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Note 17 Provisions


Movements in provisions

 

 

 

 

 

 

In € millions

Pensions and other post-retirement benefits

Restructuring of activities

Environmental costs

Other

Total

 

 

 

 

 

 

Balance at January 1, 2010

1,439

226

352

699

2,716

Additions made during the year

187

94

59

70

410

Utilization

(555)

(178)

(35)

(155)

(923)

Amounts reversed during the year

(15)

(4)

(42)

(61)

Unwind of discount

2

21

19

42

Acquisitions/divestments

(59)

(1)

(1)

(6)

(67)

Pension plans changing to net asset position

229

229

Changes in exchange rates

40

9

27

26

102

Balance at December 31, 2010

1,281

137

419

611

2,448

 

 

 

 

 

 

Non-current portion of provisions

1,066

23

374

392

1,855

Current portion of provisions

215

114

45

219

593

Balance at December 31, 2010

1,281

137

419

611

2,448

Provisions for pensions and other post-retirement benefits

We have a number of defined benefit pension plans. The largest pension plans are the ICI Pension Fund and the AkzoNobel (CPS) Pension Scheme in the UK which together account for 78 percent of our pension plan obligations. The benefits of these and other plans are based primarily on years of service and employees’ compensation. The funding policy for the plans is consistent with local requirements in the countries of establishment. Obligations under the defined benefit plans are systematically provided for by depositing funds with trustees or separate foundations, under insurance policies, or by balance sheet provisions. Plan assets principally consist of long-term interest-earning investments, quoted equity securities and real estate. Valuations of the obligations under the pension and other post-retirement plans are carried out regularly by independent qualified actuaries.

We also provide certain healthcare and life insurance benefits to retired employees, mainly in the US and the Netherlands. We accrue for the expected costs of providing such post-retirement benefits during the service years of the employees.

The main change in 2010 related to our pension and other post-retirement obligations was the divestment of National Starch, which is included within the acquisition/divestment/transfers line of the table on the next page. The figures included in relation to National Starch divestment were a €179 million reduction in the pension defined benefit obligation, a €90 million reduction in pension plan assets and an €11 million reduction in the other post-retirement benefit defined benefit obligation. Together with €40 million of unrecognized actuarial losses that were recognized as part of the divestment, the net balance sheet liability reduction for pensions and other post-retirement benefits was therefore €60 million.

Movements in defined benefit obligation and plan assets of pensions and other post-retirement benefits

 

 

 

 

 

In € millions

Pensions

 

Other post-retirement benefits

 

 

 

 

 

 

2009

2010

2009

2010

Defined benefit obligation

 

 

 

 

Balance at beginning of year

(11,468)

(13,688)

(441)

(393)

Acquisitions/divestments/transfers

(32)

192

16

Curtailments

25

6

Settlements

197

15

Past service costs

(28)

(8)

48

3

Current service costs

(50)

(52)

(7)

(7)

Contribution by employees

(5)

(3)

(3)

(3)

Interest costs

(746)

(773)

(24)

(20)

Benefits paid

943

936

40

34

Actuarial gains/(losses)

(1,703)

(250)

(7)

4

Changes in exchange rates

(821)

(546)

1

(28)

Defined benefit obligation at year-end

(13,688)

(14,171)

(393)

(394)

 

 

 

 

 

Plan assets

 

 

 

 

Balance at beginning of year

10,480

11,821

Acquisitions/divestments/transfers

31

(105)

Settlements

(217)

(14)

Contribution by employer

414

524

37

31

Contribution by employees

5

3

3

3

Benefits paid

(943)

(936)

(40)

(34)

Expected return on plan assets

596

691

Actuarial gains/(losses)

614

652

Changes in exchange rates

841

486

Plan assets at year-end

11,821

13,122

Funded status

(1,867)

(1,049)

(393)

(394)

 

 

 

 

 

Unrecognized net loss/(gain)

1,065

637

(4)

(6)

Unrecognized past service costs

4

4

(20)

(19)

