P14. Provisions for pensions and employment contracts

Pension obligations and pension expenses

The vast majority of employees in Telia Company AB are covered by a defined benefit pension plan (the ITP-Tele plan and ITP 2 plan) which means that the individual is guaranteed a pension equal to a certain percentage of his or her salary. The pension plan mainly includes retirement pension, disability pension and family pension. All employees born in 1979 or later are covered by a defined contribution pension plan (the ITP1 plan).

Most pension obligations are secured by Telia Pension Fund. Certain commitments, such as certain supplementary individual pension benefits and a right under the employment contracts for certain categories of personnel to retire at age 55, 60, or 63, are provided for by taxed reserves in the balance sheet.

Pension obligations are calculated annually, as of the end of the reporting period, based on actuarial principles.

SEK in millions

Dec 31, 2016

Dec 31, 2015

Opening balance, pension obligations covered by plan assets

1,569

1,586

Opening balance, pension obligations not covered by plan assets

436

427

Opening balance, total pension obligations

2,005

2,013

Current service cost

21

24

Interest cost, paid-up policy indexation

125

105

Benefits paid

-131

-127

Divested operations

0

0

Other changes in valuation of pension obligations

-22

-15

Termination benefits

2

6

Closing balance, pension obligations covered by plan assets

1,568

1,569

Closing balance, pension obligations not covered by plan assets

432

436

Closing balance, total pension obligations

2,001

2,005

of which PRI Pensionsgaranti pensions

1,343

1,357

The fair value of plan assets changed as follows.

SEK in millions, except percentages

Dec 31, 2016

Dec 31, 2015

Opening balance, plan assets

2,421

2,358

Actual return

133

63

Closing balance, plan assets

2,555

2,421

Actual return on plan assets (%)

5.5

2.7

Provisions for pension obligations were recognized in the balance sheet as follows.

SEK in millions

Dec 31, 2016

Dec 31, 2015

Present value of pension obligations

2,001

2,005

Fair value of plan assets

-2,555

-2,421

Surplus capital in pension fund

987

852

Provisions for pension obligations

432

436

 

Total pension expenses (+)/income (-) were distributed as follows.

SEK in millions

Jan–Dec 2016

Jan–Dec 2015

Current service cost

21

24

Interest cost, paid-up policy indexation

125

105

Less interest expenses recognized as financial expenses

-18

-16

Actual return on plan assets

-133

-63

Divested operations, pension obligations

0

0

Other changes in valuation of pension obligations

-22

-15

Termination benefits

2

6

Pension expenses (+)/income (-), defined benefit pension plans

-25

41

Pension premiums, defined benefit/defined contribution pension plans and other pension costs

85

55

Pension-related social charges and taxes

52

51

Less termination benefits (incl. premiums and pension-related social charges) reported as restructuring cost

-10

-6

Pension expenses (+)/income (-)

127

100

Decrease (-)/Increase (+) of surplus capital in pension fund

135

80

Recognized pension expenses (+)/income (-)

237

221

of which pension premiums paid to the ITP pension plan

6

5

Principal actuarial assumptions

The actuarial calculation of pension obligations and pension expenses is based on principles set by PRI Pensionsgaranti and the Swedish Financial Supervisory Authority, respectively.

The principal calculation assumption is the discount rate which, as a weighted average for the different pension plans and, as applicable, net of calculated yield tax, was 3,0 percent in 2016 and 3.2 percent in 2015. Obligations were calculated based on the salary levels prevailing at December 31, 2016 and 2015, respectively.

Plan-asset allocation

At the end of the reporting period, plan assets were allocated as follows.

Asset category

Dec 31, 2016

Dec 31, 2015

SEK in millions

Percent

SEK in millions

Percent

Fixed income instruments, liquidity

1,244

48.9

1,344

55.5

Shares and other investments

1,310

51.1

1,077

44.5

Total

2,555

100.0

2,421

100.0

of which shares in Telia Company AB

Future contributions and pension payments

As of December 31, 2016, the fair value of plan assets exceeded the present value of pension obligations. Unless the fair value of plan assets during 2017 should fall short of the present value of pension obligations, Telia Company AB has no intention to make any contribution to the pension fund.