Chapters
Annual Report 2020

24. Post-Employment Benefits

Accounting Policy
The Group operates various post-employment schemes, including both defined benefit and defined contribution plans as well as post-employment medical plans.

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a post-employment benefit plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability in respect of defined benefit pension plans is the present value of the defined benefit of obligations at the balance sheet date minus the fair value of plan assets, together with adjustments for actuarial gains/losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by the estimated future cash outflows using the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and which have terms of maturity approximating the terms of the related pension obligation. Remeasurement of gains and losses related to both defined benefit obligations and fair value of plan assets arising from experience adjustments and changes in actuarial assumptions are recognized in equity in Other Comprehensive Income in the period in which they arise. Past service costs are recognized immediately in the consolidated Income Statement.

In a number of countries, the Group runs defined contribution plans, including a multi-employer plan in the Netherlands. The contributions are recognized as employee benefit expense when they are due. The Group has no further payment obligations once the contributions have been paid.

Other post-employment obligations

Some entities within the Group provide post-employment healthcare benefits to their retirees. The entitlement to these benefits is conditional on the employee remaining in service up to retirement age and includes the estimation that (former) employees will make use of this arrangement. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as the defined benefit pension plans.

Significant Accounting Estimates and Judgments

The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions are most sensitive for the discount rate. Any changes in these assumptions will impact the carrying amount of defined benefit pension obligations.

The Group determines the appropriate discount rate at year-end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds with a duration and currency consistent with the term and currency of the related defined benefit pension obligation.

The amounts recognized in the consolidated Balance Sheet are determined as follows:

in thousands of EUR

31 December 2020

31 December 2019

Present value of benefit obligation

145,616

134,165

Fair value of plan assets

- 82,582

- 79,531

Net position

63,034

54,634

Present value of unfunded obligation

87,443

81,478

Provision in the Balance Sheet

150,477

136,112

The most recent actuarial valuations were performed in December 2020.

The defined benefit obligation of the unfunded plans mainly relates to:

  • A pension arrangement, in addition to the state pension provided in Germany, for employees already employed with Apollo prior to 1994 (2020: €62.9 million; 2019: €60.5 million). Every service year of the employees in the plan adds an amount of 1% of their pensionable salaries to the plan. This occurs for a maximum of 25 years and is maximized in terms of pay-out.
  • The Italian Trattamento di Fine Rapporto program (2020: €4.1 million; 2019: €4.3 million) for service years until 2012. For service years since 2013 the Trattamento di Fine Rapporto is paid to a pension fund or a state agency as a defined contribution.
  • An end-of-employment plan for French employees (2020: €18.3 million; 2019: €16.4 million). This is based on service years and calculated according to the estimated remuneration in the last year of employment.

These plans are unfunded and thus both the pay-out and the actuarial risks are the responsibility of the Group.

The net defined benefit obligation of the funded plans mainly relates to the Swiss pension plan of €57.7 million (2019: €48.8 million). The assets of the plan at 31 December 2020 are €79.8 million (2019: €76.4 million) and the obligations of the plan at 31 December 2020 are €137.5 million (2019: €125.2 million). The pension arrangements (occupational pension plans) of Swiss activities are funded plans, providing benefits upon retirement, death, disability and termination. Those arrangements are the base of the second pillar of the Swiss social security system. Both employer and employees pay contributions to the pension plan. To comply with legal requirements Visilab and McOptic are affiliated to the Fondation BCV deuxième pilier (“the Foundation”) which is a collective pension fund (group administration plan) under the supervision of the Supervisory Authority in the canton of Vaud. Pension arrangements are subject to the mandatory insurance requirements according to the Swiss Federal Law on Occupational Retirement, Survivors' and Disability Pension Funds (LPP/BVG). Should the Foundation become underfunded according to Swiss Law, the Foundation Board must decide on recovery measures that will allow the coverage ratio to return to 100% within an appropriate time horizon. The latest known coverage ratio of the Foundation was 108.6% as at 31 December 2019 (102.6% as at 31 December 2018).

