STATEMENT OF CHANGES IN EQUITY
NOTE 11 PENSION BENEFIT OBLIGATION
ACCOUNTING POLICY
Accounting treatment of pension and other benefit obligations is in accordance with revised IAS 19 Employee Benefits. Calculations for fund-based plans through Norges Bank’s pension fund are based on actuarial assumptions regarding life expectancy, expected wage growth and adjustment of the National Insurance basic amount (G). The net benefit obligation is the difference between the present value of the benefit obligation and the fair value of plan assets.
Plan assets are measured at fair value. Benefit obligations and plan assets are measured on the balance sheet date. Employers’ National Insurance contributions are included and are estimated on the basis of net actual underfunding. Pension expense is calculated on the basis of a straight-line attribution of benefit over the period of service and consists of the current service cost, less the return on plan assets. Recognised pension expense is presented in its entirety under the line Personnel expenses. Actuarial gains and losses are recog-nised in total comprehensive income.
SIGNIFICANT ESTIMATE
Measurement of the present value of Norges Bank’s pension benefit obligation requires determination of a number of economic and actuarial assumptions. Changes in these assumptions may affect the pension expense and the pension benefit obligation recognised in the balance sheet. Norges Bank follows Norwegian Accounting Standards Board (NASB) guidelines in determining assumptions, where the guideline assumptions
Norges Bank has funded and unfunded pension and other benefit obligations. All funded and unfunded plans are included in the Bank’s actuar-ial settlement.
Norges Bank’s funded pension benefit obliga-tions are covered by Norges Bank’s own pension fund, which is organised as a separate legal entity.
Retirement benefits are equal to 2/3 of the employee’s salary at the time of retirement. The period of service for full benefits is 30 years.
Employees contribute 2% of their gross annual salary into the pension fund. Norges Bank’s con-tribution for 2014 was covered by cash payments and the premium fund. Benefits from the pension fund are coordinated with benefits from the National Insurance scheme.
The basis for retirement benefits covered by the funded plan is limited to an amount equivalent to 12 times the basic pension (G). An unfunded pension plan funded out of current income was established as from 2007 to cover that portion of pensionable salaries in excess of 12G for those employees who already had an agreement enti-tling them to pension over and above this limit.
For those whose employment began after 1 January 2007, the basis for retirement benefits is limited to 12G. The pension plan complies with public service pension requirements.
At 31 December 2014, the Bank’s funded pension plan covers 2 365 persons, of whom 959 are drawing retirement benefits, 662 are active members (including all those affected by restruc-turing) and 744 are members who have left the Bank with vested rights. At 31 December 2013, the plan covered 2 312 persons, of whom 962 were drawing retirement benefits, 658 were active members and 692 were members who have left the Bank with vested rights.
NORGES BANK’S BENEFIT OBLIGATIONS
Norges Bank has funded pension plans associated with membership in Norges Bank’s pension fund.
In addition, the Bank has unfunded plans funded out of current income. These are special and allo-cated pensions, the unfunded portions of pen-sions for employees with salaries higher than 12G earned after 1 January 2007, contractual early retirement pensions calculated on the basis of an expected 15% take-up rate and early retirement pensions and redundancy pay agreements related to restructuring. The benefit obligation related to restructuring is the present value of all agree-ments, including agreements with disbursements in 2015 or later.
