[29] Retirement benefit obligation

The retirement benefit obligation is recognised for obligations to provide current and future post-employment benefits. Post-employment benefit plans are classified as either defined benefit plans or defined contribution plans, depending on the substance of the plan as derived from its principal terms and conditions.

Defined contribution plans

In the case of defined-contribution pension plans, the Group pays contributions to government or private pension insurance providers based on statutory or contractual provisions, or on a voluntary basis. The Group does not enter into any obligations above and beyond the payment of contributions to an external pension fund. The amount of future pension benefits is based solely on the amount of the contributions paid by the employer (and in some cases the beneficiaries themselves) to the external pension fund, including income from the investment of these contributions. The total expense arising from defined contribution plans amounted to €63,895 thousand in 2012 (2011: €56,118 thousand). Of this total, contributions paid by employers into government-run plans amounted to €59,682 thousand (2011: €53,337 thousand). The defined contribution plan expense is reported within the functional costs.

Defined benefit plans

The KION Group currently grants pensions to almost all employees in Germany and a number of foreign employees. These pensions consist of fixed benefit entitlements and are therefore reported as defined benefit plans in accordance with IFRS. For all of the significant defined benefit plans within the Group, the benefits granted to employees are determined on the basis of their individual income, i.e. either directly or by way of intermediate benefit arrangements.

In accordance with IAS 19 ('Employee Benefits'), pension provisions are recognised to cover obligations arising from the current and future pension entitlements of active and former employees of the KION Group and their surviving dependants.

Some of KION Group's pension obligations in Germany are financed by way of contractual trust arrangements (CTAs), which qualify as plan assets within the meaning of IAS 19. In the United Kingdom, Switzerland and the Netherlands, significant plan assets are invested in external pension funds with restricted access.

In the case of defined benefit plans, the beneficiaries are granted a specific benefit by the Group or an external pension fund. Due to future salary increases, the benefit entitlement at the retirement age of the beneficiary is likely to be higher than the amount granted as at the reporting date. Pensions are often adjusted after an employee reaches retirement age. The amount of the Group's obligation, which is defined as the actuarial present value of the obligation to provide the level of benefits currently earned by each beneficiary, is expressed as the present value of the defined benefit obligation, which includes adjustments for future salary and pension increases.

Measurement assumptions

The discount rate used to calculate the defined benefit obligation at each reporting date is determined on the basis of current capital market data and long-term assumptions about future salary and pension increases in accordance with the best estimate principle. These assumptions vary depending on the economic conditions affecting the currency in which benefit obligations are denominated and in which fund assets are invested, as well as capital market expectations.

Benefit obligations are calculated on the basis of current mortality probabilities as determined in accordance with actuarial principles. The calculations also include assumptions about future employee turnover based on employee age and years of service and about the probability of retirement. The defined benefit obligation is calculated on the basis of the following weighted-average assumptions as at the reporting date:

The assumed discount rate is determined on the basis of the yield as at the reporting date on investment-grade, fixed-interest corporate bonds with maturities that match the expected maturities of the pension obligations. Pension obligations in foreign companies are calculated on a comparable basis taking into account any country-specific requirements.

The rate of remuneration increase relates to expected future increases in salaries, which are estimated on an annual basis taking into account factors such as inflation and the overall economic situation.

The mortality rates used in the calculation are based on published country-specific statistics and empirical values. Since 31 December 2009, the modified Heubeck 2005 G mortality tables have been used in Germany as the biometric basis; the modified tables include a somewhat higher life expectancy for males than the unmodified tables.

The actuarial assumptions not listed in the table above, such as employee turnover, invalidity, etc., are determined in accordance with recognised forecasts in each country, taking into account the circumstances and forecasts of the companies concerned.

The assumptions applied in calculating the defined benefit obligation as at the valuation date (31 December of the previous year) also apply to the calculation of the interest cost and the cost of pension entitlements arising in the current year (current service cost).

Differences between the forecast and actual change in the defined benefit obligation and changes in related plan assets (actuarial gains and losses) are recognised immediately in other comprehensive income in accordance with IAS 19. This ensures that the pension liability on the face of the statement of financial position is always the actuarial present value of obligations not covered by assets.

In the case of external financed pension funds, the actuarial present value of the pension obligations as calculated in accordance with the projected unit credit method is reduced by the fair value of the assets of the external pension plan. If the assets of the external pension funds exceed the pension obligations, a corresponding asset is recognised in accordance with IAS 19. IAS 19.58 in conjunction with the supplementary explanatory information in IFRIC 14 states that the recognition of an asset for this excess of pension plan assets over pension obligations is only permitted if the company concerned is entitled to receive a refund of this excess or a reduction in future contributions in its function as the employer responsible for the benefits under the plan. If pension obligations are not covered by the assets of an external pension funds, the net obligation is reported in pension provisions.

In the defined benefit plans in the UK, plan assets exceed the pension obligations. However the pension asset ceiling prescribed under IFRS limiting the asset to be recognised on the statement of financial position did not have an impact on these plans.

Statement of financial position

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

The significant increase in the present value of the obligation caused by actuarial losses is largely attributable to the low discount rates for German pension plans compared with the previous year.

The following table shows the change in the fair value of plan assets:

In 2012 employer's contributions in the United Kingdom, which amounted to €7,299 thousand, included payments of €4,931 thousand into pension funds on the basis of contractual agreements. Decisions on additions to plan assets take into account the change in plan assets and pension obligations. For companies outside Germany, decisions also take into account the statutory minimum coverage requirements and the amounts deductible under local tax rules.