The remainder of the assets and obligations of the funded plans mainly relate to defined benefit plans in Mexico.

The risks of these plans are mainly related to changes in the discount rate applied to determine the defined benefit obligation.

The amounts recognized in the consolidated Income Statement are as follows:

in thousands of EUR

Notes

2020

2019

Current service costs

9,162

5,919

Interest expense

1,232

1,818

Plan amendments/curtailments/settlements

- 811

- 1,720

Other

370

342

Total defined benefit costs

6

9,953

6,359

The movement in the defined benefit obligation over the year was as follows:

in thousands of EUR

Present value of obligation

Fair value of plan assets

Total

At 1 January 2019

145,028

- 48,829

96,199

Acquisitions

32,880

- 21,906

10,974

Current service costs

5,919

-

5,919

Interest expense/ (income)

2,436

- 618

1,818

Employee contributions

2,487

- 2,487

-

Employer contributions

-

- 3,005

- 3,005

Experience adjustments

120

-

120

Change in financial assumptions

25,816

-

25,816

Change in demographic assumptions

1,926

-

1,926

Plan amendments and curtailments

- 1,750

30

- 1,720

Return on plan assets, excluding amounts in interest

-

- 1,762

- 1,762

Benefits paid

- 3,362

1,322

- 2,040

Reclassification

-

266

266

Exchange effect

4,143

- 2,542

1,601

At 31 December 2019

215,643

- 79,531

136,112

At 1 January 2020

215,643

- 79,531

136,112

Current service costs

9,162

-

9,162

Interest expense/ (income)

1,383

- 151

1,232

Employee contributions

3,273

- 3,273

-

Employer contributions

-

- 3,753

- 3,753

Experience adjustments

137

-

137

Change in financial assumptions

7,285

-

7,285

Change in demographic assumptions

4

-

4

Plan amendments and curtailments

- 811

-

- 811

Return on plan assets, excluding amounts in interest

-

3,380

3,380

Benefits paid

- 2,411

539

- 1,872

Reclassification

-

352

352

Exchange effect

- 606

- 145

- 751

At 31 December 2020

233,059

- 82,582

150,477

Assumptions

The principal actuarial assumptions used were as follows on a weighted average basis:

2020

2019

Discount rate

0.5%

0.7%

Expected return on plan assets

0.05%

0.1%

Future salary increases

1.6%

1.6%

Future inflation

1.3%

1.4%

In 2020 and 2019 the expected return on plan assets relates mainly to the post Swiss employment benefit plan. The difference between the discount rate and the expected return on plan assets was caused by the weighted impact of funded and unfunded plans.

The most recent available mortality tables have been used in determining the pension liability. Experience adjustments have been made. The assumptions are based on historical experiences. The expected return on plan assets is based on the expected return on high-quality corporate bonds.

The below sensitivity analyses are based on changing one assumption while all other assumptions remain constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.

Sensitivity analyses :

Assumptions

Increase (+)/ decrease (-) in defined benefit obligation

Change in discount rate of +1.00%

-17%

Change in discount rate of -1.00%

+23

Change in salary of +0.25%

+1%

Change in life expectancy of +1 year

+2%

Change in inflation of +1%

+7%

Plan assets are comprised as follows:

in thousands of EUR

2020

2019

Insurance contracts

81,782

78,285

Debt instruments

677

1,058

Equities

123

188

Total

82,582

79,531

The plan assets for the Swiss pension plan qualify for the level 2 fair value category. See note 3.3 for a description of the different levels of valuation categories.

The expected maturity of the undiscounted pension and post-employment benefits is:

in thousands of EUR

2020

2019

Less than 1 year

9,118

7,325

Between 1 and 2 years

7,596

8,157

Between 2 and 5 years

17,849

17,776

Over 5 years

247,309

238,945

Total

281,872

272,203

The expected contributions in 2021 to the defined benefit plans amount to €3,753.