Income Statement Group

NOTE 17

PENSION EXPENSES, ASSETS AND LIABILITIES

Group companies have different pension plans organised in pension funds and insurance companies. Pension schemes are generally funded through payments made by the companies, determined on the basis of actuarial calculations or as a fixed percentage of the individual employee’s salary. The Group has both defined contribution and defined benefit plans.

Pension liabilities and assumptions

Amounts in million NOK

Present value of accrued pension liabilities for defined benefit plans in fund-based plans

Fair value of pension assets

Actual net pension liabilities for defined benefit plans in fund-based plans

Present value of liabilities not in fund-based plans

Social security contribution

Net pension liabilities in the balance sheet (after social security contribution)

Changes in defined-benefit pension liabilities during the year:

Pension liabilities as of 1 January (excl. social security contribution)

Present value of pension earnings

Interest expenses

Estimate changes

Pension payments

Liabilities due to plan changes and acquisitions

Pension liabilities as of 31 December (exclusive of social security contribution)

Change in fair value of pension assets:

Fair value of pension assets as of 1 January

Expected yield on pension funds

Estimate changes

Total contribution

Total payments from funds

Fair value of pension assets as of 31 December

Movement in actuarial gains and losses recognized in other comprehensive income:

Cumulative amount recognized in comprehensive income 01.01

Recognized in other comprehensive income in the period

Cumulative amount recognized inother comprehensive income 31.12

Deferred tax related to actuarial losses recognized inother comprehensive income

Cumulative amount recognized in other comprehensive income after tax 31.12

In accordance with IAS 19 the interest rate that is used to discount the pension liability shall be established using high-quality corporate bonds in Norway, if a deep market for such high-quality bonds exists. The Group has previously applied the interest rate for government bonds as a discount rate, but now believes there to be a deep market for high-quality corporate bonds in Norway. Norway has experienced a change in the underlying economic conditions relating to high-qulaity bonds, which has resulted in the Group choosing to apply the discount rate derived from high-quality bonds.

Calculations are based on the following assumptions:

Discount rate

Expected yield on pension funds

Salary growth

Social security base amount (G)

Annual social security pension growth - Private Fund

Annual social security pension growth - Public Fund

Pension effect on profit and loss statement

Total pension expenses recorded in profit and loss account:

Amounts in million NOK

Defined benefit plans:

Cost of present period’s pension earnings

Interest expenses

Expected yield on pension funds

Amortization of plan amendments

Social security contribution

Members’ contributions

Employer’s contribution to non-capitalized defined benefit schemes in foreign subsidiaries

Pension costs, defined benefit plans

Defined contribution plans:

Employer’s contribution to defind constribution plans

Total pension expenses

Total pension costs are classified as:

Salaries and other personnel costs

Net finance

Total pension costs

Specification pension fund assets

Amounts in million NOK

Equity instruments

Interest-bearing instruments

Property

Other

Fair value of pension assets

Expected contributions to the post-employment benefit plans for the year ending 31 December 2013 are NOK 53 million.

At 31 December 2012

Present value of defined benefit obligation

Fair value of plan assets

Deficit in the plan

Experienced adjustments on plan liabilities

Experienced adjustments on plan assets

Sensitivity analysis

Infratek has carried out a sensitivity analysis for the net pension liabilities and estimated pension-related costs. The tables below illustrate the effect of a one percentage point change in the discount rate, salary increases and change in G on the net pension liability and pension-related costs given the original assumptions as described in the table above.

Sensitivity analysis for the net pension liability

NOK million

Discount rate

Salary growth

Change in G

Percentage point change

+ 1 %

- 1 %

+ 1 %

- 1 %

+ 1 %

- 1 %

Net pension liabilities

Deferred tax asset/liability

Effect on equity

Sensitivity analysis for estimated pension-related costs

NOK million

Discount rate

Salary growth

Change in G

Percentage point change

+ 1 %

- 1 %

+ 1 %

- 1 %

+ 1 %

- 1 %

Pension cost

Financial expenses

Total pension cost

The estimates are based on facts and conditions as of 31 December 2012. Actual results could therefore deviate from these estimates to a material extent.

Pensions in Norway

Pursuant to Norway’s law on mandatory service pensions, defined contribution plans have been established in all Norwegian companies.The Group’s mandatory service pension schemes (OTP) for employees in Norway are administered by DNB and Storebrand.

As of 31 December 2012, 378 employees were covered by defined benefit plans, divided between Hafslund Private Pensjonskasse (77), Hafslund Offentlige Pensjonskasse (236), Storebrand (7) and KLP (58). As of 31 December 2012, 115 people were receiving pensions under these schemes, divided between Hafslund Private Pensjonskasse (8), Hafslund Offentlige Pensjonskasse (45) and KLP (62). There are few pensioners receiving benefits under Hafslund’s defined benefits schemes, since all pensioners were transferred to Hafslund ASA prior to the company’s flotation in December 2007. In addition the Group has defined contribution plans with various insurance companies. The defined benefit plans belonging to the Hafslund Group’s two pension schemes, of which Infratek is a member, were closed with effect from 1 January 2007. This means they were closed to new members. Since January 2007, defined contribution plans were introduced for all new employees and employees who were not previously included in a pension scheme in the Group’s Norwegian businesses.

