8.11.3
Defined benefit pension plans and other long-term employee benefits

Defined benefit plan United Kingdom

Accell Group funds defined benefits for qualifying employees. The main defined benefit plan is the plan in the United Kingdom (UK), which accounts for approximately 91% of the defined benefit obligation and for more than 99% of the plan assets. The UK plan is subject to UK laws and is administered by a separate fund that is legally separated from the UK group company. The trustees of this fund are appointed by the company. Pension benefits are related to the member’s final salary at retirement and their length of service. Since December 2002, the defined benefit section of this pension scheme has been closed to future accrual. On the basis of the deed and rules of the UK plan the company has an unconditional right in the form of refunds when there is a surplus and the fund has no further obligations or in case when there is a surplus at the time when the plan is wound up.

The UK plan exposes the company to actuarial risks such as market risk, interest rate risk and inflation risk. The scheme does not expose the company to any unusual scheme-specific risk. The scheme’s investment strategy is to invest approximately 38% in matching assets and cash (index related UK government bonds gilts and investment property bonds) designed to hedge against movements in the liabilities due to changes in interest rates and inflation expectations. Approximately 62% of assets were invested in growth assets designed to provide the expected return of the strategy (being diversified growth funds, bond portfolios and property). At the beginning of January 2020 the trustees divested all holdings in the M&G Secured Property Income Fund and temporarily held the assets in the BMO Sterling Liquidity fund until they were invested into the M&G Alpha Opportunities fund at the beginning of February 2020. As gilt yields fell significantly the LDI portfolio distributed cash to bring the leverage back to desired levels, leaving a 7% cash allocation. This is being utilised to meet liquidity requirements of the scheme and naturally de-leverages the LDI portfolio. The trustees will look to invest the funds in 2020 when recalibrating the LDI portfolio following the valuation. This strategy reflects the scheme’s risk profile and the trustees’ and company’s attitude to risks.

GMP-equalization United Kingdom
In line with the 2018 Lloyds judgement which ruled that GMPs must be equalized across males and females, 2.2% was added to the liabilities at the measurement date. This is consistent with last year's approach. If the allowance for GMP equalisation is changed to something other than 2.2%, the impact must be recognized through other comprehensive income. 

Other defined benefit plans

In addition, Accell Group sponsors a funded defined benefit plan for qualified employees in Taiwan, a fixed unfunded defined benefit plan in Germany and an unfunded defined benefit plan in Hong Kong. Accell Group's defined benefit plans no longer involve contributions from employees anymore, because the plans are mainly frozen.

The actuarial calculations were carried out at 31 December by actuaries from certified actuarial firms. The principal assumptions used for the purposes of the actuarial valuations are based on the following weighted averages:

Amounts recognized in the income statement in respect of these defined benefit plans are as follows:

Amounts recognized in other comprehensive income in respect of these defined benefit plans are as follows:

The defined benefit obligation and fair value of plan assets are specified as follows:

The movement in the present value of the defined benefit obligation is as follows:

The movement in the fair value of the plan assets is as follows:

The fair value of the plan assets is categorized as follows:

The fair values of the above equity investments and debt securities are determined based on quoted market prices in active markets. The average duration of the defined benefit obligation is 17 years at 31 December 2019  (2018: 17 years).

Significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate and the expected salary increase. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions at the end of the reporting period. interdependence of inputs were not taken into account in the analyses:

The sensitivity analyses are prepared at the end of the reporting period using the same methods as applied in the defined benefit obligation in the balance sheet. The sensitivity analyses may not be representative of the actual change in the defined benefit obligation. It is unlikely that the changes in the assumptions would occur in isolation of one another as some of the assumptions are correlated.

Accell Group expects to make a contribution of € 0.1 million with regard to the defined benefit plans in 2020.

Other long-term employee benefits

Other long-term employee benefits relate to the provision for future anniversary bonuses and resignation payments in some countries. The provision is based on contractual obligations and assumptions with respect to expectations of death and resignation. The provision for deferred employee benefits is expected to have a duration of between one and five years. 

Accounting estimates and judgements

To make the actuarial calculations for the defined benefit plans, Accell Group needs to make use of assumptions for discount rates, future pension increases and life expectancy as described in this note. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates used, mortality tables to determine life expectancy and inflation numbers to determine future salary and pension growth assumptions.

Accounting policies

Defined contribution plans

Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

Defined benefit plans

Accell Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for Accell Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurement of the net defined benefit liability, which comprises actuarial gains and losses and the return on plan assets (excluding interest), are recognized immediately in other comprehensive income. Accell Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. Accell Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Other long-term employee benefits

Accell Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.