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Note 20 Post-employment benefits
Accounting principles
Employee benefits
The group operates a number of defined benefit and defined contribution plans throughout the world, the assets of which are generally held in separate trustee administered funds. Such pension and post-retirement plans are generally funded by payments from employees and by the relevant group companies, taking into account the recommendations of independent qualified actuaries. Employer contributions to the defined contribution pension plans are charged to the Consolidated Income Statement in the year to which they relate.

For defined benefit plans, accounting values are assessed using the projected unit credit method. Under this method, the cost of providing pensions is charged to the Consolidated Income Statement so as to spread the regular cost over the service lives of employees in accordance with the advice of qualified actuaries who carry out a full valuation of the plan every year in all major pension countries. The pension obligation is measured as the present value of estimated future cash outflows using interest rates of highly rated corporate bonds or government securities, as appropriate, that match the currency and expected duration of the related liability.

The group immediately recognises all actuarial gains and losses arising from defined benefit plans directly in equity, as disclosed in its Consolidated Statement of Comprehensive Income. Past service costs are identified at the time of any plan amendments and are recognised immediately in the Consolidated Income Statement regardless of vesting requirements. In the group’s Consolidated Statement of Financial Position, the full liability for all plan deficits is recorded.
The group has established a number of pension and other benefit plans for its operations throughout the world, the cost of which amounted to EUR 165 (EUR 160) million in 2016, as shown in Note 6 Personnel expenses. The majority of plans are defined contribution schemes, the charge for which amounted to EUR 153 (EUR 150) million.

The retirement age for members of the Group Leadership Team is 65. The retirement age for the management of group companies follows local law, though some management team members have agreements to retire between 60 and 65 years. The retirement age for other staff either follows national retirement ages or is determined by local labour agreements. In the latter case, there may be certain pre-retirement liabilities accruing to the Company to cover the income of the early retirees between the age at which they ceased working and the national retirement age.

Stora Enso’s total defined benefit obligations to current and former members of staff amount to EUR 1 223 (EUR 1 203) million though assets of EUR 787 (EUR 825) million have been put aside in various pension schemes to cover these liabilities. The net funding position of the defined benefit plans is shown in full in the Statement of financial position and amounts to EUR 436 million in 2016, an increase of EUR 58 million on the previous year’s liability of EUR 378 million. The increase is mainly caused by the actuarial losses which result from the change in financial assumptions regarding the present value of the defined benefit obligations. Interest costs are in financial costs. The 2016 defined benefit expense in the Income Statement amounts to EUR 20 million and the actuarial losses recorded in other comprehensive income amount to EUR 62 million. The 2015 defined benefit expense in the Income Statement amounted to EUR 19 million and the actuarial gains recorded in other comprehensive income amounted to EUR 77 million.
Actuarial gains/losses recognised directly in equity
Year Ended 31 December
Total Operations
EUR million 2016 2015
Actuarial gains/losses -62 77
Deferred tax thereon 15 -36
Total -47 41
Group policy for funding deficits is intended to satisfy local statutory funding requirements for tax deductible contributions together with adjusting the discount factors used in the actuarial calculations to market rates. However, the emphasis of the group is to provide defined contribution schemes for its post-employment benefits, thus all aspects of the provision and accounting for defined benefit schemes are being evaluated. The net liability in the group Statement of Financial Position reflects the actual deficits in the defined benefit plans. Details of the pension arrangements, assets and investment policies in the group’s main operating countries are shown below.
Finland
The group funds its Finnish pension obligations mainly through defined contribution schemes, the charge in the Income Statement being EUR 72 (EUR 68) million. By contrast, the remaining obligations covered by defined benefit schemes resulted in a charge of EUR 1 (EUR 1) million excluding finance costs. Pension cover since 2001 has been organised entirely through local insurance companies. The total defined benefit obligation amounts to EUR 342 (EUR 348) million and the assets to EUR 323 (EUR 329) million, leaving a net liability of EUR 19 (EUR 19) million. As state pensions in Finland provide by far the greatest proportion of pensions, group liabilities are proportionately much smaller than in comparable countries.

