29 Provisions for pensions and other post-employment benefits

Provisions for pensions are recognized for commitments in the form of retirement, invalidity and dependents’ benefits payable under pension plans. The benefits provided by the Group vary according to the legal, tax and economic circumstances of the country concerned, and usually depend on the length of service and remuneration of the employees.

Group companies provide occupational pensions under both defined contribution and defined benefit plans. In the case of defined contribution plans, the Company makes contributions to state or private pension schemes based on legal or contractual requirements, or on a voluntary basis. Once the contributions have been paid, there are no further obligations for the Company. Current contributions are recognized as pension expenses of the period concerned. In 2012, they amounted to a total of €1,580 million (previous year: €1,237 million) in the Volkswagen Group. Of this figure, contributions to the compulsory state pension system in Germany amounted to €1,219 million (previous year: €925 million).

Most pension plans are defined benefit plans, with a distinction made between pensions financed by provisions and externally funded plans.

The pension provisions for defined benefits are measured using the internationally accepted projected unit credit method in accordance with IAS 19, under which the future obligations are measured on the basis of the ratable benefit entitlements earned as of the balance sheet date. Measurement reflects assumptions as to trends in the relevant variables affecting the level of benefits. All defined benefit plans require actuarial calculations. Actuarial gains or losses arise from changes in the number of beneficiaries and differences between actual trends (for example, in salary and pension increases or changes in interest rates) and the prior-year assumptions on which calculations were based. Actuarial gains and losses are recognized in other comprehensive income.

Owing to their benefit character, the obligations of the US Group companies in respect of post-employment medical care in particular are also carried under provisions for pensions and other post-employment benefits. These post-employment benefit provisions take into account the expected long-term rise in the cost of healthcare. A one percentage point increase or decrease in the assumed healthcare cost trends would only marginally affect the amount of the obligations. €18 million (previous year: €16 million) was recognized in fiscal year 2012 as an expense for health care costs. The related carrying amount as of December 31, 2012 was €226 million (previous year: €196 million).

Since 1996, the occupational pension arrangements of the Volkswagen Group in Germany have been based on a specially developed expense-related pension model that is classified as a defined benefit plan under IAS 19. With effect from January 1, 2001, this model was developed into a pension fund, with the annual remuneration-linked contributions being invested in funds by Volkswagen Pension Trust e.V. as the trustee. By investing in funds, this model offers an opportunity for increasing benefit entitlements, while at the same time safeguarding them. For this reason, almost all Group companies in Germany have now joined the fund. Since the fund investments held by the trust meet the criteria in IAS 19 for classification as plan assets, they are deducted from the obligation.

Where the foreign Group companies provide collateral for obligations, this mainly takes the form of shares, fixed-income securities and real estate.

The following amounts were recognized in the balance sheet for defined benefit plans:

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€ million		Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010		Dec. 31, 2009		Dec. 31, 2008
Present value of funded obligations		8,824		7,228		4,885		4,120		3,240
Fair value of plan assets		7,288		6,559		4,554		3,852		3,153
Funded status (net)		1,536		668		331		268		87
Present value of unfunded obligations		22,361		16,023		14,986		13,552		12,743
Unrecognized past service cost		29		33		35		36		22
Amount not recognized as an asset because of the limit in IAS 19		7		14		22		26		34
Net liability recognized in the balance sheet		23,933		16,739		15,375		13,881		12,886
of which provisions for pensions		23,969		16,787		15,432		13,936		12,955
of which other assets		36		48		57		54		69

The present value of the obligations is calculated as follows:

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€ million		2012		2011
Present value of obligations at January 1		23,251		19,871
Current service cost		573		391
Interest cost		1,102		994
Actuarial gains/losses		5,697		821
Employee contributions to plan assets		41		25
Pension payments from company assets		762		679
Pension payments from plan assets		210		123
Past service cost		–10		–10
Gains from plan curtailments and settlements		0		–8
Settlements		–		–14
Changes in consolidated Group		1,485		2,056
Other changes		84		–19
Foreign exchange differences from foreign plans		–67		–54
Present value of obligations at December 31		31,185		23,251

Changes in the composition of the plan assets are shown in the following table:

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€ million		2012		2011
Fair value of plan assets at January 1		6,559		4,554
Expected return on plan assets		342		272
Actuarial gains/losses		108		–184
Employer contributions to plan assets		440		391
Employee contributions to plan assets		41		25
Pension payments from plan assets		210		123
Settlements		–		14
Changes in consolidated Group		60		1,706
Other changes		6		–36
Foreign exchange differences from foreign plans		–59		–30
Fair value of plan assets at December 31		7,288		6,559

Investment of the plan assets to cover future pension obligations resulted in income in the amount of €450 million (previous year: €88 million).

Plan assets include €20 million (previous year: €17 million) invested in Volkswagen Group assets and €7 million (previous year: €11 million) in Volkswagen Group debt instruments.

The rate for the expected long-term return on plan assets is based on the long-term returns actually generated for the portfolio, historical overall market returns and a forecast of expected returns on the securities classes held in the portfolio. The forecasts are based on detailed analyses by actuaries and experts in the investment industry. As the remaining period of service is used as the investment horizon, no major changes were made to assumptions regarding the expected return.

Employer contributions to plan assets in the next fiscal year are expected to amount to €485 million (previous year: €426 million).

Plan assets consist of the following components:

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%		2012		2011
Equities		25.3		24.9
Fixed-income securities		56.1		58.6
Cash		6.7		2.6
Real estate		3.3		3.7
Other		8.6		10.3

The following amounts were recognized in the income statement:

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€ million		2012		2011
Current service cost		573		391
Interest cost		1,102		994
Expected return on plan assets		342		272
Past service cost		–10		–10
Gains from plan curtailments and settlements		0		–8
Net income and expenses recognized in profit or loss		1,324		1,095

The above amounts are generally included in the personnel costs of the functions in the income statement. Interest cost on pension provisions and the expected return on plan assets are presented in finance costs.

€6,900 million (previous year: €2,965 million) of actuarial gains and losses, including noncontrolling interests, recognized in the balance sheet was debited to equity.

The experience adjustments, meaning differences between changes in assets and obligations expected on the basis of actuarial assumptions and actual changes in those assets and obligations, are shown in the following table:

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€ million		2012		2011		2010		2009		2008
Differences between expected and actual developments:
as % of present value of the obligation		0.85		–0.79		0.39		1.16		–1.04
as % of fair value of plan assets		1.45		–2.50		0.13		3.16		–10.47

Calculation of the pension provisions was based on the following assumptions:

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		Germany				Abroad
%		2012		2011		2012		2011
Discount rate at December 31		3.20		4.60		4.66		5.39
Expected return on plan assets		4.12		4.14		5.85		6.78
Salary trend		2.78		2.80		3.87		3.81
Pension trend		1.80		1.55		2.29		2.67
Employee turnover rate		1.02		1.10		4.22		4.20
Annual increase in healthcare costs		–		–		6.08		6.72