Unilever 2013 Annual Report Download - page 103

4B. PENSIONS AND SIMILAR OBLIGATIONS CONTINUED
DESRIPTION OF PLANS
In many countries the Group operates defined benefit pension plans based on employee pensionable remuneration and length of service.
The majority of plans are either final salary, career average or hybrid plans and are externally funded. Benefits are determined by the plan
rules and are linked to inflation in some countries. The Group also provides other post-employment benefits, mainly post-employment
healthcare plans in the United States. These plans are predominantly unfunded. The Group increasingly also operates a number of defined
contribution plans, the assets of which are held in external funds.
OVERNANE
The majority of the Group’s externally funded plans are established as trusts, foundations or similar entities. The operation of these
entities is governed by local regulations and practice in each country, as is the nature of the relationship between the Group and the
Trustees (or equivalent) and their composition. Where Trustees (or equivalent) are in place to operate plans, they are generally required
to act on behalf of the plan’s stakeholders. They are tasked with periodic reviews of the solvency of the fund in accordance with local
legislation and play a role in the long-term investment and funding strategy. The Group also has an internal body, the Pensions and
Equity Committee, that is responsible for setting the company’s policies and decision making on plan matters, including but not limited
to design, funding, investments, risk management and governance.
INVESTMENT STRATEY
The Group’s investment strategy in respect of its funded plans is implemented within the framework of the various statutory
requirements of the territories where the plans are based. The Group has developed policy guidelines for the allocation of assets to
different classes with the objective of controlling risk and maintaining the right balance between risk and long-term returns in order to
limit the cost to the Group of the benefits provided. To achieve this, investments are well diversified, such that the failure of any single
investment would not have a material impact on the overall level of assets. The plans continue to invest a good proportion of the assets
in equities, which the Group believes offer the best returns over the long term commensurate with an acceptable level of risk. The plans
expose the Group to a number of actuarial risks such as investment risk, interest rate risk, longevity risk and, in certain markets,
inflation risk. There are no unusual entity or plan specific risks to the Group. For risk control, the pension funds also have significant
investments in liability matching assets (bonds) as well as in property and other alternative assets; additionally, the Group uses
derivatives to further mitigate the impact of the risks outlined above. The majority of assets are managed by a number of external fund
managers with a small proportion managed in-house. Unilever has a pooled investment vehicle (Univest) which it believes offers its
pension plans around the world a simplified externally managed investment vehicle to implement their strategic asset allocation
models, currently for bonds, equities and alternative assets. The aim is to provide high quality, well diversified, cost-effective, risk-
controlled vehicles. The pension plans’ investments are overseen by Unilever’s internal investment company, the Univest Company.
ASSUMPTIONS
With the objective of presenting the assets and liabilities of the pensions and other post-employment benefit plans at their fair value on
the balance sheet, assumptions under IAS 19 are set by reference to market conditions at the valuation date. The actuarial assumptions
used to calculate the benefit liabilities vary according to the country in which the plan is situated. The following table shows the
assumptions, weighted by liabilities, used to value the principal defined benefit plans (which cover approximately 97% of total pension
liabilities) and the plans providing other post-employment benefits.
31 December 2013 31 December 2012
Prncpal
defned beneft
penson plans
Other
post-employment
beneft plans
Principal
defined benefit
pension plans
Other
post-employment
benefit plans
Discount rate 42% 52% 3.9% 4.0%
Inflation 26% n/a 2.3% n/a
Rate of increase in salaries 31% 31% 3.2% 3.6%
Rate of increase for pensions in payment (where provided) 25% n/a 2.1% n/a
Rate of increase for pensions in deferment (where provided) 28% n/a 2.3% n/a
Long-term medical cost inflation n/a 54% n/a 5.0%
The valuations of other post-employment benefit plans generally assume a higher initial level of medical cost inflation, which falls from 8%
to the long-term rate within the next five years. Assumed healthcare cost trend rates have a significant effect on the amounts reported for
healthcare plans.
100 Unlever Annual Report and Accounts 2013Fnancal statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNILEVER GROUP CONTINUED