In 2011, the Group changed the accounting policy for pensions. The Group changed from recognizing estimate deviations that arise from changes in actuarial assumptions or base data over and above the greater of 10 percent of pension asset value or 10 percent of pension liabilities, in the profit and loss account over a period that corresponds to employees’ expected average remaining terms of employment to recognising actuarial gains and losses attributable to changes in actuarial assumptions or base data through other comprehensive income on an ongoing basis after provisions for deferred tax.

Pension assets are valued at fair value as of year-end. Pension liabilities (net present value of pension payments earned on the balance sheet date, adjusted for future salary growth) are valued using best estimates based on assumptions as of the balance sheet date. Substantial estimate deviations are largely due to increased discount rate in 2012 compared with 2011. The actuarial estimates of pension liabilities have been prepared by independent actuaries. The assumptions regarding salary growth, increase in pension payments, and social security base amount adjustments are based on historic observations, established tariff agreements, and the relationship between certain assumptions. The demographic assumptions are based on recommendation from the Norwegian Accounting Standards Board.

The Group also changed how the net retirement benefit costs are presented in the consolidated statement of comprehensive income. The Group has changed its presentation of net retirement benefit cost as salaries and other personnel expenses to dividing net retirement benefit cost between salaries and other personnel expenses and net finance. The retirement benefits accrued during the period is classified as salaries and other personnel expenses and the net interest on the estimated liability and the projected yield on pension fund assets are classified as net finance. The Group believes that the changed policy provides more relevant information for the users of the financial statements.

Employees who terminate employment before reaching retirement age receive paid-up policies. Hafslund’s pension funds, in which Infratek participates, manage these paid-up policies, which are associated with earned rights in municipal contribution plans. Hafslund has a financial commitment to upwardly adjust these paid-up policies in line with increases in the social security base amount. At such time as paid up policies that have been earned in other contribution plans are issued, Hafslund becomes exempt from further obligations to the employees to which the policies pertain. Assets and liabilities are valued at the time of issuance of the paid-up policy and are separated from pension assets and liabilities.

As a consequence of Infratek’s acquisition of Fortum’s contracting operations, Hafslund ASA’s shareholding in Infratek ASA was reduced from 64.6% to 43.3%. This led Infratek to apply to leave the defined benefit plans in the Hafslund Group’s pension funds in 2009. A mutual pension fund following the principles of independent enterprises in Section 7-2 of the Act relating to Insurance Companies, Pension Enterprises etc. (the Insurance Act) no. 44 of 10 June 2005 has been established.

Other demographic assumptions that have been used in the calculation of Norwegian defined benefit pension liabilities are as follows: for mortality and disability, Norwegian life insurance companies’ table GAP2007.

Pension assets are invested in equity instruments, real estate, bonds and money market placements. Bonds and money market placements are issued by the Norwegian government, Norwegian municipalities, finance institutions, and corporations. Bonds in foreign currencies are currency hedged. Investments are in Norwegian and foreign shares. Any estimate deviation is distributed proportionately among asset categories.

Pensions in Sweden

As of 31 December 2012 a total of 419 “tjänstemän” employed by Infratek’s Swedish subsidiary were members of the ITP (Industrins og handelns tilläggspension) defined benefit plan. All “tjänstemän” also have an ITPK defined contribution plan. “Tjänstemän” with a salary in excess of SEK 521,000 can select an alternative ITP in the chosen insurance company. 9 employees have, for historic reasons, an alternative ITP with higher benefits relating to retirement, family and incapacity pension. For “tjänstemän” in the Swedish company, Infratek has purchased insurance cover from Alecta which manages and administers the ITP pension insurance scheme. In addition, a special tax in accordance with the collective agreement for the additional pension EFA-Sif, "Sveriges Ingenjörer och Ledarna", corresponding to 0.8% of salary.

405 “Kollektivänstallda” are covered by the Avtalepension SAF-LO, a defined contribution plan. In addition there is a special charge relating to the collective agreement on supplementary pensions EIO-SEF and EIO-SEF corresponding to 1 percent of salary. The defined contribution plan for “kollektivänstallda” is administered by Fora.

The defined benefits scheme for Infratek’s employees in Sweden, acts as a defined contribution scheme for the Group, with annual premiums being charged as expenses as they accrue. The Group has no pension liabilities apart from payment of annual pension premiums. Employees who leave the company before retirement age receive a paid-up policy. The paid-up policies are managed by the company in which the employee has accrued pension rights. Infratek has no obligations after the employee has received a paid-up policy.

Pensions in Finland

All companies in Finland are obliged to establish a mandatory service pension for their employees. All employees in Finland are covered by the mandatory service pension scheme, which is based on defined contributions. This scheme is insured through Varma Pension Insurance Company.

Before its acquisition by Infratek, 59 employees of the Finnish subsidiary previously had supplementary defined benefits pension plans with Fortum Pension Foundation. This defined benefits scheme provided a defined pension for these employees if the mandatory scheme did not cover this amount. When Infratek Finland Oy was acquired by Infratek this defined benefit agreement was replaced by a supplementary pension agreement with the insurance company Mandatum Life in Finland. This supplementary pension agreement will be funded through annual pension premiums to cover the employees’ accrued pension entitlements. The premiums will be paid by Infratek Finland Oy. The annual premium covers the expected costs associated with the supplementary pension scheme and no further obligations devolve to the company.

For these 59 employees there is also a contingent liability in the event that the employee’s employment contract is terminated by the employer. For more information regarding this contingent liability, see Note 28.