[29] Retirement benefit obligation

The KION Group 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. As at December 31, 2020, the KION Group had set up defined benefit plans in 14 countries (December 31, 2019: 15). 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. The largest of the KION Group’s defined benefit plans – together accounting for 92.9 percent of the global defined benefit obligation (December 31, 2019: 92.9 percent) – are in Germany, the United Kingdom, and the US.

Germany

In Germany, the pension benefits granted comprise Company-funded pension entitlements and employees’ payment of part of their salary into the pension scheme. The contributions to the new pension plans are invested in investment funds under contractual trust arrangements (CTAs); resulting returns on plan assets are passed on to the pension beneficiaries when an insured event occurs. Members of the Executive Board (see also note [47]) and other executives are predominantly covered by individual pension plans. The amount of the benefits paid to executives depends on the type of entitlement. A very small proportion of pension benefits are granted in the form of final-salary-linked benefit obligations. The overwhelming majority of the existing pension entitlements are a combination of a defined benefit obligation and a defined contribution component. Executives who joined the Company or were promoted after 2017 are covered by fund-based individual pension plans.

Beside the securities-linked pension entitlements, some of the KION Group’s pension obligations in Germany under closed plans are financed by way of CTAs. The assets transferred to the trustee qualify as plan assets within the meaning of IAS 19. The trustees are required to follow a defined investment strategy and investment guidelines. There are no statutory minimum funding requirements. In the event of the Company’s insolvency, the company pension scheme in Germany is to a large extent protected by law by the insolvency protection scheme (Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit, PSVaG).

United Kingdom

In the United Kingdom, defined benefit pension obligations predominantly relate to two plans. The defined benefits include not only a life-long retirement pension but also surviving dependants’ benefits. The amount of the pension depends on employees’ length of service and final salary.

The two plans are closed to new employees. Each plan is monitored by its own board of trustees, which oversees the running of the plan as well as its funded status and the investment strategy. The members of the board of trustees comprise people appointed by the company involved and selected plan beneficiaries.

Under UK law, the board of trustees is obliged to have a valuation of the plan carried out at least every three years. In connection with the periodic valuation of the pension plans for the employees of the KION Group’s UK companies, the companies and the respective trustees of the pension funds agreed on a valuation in March 2019 that will ensure payments are made to the beneficiaries of the plans in accordance with the relevant requirements. On the basis of this current valuation, the KION Group will not have to make any top-up payments to the plan assets. In addition, KION GROUP AG has given default guarantees to the trustees of four pension plans, under which, if any of the companies concerned default, KION GROUP AG will assume all obligations of these companies up to a maximum guaranteed amount. As at December 31, 2020, the guaranteed amount totaled €101.7 million (December 31, 2019: €107.5 million).

United States

The KION Group maintains three main defined benefit pension plans in the US. The defined benefits include not only a life-long retirement pension but also surviving dependants’ benefits.

With legal effect from July 1, 2020, the pension plan for unionized employees in the United States was terminated. The two pension plans for salaried employees and managers will continue but have been frozen for some time now in relation to future periods of service.

Salaried employees receive benefits that generally depend on their period of service and on their average final salary fixed on the date the plan concerned was frozen. The plan for salaried employees is subject to statutory minimum funding provisions that specify a certain coverage ratio and provide for annual payments to maintain the required ratio. In 2020, a one-off sum of €4.8 million was paid (2019: €0.9 million).

Other countries

Furthermore, significant asset volumes are invested in external pension funds with restricted access in Switzerland and the Netherlands. Decisions on additions to plan assets take into account the change in plan assets and pension obligations. They also take into account the statutory minimum coverage requirements and the amounts deductible under local tax rules.

The defined benefit obligation is calculated on the basis of the following weighted-average assumptions as at the reporting date:

The assumed discount rate was determined on the basis of the yield as at the reporting date on AA-rated, fixed-interest senior corporate bonds with maturities that match the expected maturities of the pension obligations.

Future increases in salaries are estimated on an annual basis taking into account factors such as inflation and the overall economic situation.

The biometric mortality rates used in the calculation are based on published country-specific statistics and empirical values. Since 2018, the Heubeck ‘Richttafeln 2018 G’ mortality tables have been used as the biometric basis in Germany. The S2PA tables (standard mortality tables for self-administered pension schemes (SAPS) based on normal health) are applied to the two defined benefit plans in the United Kingdom. In the US, calculations use the modified RP-2014 mortality tables with the generational projection from the Mortality Improvement Scale MP-2016.

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

The following significant weighted-average assumptions were applied to the calculation of the net interest cost and the cost of benefits earned in the current year (current service cost).