Table 11.1 Economic and demographic assumptions
31 Dec. 2014 31 Dec. 2013
Discount rate 2.30% 4.00%
Interest rate on assets 2.30% 4.00%
Rate of compensation increase 2.75% 3.75%
Rate of pension increase 1.75% 2.75%
Increase in social security base amount (G) 2.50% 3.50%
Expected annual attrition 2% up to age 50, then 0 2% up to age 50, then 0
Payroll tax/social security tax 14.10% 14.10%
Mortality table K2013 FT K2013 FT
Disability table KU KU
Table 11.2 Reconciliation of net liability (assets) recognised in the balance sheet
Amounts in NOK millions 31 Dec. 2014 31 Dec. 2013 CHANGE IN DEFINED BENEFIT OBLIGATION (DBO) INCL. PAYROLL TAX
DBO at beginning of year 3 789 3 417
Service cost 124 119
Interest cost 144 134
Curtailment/settlement - -
Plan amendments -179 -
Acquisition (disposal) - -
Payroll tax on employer contribution -15 -25
Benefits paid -152 -155
Remeasurement loss (gain) 476 299
DBO at year-end 4 187 3 789
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year 3 423 3 088
Interest income 115 91
Settlement - -
Acquisition (disposal) - -
Employer contribution incl. payroll tax 123 203
Payroll tax on employer contribution -15 -25
Benefits paid -136 -134
Remeasurement (loss) gain 101 200
Fair value of assets at year- end 3 611 3 423
Pension scheme not recognised in the actuarial calculation 1 1
Net amount recognised in the balance sheet -577 -367
Table 11.3 Specification of funded and unfunded plans
Amounts in NOK millions
31 Dec. 2014 31 Dec. 2013
Funded
plan Unfunded
plans Total Funded
plan Unfunded
plans Total
Accrued benefit obligations 4 001 187 4 188 3 618 172 3 790
Plan assets -3 611 - -3 611 -3 423 - -3 423
Table 11.4 Allocation of plan assets for funded (defined-benefit) plan
Amounts in NOK millions
31 Dec. 2014 31 Dec. 2013
Bonds 2 149 2 303
Equities 1 098 925
Real estate 364 195
Total 3 611 3 423
PENSION EXPENSE FOR EMPLOYEES IN NORWAY Pension expense has been calculated in accord-ance with revised IAS 19 Employee Benefits and includes current service cost, interest expense and expected return on plan assets. Norges Bank’s share of the lump-sum premiums for
employees of Norsk Kontantservice AS previously employed by Norges Bank is included in pension expense.
The change in special and allocated benefits is included in the Bank’s overall pension expense.
Pension expense is shown in Table 11.5.
Table 11.5 Pension expense
Amounts in NOK millions
2014 2013
Service cost and cost of benefit changes -51 150
Service cost incl. interest and payroll tax 124 119
Administration cost incl. payroll tax 4 31
Effect of plan amendments incl. payroll tax -179
Financial cost (income) 27 12
Net interest cost (income) incl. payroll tax 7 12
Investment management cost incl. payroll tax 20 -
Net periodic pension cost (income)* -24 162
* In 2009, the Storting approved a number of changes to public sector pension plans, including life expectancy adjustments of pensions. Following new guidelines from the Norwegian Accounting Standards Board, an assessment was made of the accounting treatment of the life expectancy adjustment. The effect is therefore stated in the accounts as a plan amendment in 2014, with appurtenant recognition in the income statement. Such accounting treatment is one of the alternatives presented in the guidelines.
Amounts in NOK millions
2014 2013
Other comprehensive income (OCI) in the period
Remeasurement loss (gain) - change in discount rate 1 667 -49
Remeasurement loss (gain) - change in other economic
assumptions -1 065 518
Remeasurement loss (gain) - change in mortality table - 185
Remeasurement loss (gain) - change in other demographic
assumptions - -
Remeasurement loss (gain) - experience adjustments, DBO -127 -356
Remeasurement loss (gain) - experience adjustments, assets -118 -200
Investment management cost 17 -
OCI losses (gains) in the period* 374 98
PENSION PLANS FOR LOCALLY EMPLOYED STAFF OF FOREIGN OFFICES
Locally employed staff at Norges Bank’s offices in London and New York have a defined-contribution pension plan in accordance with local provisions in addition to what has been established by the authorities. As employer, Norges Bank contrib-utes up to 8% of fixed salary for employees in New York and up to 10% of fixed salary for employees in London to the plans in line with market practice. The plans are managed exter-nally, within rules determined by Norges Bank.
Recognised expenses for the plans in London and New York amounted to NOK 12.5m in 2014 and NOK 7.9m in 2013. Locally employed staff at
Norges Bank’s offices in Singapore and Shanghai have no pension plan beyond what has been established by the authorities, which is in line with market practice.
SENSITIVITY ANALYSIS
Norges Bank has assessed the assumptions dis-count rate and expected wage growth as the most significant assumptions used in the actuarial calculation. The sensitivity analysis has been pre-pared in the light of possible changes in the afore-mentioned assumptions. The other actuarial assumptions are kept unchanged in the sensitivity analysis.
Table 11.6 Sensitivity analysis
Amounts in NOK millions 31 Dec. 2014
Discount rate Rate of
compensa-tion increase ABO
pension-ers / DBO other Change*
Assumptions at 31 Dec. 2014 2.30% 2.75% 4 116 I/A
Discount rate - 0.5% 1.80% 2.75% 4 338 5.39%
Discount rate + 0.5% 2.80% 2.75% 3 641 -11.54%
Rate of compensation increase + 0.5% 2.30% 3.25% 4 194 1.90%
Rate of compensation increase - 0.5% 2.30% 2.25% 3 948 -4.08%
* Percentage change in the pension benefit obligation.