Plan assets in Finland are managed by insurance companies. Details of the exact structure and investment strategy surrounding plan assets are not available to participating employers as the assets actually belong to the insurance companies themselves. The assets are managed in accordance with EU regulations, and also national requirements, under which there is an obligation to pay guaranteed benefits irrespective of market conditions.
Germany
German pension costs amounted to EUR 9 (EUR 13) million, of which EUR 8 (EUR 11) million related to defined contribution schemes and EUR 1 (EUR 2) million to defined benefits excluding finance costs. The total defined benefit obligation is EUR 284 (EUR 280) million, nearly all of which is unfunded as total assets come to only EUR 7 (EUR 7) million. The net liability increased from EUR 273 million to EUR 277 million. The increase in net liability arose from a decrease in discount rate and changes in financial assumptions and experience. Defined benefit pension plans are mainly accounted for in the Statement of Financial Position through book reserves with some minor plans using insurance companies or independent trustees. Retirement benefits are based on years worked and salaries received during the pensionable service and the commencement of pension payments being co-ordinated with the national pension scheme retirement age. Pensions are paid directly by the companies themselves to their former employees, this amounting to cash costs of EUR 1 (EUR 18) million; the security for the pensioners is provided by the legal requirement that the book reserves held in the Statement of Financial Position are insured up to certain limits.
Sweden
In Sweden, most blue-collar workers are covered by defined contribution schemes, the charge in the Income Statement being EUR 54 (EUR 51) million, with defined benefit schemes covering mainly white-collar staff.

Total defined benefit obligations amounted to EUR 378 (EUR 360) million and assets to EUR 295 (EUR 319) million, leaving a net liability of EUR 83 million at the year end, compared with a net liability of EUR 41 million the year before. This increase in net liability arose from a decrease in discount rate and changes in financial assumptions and experience. Stora Enso has undertaken to pay over all local legal pension liabilities for the main ITP scheme to the foundation, thus the remaining liability relates to other small schemes.

The long-term investment return target for the foundation is a 3% real return after tax, with investment policy defining long-term strategic allocation targets as property up to 15%, equity up to 30%, alternative investments up to 20% and the balance in debt. Stora Enso’s Swedish pension fund conducts an annual asset/liability study to optimise its risk parameters.
Other countries
Total defined benefit obligations in the remaining countries amounted to EUR 219 (EUR 215) million and the assets to EUR 162 (EUR 170) million. The net liability came to EUR 57 (EUR 45) million. Obligations and assets were material only in the United Kingdom, at EUR 150 (EUR 154) million and EUR 127 (EUR 139) million, respectively, leaving a net liability of EUR 23 (EUR 15) million at the end of 2016. The increase in net liability arose from a decrease in discount rate and changes in actuarial assumptions.
Group
Net defined benefit obligation reconciliation
Year Ended 31 December
EUR million 2016 2015
Present Value of Defined Benefit Obligation
Defined benefit obligation at 1 January 1 203 1 319
Translation difference -35 17
Interest on liabilities 28 36
Current service cost 12 13
Past service cost - -3
Actuarial gains and losses on defined benefit obligation arising from changes in demographic assumptions - -21
Actuarial gains and losses on defined benefit obligation arising from changes in financial assumptions 118 -39
Actuarial gains and losses on defined benefit obligation arising from experience adjustments -19 -28
Benefit payments -64 -77
Net disposals/acquisitions -20 -29
Other - 15
Defined benefit obligation at 31 December 1 223 1 203
Fair Value of Plan Asset
Fair value of plan asset at 1 January -825 -836
Translation difference 33 -15
Expected return on plan assets -20 -26
Actuarial gain/loss on plan assets -37 11
Employer contributions 14 -22
Benefit payments 47 77
Other - -14
Net disposals/acquisitions 1 -
Fair value of plan asset at 31 December -787 -825
Net Defined Benefit Obligation 436 378
Amounts Recognised on the Statement of Financial Position – Defined Benefit Plans
As at 31 December
Total Defined Benefit Plans Defined Benefit Pension Plans Other Post-Employment Benefits
EUR million 2016 2015 2016 2015 2016 2015
Present value of funded obligations 909 893 908 893 1 -
Present value of unfunded obligations 314 310 289 286 25 24
Defined benefit obligations (DBO) 1 223 1 203 1 197 1 179 26 24
Fair value of plan assets 787 825 786 825 1 -
Net Liability in Defined Benefit Plans 436 378 411 354 25 24
Amounts Recognised in the Income Statement
Year Ended 31 December
Total Defined Benefit Plans Defined Benefit Pension Plans Other Post-Employment Benefits
EUR million 2016 2015 2016 2015 2016 2015
Operating costs
Current service cost 12 13 12 12 - 1
Past service cost - -3 - - - -3
Finance cost
Net interest on net defined benefit liability 8 9 7 8 1 1
Cost recognised in Income Statement 20 19 19 20 1 -1
Statement of Actuarial Gains and Losses
Year Ended 31 December
EUR million 2016 2015
Gain/loss on pension scheme assets 37 -11
Loss/gain arising on pension scheme liabilities -99 88
Total Loss/gain -62 77
Defined Benefit Plans: Country Assumptions Used in Calculating Benefit Obligations
Year Ended 31 December
Finland Germany Sweden
2016 2015 2016 2015 2016 2015
Discount rate % 1.2 2.0 1.2 2.0 2.2 2.75
Future salary increase % 1.2 1.4 2.5 2.5 2.5 2.5
Future pension increase % 1.5 1.6 1.8 1.8 1.6 1.6
Average current retirement age 63.9 63.8 63.0 63.0 65.0 65.0
Weighted average life expectancy 89.0 88.8 85.0 85.0 89.3 89.3
Sensitivity of the Defined Benefit Pension Obligation
Impact on Defined Benefit Obligation
Change in assumption Increase in assumption Decrease in assumption
Discount rate 0.50% Decrease by 6.8% Increase by 7.6%
Salary growth rate 0.50% Increase by 1.5% Decrease by 1.3%
Pension growth rate 0.50% Increase by 5.9% Decrease by 5.4%
Increase by 1 year in assumption Decrease by 1 year in assumption
Life expectancy Increase by 3.4% Decrease by 3.3%
Interest rate risk: The obligations are assessed using market rates of high-quality corporate or government bonds to discount the obligations and are therefore subject to any volatility in the movement of the market rate. The net interest income or expense recognised in profit and loss is also calculated using the market rate of interest.