The payments expected for the following year amount to €24,501 thousand (2012: €21,845 thousand), which include expected employers' contributions of €11,195 thousand to plan assets (2012: €8,831 thousand) and expected direct payments of pension benefits amounting to €13,306 thousand (2012: €13,014 thousand) that are not covered by corresponding reimbursements from plan assets. According to local measurement rules, there continue to be gaps in the coverage of four plans in the United Kingdom and as a result the expected employer's contributions in 2013 include payments of €7,595 thousand in line with the agreements reached with the trustees. Moreover, KION GROUP GmbH, Wiesbaden, gave an unsecured guarantee for these four UK plans in 2012. This guarantee covers the future contractual payments of the KION Group and employees up to an upper limit of around €75,000 thousand. This upper limit will be reduced by the payments made by the KION Group. At the reporting date, the upper limit for the guarantee had therefore decreased to €58,067 thousand. The likelihood of the guarantee being used is deemed low in view of the position of the individual companies against the backdrop of their current and future financial and earnings situations.

The reconciliation of funded status and net defined benefit obligation to the amounts reported on the face of the consolidated statement of financial position as at 31 December is shown in the following table:

In addition, the KION pension plan for employees of the KION Group in Germany holds plan assets of €19,486 thousand (2011: €18,474 thousand) which are wholly offset by corresponding liabilities relating to the direct pension entitlement plan.

Statement of cash flows

In the case of obligations not covered by external assets, payments to beneficiaries are made directly by the Company and therefore have an impact on cash flows from operating activities. If the benefit obligations are backed by external assets, the payments are made from existing plan assets and have no effect on the Company's cash flow. Instead, any contributions made to the external pension fund by the Company result in net cash used for operating activities.

During the reporting year, pension benefits of €33,480 thousand (2011: €30,539 thousand) were paid in connection with the main pension entitlements in the KION Group, of which €13,561 thousand (2011: €12,643 thousand) was paid directly by the Company and €19,919 thousand (2011: €17,896 thousand) was paid from plan assets. Cash contributions to plan assets in 2012 amounted to €9,518 thousand (2011: €8,180 thousand). Furthermore, pension benefit payments totalling €232 thousand (2011: €215 thousand) were transferred to external pension funds.

Income statement

In accordance with IAS 19, actuarial computations are performed for benefit obligations in order to determine the amount to be expensed in each period in a systematic way. The expenses recognised in the income statement for pensions and similar obligations consist of a number of components that are calculated and disclosed separately.

The service cost is the new pension entitlement arising in the financial year and is recognised in the income statement. It is calculated as the actuarial present value of that proportion of the expected defined benefit obligation when the pension is paid attributable to the year under review on the basis of the maximum length of service achievable by each employee.

The interest cost, i.e. the expense arising from the increase in the defined benefit obligation at the end of the previous year using the discount rate assumed for the year under review, is recognised in the income statement, as is the expected return on plan assets in the case of benefits covered by external assets.

An unrecognised past service cost arises if there is a change to the pension entitlement.

The breakdown of the net cost of the defined benefit obligation (expenses less income) recognised in the income statement for 2012 is as follows:

Overall, the KION Group reported an expense of €21,078 thousand (2011: €19,704 thousand) under net financial income/expenses. This amount comprised the interest cost and the expected return on plan assets. All other components of pension expenses are recognised under the functional costs.

The actual total return on plan assets in 2012 was €48,043 thousand (2011: €36,446 thousand).

Other comprehensive income (loss)

The breakdown of actuarial gains and losses on the defined benefit obligation recognised in the statement of comprehensive income in 2012 are as follows:

The changes in estimates relating to defined benefit pension entitlements resulted in a €151,311 thousand decrease in equity as at 31 December 2012 (after deferred taxes). Of this decrease, €151,267 thousand related to shares held by the shareholders of KION Holding 1 GmbH and €44 thousand to non controlling interests.

Additional disclosures

The plan assets of the main pension plans consist of the following components:

The plan assets do not include any real estate or other assets used by the KION Group itself. The Other category largely comprises inflation-linked UK government bonds for the four large plans in the United Kingdom.

The expected return in 2012 and 2011 for the main investment categories of plan assets are as follows:

The expected return on plan assets was determined on the basis of the plan's policy regarding the asset classes in which it invests. Expected returns are based on the current yields on government bonds with corresponding maturities, adjusted for specific credit spreads for the different asset classes. The expected return on plan assets is recognised as income in the relevant period. The differences between expected and actual income on plan assets represent experience adjustments and are recognised in other comprehensive income in the year in which they arise.

The present value of the defined benefit obligation is based on the assumptions detailed above. If the discount rate were to increase or decrease by a quarter of one percentage point (rising to 3.75 per cent or falling to 3.25 per cent in the case of Germany as at 31 December 2012), pension entitlements would be €43,458 thousand (2011: €35,632 thousand) lower or €45,463 thousand (2011: €35,747 thousand) higher, respectively. Other comprehensive loss (2011: gain) after tax would be €31,611 thousand (2011: €25,999 thousand) higher or €33,081 thousand (2011: €26,036 thousand) lower.

Five-year overview

The following table shows a five-year overview of experience adjustments arising from the differences between actuarial assumptions and actual circumstances:

While the actuarial gains and losses on the present value of the obligation only partially result in part from experience adjustments, the actuarial gains or losses on the fair value of the plan asset are entirely attributable to experience adjustments.