Arla Foods Annual Report 2020
Management Review Our Strategy
Our Brands and Commercial Segments Our Responsibility Our Governance
Our Performance Review Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
Funding
4.7 PENSION LIABILITIES
Accounting policies
Pension liabilities and similar non-current liabilities
The group operates post-employment pension plan
arrangements with a significant number of current and
former employees. The post-employment pension plan
agreements take the form of defined benefit plans and
defined contribution plans.
Defined contribution plans
For defined contribution plans, the group pays fixed
contributions to independent pension companies.
The group has no obligation to make supplementary
payments beyond those fixed payments, and the risk
and reward of the value of the pension plan therefore
rests with plan members, and not the group.
Amounts payable for contributions to defined
contribution plans are expensed in the income
statement as incurred.
Defined benefit plans
Defined benefit plans are characterised by the group's
obligation to make specific payments from the date the
plan member is retired, depending on, for example, the
member's seniority and final salary. The group is subject
to the risks and rewards associated with the uncertainty
that the return generated by the assets are able to meet
the pension liability, which are affected by assumptions
concerning mortality and inflation.
The group's net liability is the amount presented on the
balance sheet as pension liability.
The net liability is calculated separately for each defined
benefit plan. The net liability is the amount of future
pension benefits that employees have earned in current
and prior periods (i.e. the liability for pension payments
for the portion of the employee's estimated final salary
earned at the balance sheet date) discounted to a
present value (the defined benefit liability), less the fair
value of assets held separately from the group in
a plan fund.
The group uses qualified actuaries to annually calculate
the defined benefit liability using the projected unit
credit method.
The balance sheet amount of the net obligation is
impacted by remeasurement, which includes the effect
of changes in assumptions used to calculate the future
liability (actuarial gain and losses) and the return
generated on plan assets (excluding interest).
Remeasurements are recognised in other comprehen-
sive income.
Interest cost for the period is calculated using the
discounted rate used to measure the defined benefit
liability at the start of the reporting period applied
to the carrying amount of the net liability, taking into
account changes arising from contributions and benefit
payments. The net interest cost and other costs relating
to defined benefit plans are recognised in the income
statement. The net liability primarily covers defined
benefit plans in the UK and Sweden.
♫ Uncertainties and estimates
The carrying amount related to defined benefit pension
plans is assessed based on a number of assumptions,
including discount rates, inflation rates, salary growth
and mortality. A small difference in actual variables
compared to assumptions and any changes in
assumptions can have a significant impact on the
carrying amount of the net liability.
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