Restriction on asset recognition

Medicare receivable

(5)

(6)

Net balance sheet provision

(798)

(408)

(422)

(425)

 

 

 

 

 

Recorded under:

 

 

 

 

Provisions for pensions and other
post-retirement benefits

(1,017)

(856)

(422)

(425)

Other financial non-current assets

219

448

Total

(798)

(408)

(422)

(425)

Funded and unfunded pension plans

 

 

 

In € millions

2009

2010

 

 

 

Wholly or partly funded plans

13,347

13,792

Unfunded plans

341

379

Total

13,688

14,171

Funded status in earlier years at December 31

 

 

 

 

 

 

 

In € millions

Pensions

Other post-retirement benefits

 

 

 

 

 

 

 

 

2006

2007

2008

2006

2007

2008

Defined benefit obligation

(5,760)

(4,628)

(11,468)

(292)

(286)

(441)

Plan assets

3,942

3,502

10,480

Funded status

(1,818)

(1,126)

(988)

(292)

(286)

(441)

The actuarial gains and losses on the defined benefit obligation and plan assets over the period 2006 – 2010 break down as follows:

Actuarial gains and losses

 

 

 

 

 

 

 

 

 

 

 

In € millions

Pensions

Other post-retirement benefits

 

 

 

 

 

 

 

 

 

 

 

 

2006

2007

2008

2009

2010

2006

2007

2008

2009

2010

Defined benefit obligations:

 

 

 

 

 

 

 

 

 

 

Due to experience

2

90

(147)

331

(92)

74

(3)

(5)

5

23

Due to change in assumptions

(199)

166

1,624

(2,034)

(158)

19

6

5

(12)

(19)

Plan assets:

 

 

 

 

 

 

 

 

 

 

Due to experience

214

(29)

(1,445)

614

652

Total

17

227

32

(1,089)

402

93

3

(7)

4

Net periodic cost

 

 

 

 

 

In € millions

Pensions

Other post-retirement benefits

 

 

 

 

 

 

2009

2010

2009

2010

Service costs for benefits earned during the period

(50)

(52)

(7)

(7)

Interest costs on defined benefit obligations

(746)

(773)

(24)

(20)

Expected return on plan assets

596

691

Amortization of unrecognized gains/losses

(12)

(36)

Amortization of past service costs

(23)

(7)

41

5

Change of restriction of asset recognition

(1)

Settlement/curtailment result

21

6

Total

(215)

(171)

10

(22)

The remaining plans primarily represent defined contribution plans. This includes, among others, the AkzoNobel Pension Fund in the Netherlands. The ITP2 plan in Sweden is financed through insurance with the Alecta insurance company and is classified as a multi-employer defined benefit plan. AkzoNobel does not have access to sufficient information from Alecta to enable a defined benefit accounting treatment and hence it is accounted for as a defined contribution plan. Contributions in 2010 were €10 million. Alecta’s target funding ratio in 2010 was 140 percent. The expenses of plans classified as defined contribution plans in AkzoNobel totaled €136 million in 2010 (2009: €118 million).

Weighted average assumptions for pensions

 

 

 

 

 

In %

Pensions

Other post-retirement benefits

 

 

 

 

 

 

2009

2010

2009

2010

Pension benefit obligation at December 31:

 

 

 

 

– Discount rate

5.6

5.4

5.3

4.9

– Rate of compensation increase

4.6

4.6

 

 

Net periodic pension costs:

 

 

 

 

– Discount rate

6.3

5.6

6.0

5.3

– Rate of compensation increase

3.5

4.6

 

 

– Expected return on plan assets

5.2

5.7

 

 

The table below illustrates the weighted average life expectancy of the persons participating in the defined benefit pension plans.

