Arla Foods Annual Report 2020
Management Review
Our Strategy
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Our Responsibility Our Governance
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Funding
4.7 PENSION LIABILITIES
Net pension assets at EUR 40 million in the UK
Pension assets and liabilities consist primarily of defined
benefit plans in the UK and Sweden. The defined benefit
plans provide pension disbursements to participating
employees based on seniority and final salary. Pension
assets were EUR 40 million compared to EUR 16 million
last year. Pension liabilities were EUR 247 million
compared to EUR 249 million last year. The improvement
is primarily explained by payments to the pensions
schemes in the UK. Remeasurements of pensions plans
resulted in a net gain of EUR 5 million and consisted of a
remeasurement gain on pension assets of EUR 141
million, offset by actuarial losses of EUR 136 million.
Pension plans in Sweden
The defined benefit plan in Sweden does not currently
require the group to make further cash contributions.
The recognised net liability was EUR 221 million, a
decrease of EUR 2 million compared to last year.
These pension plans are contribution-based plans,
guaranteeing a defined benefit pension at retirement.
Contributions have been paid by the group. The
schemes do not provide any insured disability benefits.
The plan assets are legally structured as a trust and the
group has control over the operation of the plan and
their investments.
These pension plans do not include a risk-sharing
element between the group and the plan participants.
Pension plans in the UK
The recognised net pension asset in the UK was EUR 40
million, representing an improvement of EUR 24 million
compared to last year. The improvement is mainly
explained by contributions from Arla of EUR 26 million.
A remeasurement gain on the pension assets
amounting to EUR 141 million was offset by actuarial
losses of EUR 140 million.
The defined benefit plan in the UK is governed by an
independent pension trust that oversee the interest of
the members of the plan including investing the plan's
assets to cover future pension payments. The assets
under management amounted to EUR 1.456 million at
end of 2020 compared to EUR 1.420 million last year.
The pension plan is a defined benefit final salary
scheme. The plan is closed to both new entrants and
future accrual. The plan does not provide any insured
disability benefits. However members of the plan at the
time of closure are provided with a salary continuation
arrangement if they are absent on a long term basis.
Employer contributions are determined with the advice
of independent qualified actuary on the basis of
triennial valuation negotiations between the plan and
Arla and ultimately approved by HRM Pensions
Regulator. The next triennial valuation will be
undertaken as at 31 December 2023.
The plan is legally structured as trust-based statutory
sectionalized pension plan. The group has limited
control over the operation of the plan and their
investments. The trustees of the plan (of which Arla
appoints the majority, ie 4 out of 6) set the investment
strategy and have established a policy on asset
allocation to best match the assets to the liabilities of
the schemes. The trustees appoint an independent
external advisor to the schemes who is responsible for
advising on the investment strategy and investing the
assets. The scheme is managed under a risk-controlled
investment strategy, which includes a liability-driven
investment approach that seeks to match, where
appropriate, the profile of the liabilities.
During the year the UK pension asset and liability
management has shown strong resilience against the
volatile market conditions and further de-risking has
taken place. The level of interest hedging against the
liabilities was increased to 80 per cent compared to
65 per cent last year with the inflation hedging 67.5 per
cent compared to 65 per cent last year. Thus the overall
level of risk within the scheme has reduced, thereby
lowered the likelihood of increased contributions from
the employer.
Defined contribution schemes are in place for other
employees. Contributions are made both by Arla and
the employee at a rate determined by Arla.
Table 4.7.a Pension liabilities recognised on the balance sheet
(EURM)
Sweden
UK
Other
Total
2020
Present value of funded liabilities
231
1.456
49
Fair value of plan assets
-13
-1.496
-29
Deficit of funded plans
218
-40
22
1.736
-1.538
20
198
Present value of unfunded liabilities
3
6
9
Net pension liabilities recognised on the balance sheet
221
-40
26
207
Specification of total liabilities:
Present value of funded liabilities
Present value of unfunded liabilities
Total liabilities
Presented as:
Pension assets
Pension liabilities
Net pension liabilities
2019
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Net pension liabilities recognised on the balance sheet
Specification of total liabilities:
Present value of funded liabilities
Present value of unfunded liabilities
Total liabilities
Presented as:
Pension assets
Pension liabilities
Net pension liabilities
231
1.456
49
3
234
1.456
965
1.736
9
55
1.745
-40
-40
221
26
247
221
-40
26
207
232
1,420
46
1,698
-12
-1,436
-27
-1,475
220
-16
19
223
3
7
10
223
-16
26
233
232
1,420
46
16
1,698
3
7
10
235
1,420
53
1,708
-16
-16
223
26
249
223
-16
26
233
108 ARLA FOODS ANNUAL REPORT 2020View entire presentation