Unilever 1999 Annual Report Download - page 28

Unilever Group Notes to the consolidated accounts
30 Pension schemes
In the majority of countries in which the Group operates, employees’ retirement arrangements are provided by defined benefit schemes
based on employee pensionable remuneration and length of service. These are either externally funded, with the assets of the scheme
held separately from those of the Group in independently administered funds, or are unfunded but with provisions maintained in the
Group balance sheet. All are subject to regular actuarial review. Actuarial advice is provided by both external consultants and actuaries
employed by the Unilever Group.
Valuations are carried out annually for the largest schemes and at least every three years for other schemes using the projected unit
method, with the aim of ensuring that as far as possible current and future regular pension charges remain a stable percentage of
pensionable payroll. The actuarial assumptions used to calculate the benefit obligation vary according to the economic conditions of the
country in which the scheme is situated. It is usually assumed that, over the long-term, the annual rate of return on investments will be
higher than the annual increase in pensionable remuneration and in present and future pensions in payment. For the key factors
influencing the actuarial valuations, the average assumptions for the principal schemes, weighted by market value, at their most recent
valuation were: interest rate 7.2% p.a.; salary increases 4.6% p.a.; pension increases 3.2% p.a. Assets are generally valued at a smoothed
market value by spreading gains and losses relative to the actuarial basis over a three to five year period.
At 31 December 1999 the market value of the assets of externally funded defined benefit schemes was Fl. 36 046 million
(1998: Fl. 29 175 million), and net provisions in the accounts amounted to Fl. 4 149 million (1998: Fl. 3 691 million). The level of funding
of all defined benefit schemes at the dates of the last valuations, in aggregate, was 124% (1998: 127%). The levels of funding represent
the actuarial value of fund assets and the provisions held in the consolidated accounts at the dates of the most recent valuations
expressed as a percentage of the value of benefits that had accrued to members at those dates, after allowing for expected future
increases in pensionable remuneration and pensions in the course of payment.
Pension costs and company contributions to defined benefit schemes (as shown in note 3 on page 13) have been reduced in recent years
principally by the amortisation of surpluses in the Group’s two biggest funds, which have been amortised using the ’mortgage method’.
The net amount of surplus recognised in the profit and loss account in 1999 was Fl. 534 million (1998: Fl. 626 million). It is expected that
pension costs will continue to benefit from the amortisation of fund surpluses for a number of years.
In 1999 the Group received a gross cash refund of Fl. 350 million from a Netherlands fund in a surplus position, and Fl. 237 million from
a Finnish fund in surplus. These cash refunds do not directly impact the pension charge for 1999 as the surplus is amortised in accordance
with the Group’s accounting policies. Further refunds from these funds may occur in 2000.
The Group also operates a number of defined contribution schemes. The assets of all the Group’s defined contribution schemes are held
in independently administered funds. The pension costs charged to the profit and loss account represent contributions payable by the
Group to the funds. The market value of the assets of externally funded defined contribution schemes as at 31 December 1999 was
Fl. 3 931 million (1998: Fl. 3 378 million).
31 Post-retirement health benefits
Group companies provide post-retirement health care benefits to a number of retired employees in certain countries, principally the
United States, under several different plans which are predominantly unfunded. In assessing the liability in respect of these benefits,
advice is obtained from independent actuaries. The valuations typically assume that medical cost inflation will fall from its current level of
approximately 8.5% over the next few years and reach a constant level of approximately 5.0% by the year 2006. The weighted average
discount rate has increased from approximately 6.0% at 1 January 1999 to approximately 7.5% at 31 December 1999. The net provisions
in the accounts at 31 December 1999 amounted to Fl. 1 797 million (1998: Fl. 1 560 million). The level of funding of all schemes at the
last valuation was, in aggregate, 109% (1998: 99%). The level of funding represents the actuarial value of plan assets and the provisions
held in the consolidated accounts at the dates of the most recent valuations, expressed as a percentage of the value of the benefits that
had accrued to members at those dates after allowing for increases in the costs of medical cover.
28 Unilever Annual Accounts 1999