BMW 2004 Annual Report Download - page 84

Pension provisions are recognised as a result of
commitments to pay future vested pension benefits
and current pensions to present and former em-
ployees of the BMW Group and their dependants.
Depending on the legal, economic and tax circum-
stances prevailing in each country, various pension
plans are used, based generally on the length of
service and salary of employees. Due to their simi-
larity of nature, the obligations of BMW Group com-
panies in the USA and of BMW (South Africa) (Pty)
Ltd., Pretoria, for post-employment medical care are
also disclosed as pension provisions. The provision
for these pension-like obligations amounts to euro
29 million (2003: euro 27 million) and is measured,
similar to pension obligations, in accordance with
IAS19. In the case of post-employment medical care,
it is assumed that the costs will increase on a long-
term basis by 7% p.a. (2003: 8 % p.a.).The expense
for medical care costs in the financial year 2004
amounted to euro 5 million (2003: euro 5 million).
Post-employment benefit plans are classified as
either defined contribution or defined benefit plans.
Under defined contribution plans, an enterprise pays
fixed contributions into a separate entity or fund and
does not assume any other obligations. The total
pension expense for all defined contribution plans of
the BMW Group amounted to euro 14 million (2003:
euro10 million).
Under defined benefit plans, the enterprise is
required to pay the benefits granted to present
and past employees. Defined benefit plans may be
funded or unfunded, the latter sometimes financed
by means of accounting provisions. Most of the
pension commitments of the BMW Group in Ger-
many relate to BMW AG, whose pension plans, like
all those of the BMW Group’s German subsidiaries,
are unfunded and financed by means of accounting
provisions. In addition, a deferred remuneration
retirement scheme is in place which is funded by
employee contributions.The main funded plans of
the BMW Group are in the United Kingdom, the
USA, Switzerland, the Netherlands, Belgium and
Japan.
Pension obligations are computed on an actu-
arial basis at the level of the defined benefit obliga-
tion.This computation requires the use of estimates.
The main assumptions, in addition to life expectancy,
depend on the economic situation in each particular
country. The following weighted average values are
used in the United Kingdom (UK) and in the other
countries:
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The salary level trend refers to the expected
rate of salary increase which is estimated annually
depending on inflation and the period of service of
employees within the Group.
In the case of funded plans, the defined benefit
obligation is offset against plan assets measured at
their fair value. Where the plan assets exceed the
pension obligations and the enterprise has a right of
[29]Pension provisions
in % Germany UK Other
31 December 2004 2003 2004 2003 2004 2003
Discount rate 4.8 5.5 5.3 5.4 5.3 5.3
Salary level trend 3.3 3.5 3.9 3.8 3.2 3.2
Pension level trend 1.8 2.0 2.7 2.7 1.7 1.8