Life expectancy

 

 

 

In years

At December 31

 

 

 

 

2009

2010

Currently aged 60:

 

 

Male

25.3

25.5

Female

27.8

27.9

Currently aged 45, at age 60:

 

 

Male

26.8

27.0

Female

29.1

29.2

Plan assets

The assumptions for the expected return on plan assets were based on a review of the historical returns of the asset classes in which the assets of the pension plans are invested. The historical returns on these asset classes were weighted based on the expected long-term allocation of the assets of the pension plans. The primary objective with regard to the investment of pension plan assets is ensuring that each individual scheme has sufficient funds available to satisfy future benefit obligations. For this purpose so-called asset and liability management (ALM) studies are made periodically at each pension fund under responsibility of the fund managers. For each of the pension plans an appropriate mix is determined on the basis of the outcome of these ALM studies, taking into account the national rules and regulations.

Pension plan assets principally consist of long-term interest-earning investments, quoted equity securities and real estate. At year-end 2010 and 2009, plan assets did not include financial instruments issued by the company, nor any property occupied or other assets used by it. The weighted average pension plan asset allocation at year-end 2010 and 2009 and the target allocation for 2011 for the pension plans by asset category are as follows:

Plan asset allocation

 

 

 

 

In %

Plan assets at December 31

Target

 

 

 

 

 

2009

2010

2011

Equity securities

17

16

15 – 18

Long-term interest earning investments

72

73

72 – 75

Real estate

2

2

0 – 3

Other

9

9

6 – 9

Total

100

100

100

At year-end 2010, an amount of £160 million (€186 million; 2009: £174 million or €195 million) remained in an escrow account on behalf of the AkzoNobel (CPS) Pension Scheme in the UK. The present minimum annual funding of this pension fund from the escrow account is £25 million. The current portion is included in trade and other receivables, and the non-current part in other financial non-current assets. For the latter see also note 12.

Weighted average assumptions for the other post-retirement benefit plans were as follows:

Assumed healthcare cost trend rates at year-end

 

 

 

In %/year

2009

2010

 

 

 

Healthcare cost trend rate assumed for next year

5.8

6.7

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

3.8

3.8

Year that the rate reaches the ultimate trend rate

2015 – 2024

2019-2024

Assumed healthcare cost trend rates can have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:

Sensitivity healthcare cost trends

 

 

 

In € millions

1% point
increase

1% point
decrease

 

 

 

(Increase)/decrease on total of service and interest cost

(1)

1

(Increase)/decrease on post-retirement benefit obligations

(12)

10

In the US, the Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced prescription drug benefits for retirees, as well as a federal subsidy to sponsors of post-retirement healthcare plans, which both began on January 1, 2006. We have recognized this reimbursement right as an asset under other financial non-current assets, measured at fair value amounting to €6 million at December 31, 2010 (December 31, 2009: €5 million).

Cash flows

We expect to contribute €525 million to our defined benefit pension plans in 2011. This includes additional top-up payments of £178 million (€206 million) for the ICI Pension Fund and £85 million (€99 million) for the AkzoNobel (CPS) Pension Scheme of which £25 million (€29 million) will be paid out of the escrow account. For other post-retirement benefit plans the contribution for 2011 is expected to be €32 million.

Expected benefit payments

 

 

 

In € millions

Pensions

Other post-retirement

 

 

 

2011

953

32

2012

937

32

2013

941

32

2014

948

32

2015

953

32

2016 – 2020

4,875

154

Provisions for restructuring of activities

Provisions for restructuring of activities comprise accruals for certain employee benefits and for costs which are directly associated with plans to exit or cease specific activities and closing down of facilities. For all restructuring provisions a detailed formal plan exists and the implementation of the plan has started or the plan has been announced before the balance sheet date. Most restructuring plans are expected to be completed within two years from the balance sheet date. For more information, see note 3.

Provisions for environmental costs

For details on environmental exposures, see note 21.

Other provisions

Other provisions relate to a great variety of risks and commitments, including provisions for antitrust cases, claims, other long-term employee benefits such as long-service leave and jubilee payments. At year-end 2010, the provision for antitrust cases amounted to €158 million (2009: €188 million), see note 21.

The majority of the cash outflows related to other provisions are expected to be within one to five years. In calculating the other provisions, a pre-tax discount rate of on average 5 percent has been used.

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