Mortality risk: In the event that members live longer than assumed, the obligations may be understated originally and a deficit may emerge if funding has not adequately provided for the increased life expectancy.
Duration of Pension Plans
Years Finland Sweden Germany UK
At 31 December 2015 10.0 15.2 13.5 17.8
At 31 December 2016 10.0 15.8 13.5 18.5
Defined Benefit Plan Summary by Country as at 31 December 2016
As at 31 December 2016
EUR million Finland Germany Sweden Other Total
Present value of funded obligations 342 19 356 192 909
Present value of unfunded obligations - 265 22 27 314
Defined benefit obligations (DBO) 342 284 378 219 1 223
Fair value of plan assets 323 7 295 162 787
Net liability in the defined benefit plans 19 277 83 57 436
Net Liability in the Balance Sheet 19 277 83 57 436
Represented by
Defined benefit pension plans 19 277 83 32 411
Other post-employment benefits - - - 25 25
Net Liability in the Balance Sheet 19 277 83 57 436
Defined Benefit Plan Summary by Country as at 31 December 2015
As at 31 December 2015
EUR million Finland Germany Sweden Other Total
Present value of funded obligations 348 17 338 190 893
Present value of unfunded obligations - 263 22 25 310
Defined benefit obligations (DBO) 348 280 360 215 1 203
Fair value of plan assets 329 7 319 170 825
Net liability in the defined benefit plans 19 273 41 45 378
Net Liability in the Balance Sheet 19 273 41 45 378
Represented by
Defined benefit pension plans 19 273 41 22 355
Other post-employment benefits - - - 23 23
Net Liability in the Balance Sheet 19 273 41 45 378
Plan Assets
As at 31 December
2016 2015
EUR million Value % Value %
Equity 268 34.0 301 36.4
Government bonds 82 10.4 79 9.6
Corporate bonds 258 32.8 273 33.1
Debt 340 43.2 352 42.7
Property 68 8.7 60 7.3
Cash 53 6.8 47 5.7
Others 58 7.3 65 7.9
Total Pension Fund Assets 787 100.0 825 100.0
Plan assets do not include any real estate or other assets occupied by the group or the Company's own financial instruments. The breakdown of Finnish pension assets EUR 323 (329) million is not disclosed separately as actual asset allocations can only be estimated based on known target values published by the insurance companies concerned.
The two main financial factors affecting group pension liabilities are changes in interest rates and inflation expectations, so the aim of asset investment allocations is to neutralise these effects and maximise returns

In 2017 contributions of EUR 22 million are expected to be paid.

In 2016 reimbursements of EUR 14 (contributions EUR 22) million were paid.

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