The expense for defined contribution pension plans amounted to € 23,637 thousand in the year reported (previous year: € 22,670 thousand). These include both voluntary commitments and the employer’s contribution made by the Group to statutory pension schemes.