The change in the present value of the defined benefit obligation is shown in the following table:

With legal effect from July 1, 2020, the pension plan for unionized employees in the United States was terminated when an application to the government was signed. The gain on the settlement amounted to €0.1 million and was recognized in the income statement under functional costs. The settlement payments totaled €37.3 million.

The defined benefit obligation in the other countries was predominantly attributable to subsidiaries in Switzerland (€68.7 million; December 31, 2019: €65.6 million) and the Netherlands (€44.9 million; December 31, 2019: €41.4 million).

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

Employees in Germany paid a total of €4.2 million from their salaries (2019: €3.8 million) into the KION pension plan in 2020.

The payments expected for 2021 amount to €30.2 million (in 2019: €26.9 million for 2020), which includes direct payments of pension benefits amounting to €23.3 million (in 2019: €21.1 million for 2020) that are not covered by corresponding reimbursements from plan assets.

The reconciliation of funded status and net defined benefit obligation to the amounts reported in the consolidated statement of financial position as at December 31, 2020 is shown in the following table:

Overall, the funding ratio (ratio of plan assets to the present value of the defined benefit obligation) in the KION Group was 38.0 percent (December 31, 2019: 42.3 percent).

The changes in the retirement benefit obligation and similar obligations reported in the statement of financial position are shown in the following table:

Payments totaling €27.8 million (2019: €22.0 million) were made in 2020 for the main pension entitlements in the KION Group. This mostly comprised pension benefits of €20.5 million (2019: €17.8 million) paid directly by the Company and employer contributions to plan assets amounting to €7.0 million (2019: €3.6 million). In addition, pension benefits of €72.3 million (2019: €34.6 million) were made from plan assets. These also contained settlement payments totaling €37.3 million for the pension plans of unionized employees in the US.

The breakdown of the net cost of the defined benefit obligation (expenses less income) recognized in the income statement for 2020 is as follows:

The KION Group’s net financial expenses included a net interest cost of €12.5 million (2019: €19.0 million). All other components of pension expenses were recognized under functional costs.

The actual return on plan assets in 2020, including the remeasurement recognized in other comprehensive income, was €68.2 million (2019: €104.3 million).

The breakdown of the remeasurement of the defined benefit obligation recognized in the consolidated statement of comprehensive income in 2020 is presented in the following table:

The components of the remeasurements of the defined benefit obligation are listed in the > table ‘Changes in defined benefit obligation’.

The gains and losses on the remeasurement of plan assets were attributable entirely to experience adjustments. The changes in estimates relating to defined benefit pension entitlements resulted in a €105.5 million decrease in equity as at December 31, 2020 after deduction of deferred taxes (December 31, 2019: €115.9 million).

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

The sensitivities shown in the following table were based on detailed analysis carried out by specialist actuaries following the same approach that was taken to calculate the present value of the defined benefit obligation:

The changes shown in the sensitivity analysis are not representative of an actual change in the present value of the defined benefit obligation because variations in the significant assumptions are unlikely to occur in isolation as, to some extent, the assumptions are interrelated.

The pension benefit payments are forecast for the next ten years for the defined benefit pension entitlements in existence as at December 31, 2020.

The expected pension benefits break down into future benefits to be paid directly by the employer (for 2021: €23.3 million) and future benefits to be paid from existing plan assets (for 2021: €35.5 million).

As at the reporting date, the average duration of the defined benefit obligation, weighted on the basis of the present value of the defined benefit obligation, was 23.4 years in Germany (December 31, 2019: 23.3 years), 15.3 years in the United Kingdom (December 31, 2019: 15.2 years), 13.6 years in the US (December 31, 2019: 13.9 years), and 16.1 years in the other countries (December 31, 2019: 16.2 years).

The funding ratio, the defined benefit obligation, and the associated costs depend on the performance of financial markets. The return on plan assets was assumed to equal the discount rate, which was determined on the basis of the yield earned on AA-rated, fixed-interest senior corporate bonds. If the actual return on plan assets falls below the discount rates applied, the net obligation arising out of the pension plans increases. The amount of the net obligation is also particularly affected by the discount rates, and the low level of interest rates – especially in the eurozone – is resulting in a comparatively large net obligation.

The plan assets are predominantly invested in corporate bonds and inflation-linked UK government bonds, particularly in the United Kingdom. The market risk attaching to plan assets – above all in the case of equities – is mitigated by defining an investment strategy and investment guidelines and continually monitoring the assets’ performance. Moreover, a downward trend in financial markets could have a significant effect on minimum funding requirements, some of which apply outside Germany.

The KION Group also bears the full risk of possible future pension adjustments resulting from changes in longevity and inflation.

Payroll-based contributions to the KION pension plan made by employees in Germany are invested in fund units. If the actual returns on these fund units fall below the minimum rate of return that has been guaranteed to participating employees, the KION Group’s personnel expenses rise.