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10 Post-employment benefits

Defined benefit plans

­Swisscom maintains several pension plans for employees in Switzerland and Italy. Expenses of defined benefit plans totalled CHF 346 million in 2015 (prior year: CHF 268 million). Of this amount, CHF 320 million (prior year: CHF 244 million) was recorded as personnel expense and CHF 26 million (prior year: CHF 24 million) as finance expense.

comPlan

The majority of Swisscom’s employees in Switzerland are insured for the risks of old age, death and disability by the independent pension plan, comPlan. The benefits of comPlan exceed the minimum laid down in the Federal Law on Occupational Retirement, Survivors’ and Disability Insurance (BVG). The ordinary employer contributions encompass risk contributions of 3.35% and contributions varying with age of 5–13% of the insured salary which are credited to the individual retirement savings accounts. The standard retirement age is 65. Employees qualify for early retirement at the earliest on their 58th birthday, whereby the rate of conversion is reduced in line with the longer expected duration of pension payments. Furthermore, employees may choose to take their entire pension or part thereof in the form of a capital payment. The amount of the pension paid results from the conversion rate which is applied to the accumulated savings of the individuals concerned in the case of retirement. For individuals retiring at the age of 65, the rate of conversion is 6.11%. The accumulated savings result from employee and employer contributions which are paid into the individual savings account of each insured person as well as the interest accruing on the accumulated savings. The interest rate to be applied to the accumulated pension savings is defined annually by the Foundation Council of comPlan. comPlan has the legal form of a foundation. The Foundation Council, which is constituted by an equal number of representatives of the employer and employees, is responsible for the management of the Foundation. The duties of the Foundation Council are laid down in the BVG and the Pension Fund Rules. In accordance with BVG, a temporary funding shortfall is permitted. The Foundation Council must take appropriate measures in order to solve the shortfall within a reasonable timeframe. Pursuant to BVG, additional employer and employee contributions may be incurred whenever a significant shortfall in accordance with BVG arises. In such cases, the risk is split between the employer and employees and the employer is not legally obligated to assume more than 50% of the additional contributions. As of 31 December 2015, the funding ratio as defined by BVG of comPlan was approx. 108% (prior year: 111%). The Investment Commission is the central management, coordination and monitoring body for the management of the pension plan assets. The pension plan assets are administered using mandated, independent financial service providers. Monitoring is supported by an external investment controller. The Foundation Council determines the investment strategy and tactical bandwidths within the framework of the legal provisions. Within its terms of reference, the Investment Commission may undertake the asset allocation.

Other pension plans

In addition to the plans of various subsidiary companies in Switzerland which did not join comPlan, other pension plans include the pension plan for Fastweb employees. Employees of the Italian subsidiary Fastweb have acquired entitlements to future pension benefits up to the end of 2006. These benefits are recorded in the balance sheet as defined-benefit obligations.

Pension cost

Defined-benefit pension plans

In CHF million
 
comPlan
  Other
plans
 
2015
 
comPlan
  Other
plans
 
2014
Current service cost   305   13   318   234   6   240
Plan amendments     (3)   (3)      
Administration expense   4   1   5   3   1   4
Total recognised in personnel expense   309   11   320   237   7   244
Interest cost on net defined benefit obligations   25   1   26   24     24
Total recognised in financial expense   25   1   26   24     24
Total expense of defined benefit plans recognised in income statement   334   12   346   261   7   268

In addition, other comprehensive income includes an actuarial loss of CHF 393 million (prior year: CHF 1,128 million) which may be analysed as follows:


In CHF million
 
comPlan
  Other
plans
 
2015
 
comPlan
  Other
plans
  2014
restated
Actuarial gains and losses from:                        
Change of the demographical assumptions   (3)     (3)      
Change of the financial assumptions   171   2   173   1,536   12   1,548
Experience adjustments to defined benefit obligations   85   (8)   77   (102)     (102)
Return on plan assets excluding the recognised part of financial result   146     146   (315)   (3)   (318)
Expense (income) of defined benefit plans recognised in other comprehensive income   399   (6)   393   1,119   9   1,128
Defined-contribution pension plans

Expenses in 2015 for defined-contribution plans aggregated CHF 9 million (prior year: CHF 10 million).

Status of pension plans


In CHF million
 
comPlan
  Other
plans
 
2015
 
comPlan
  Other
plans
  2014
restated
                         
Defined benefit obligations                        
Balance at 1 January   11,406   294   11,700   9,533   162   9,695
Current service cost   305   13   318   234   6   240
Interest cost on defined benefit obligations   127   3   130   218     218
Employee contributions   169   6   175   162   1   163
Benefits paid   (288)   (19)   (307)   (259)   (2)   (261)
Actuarial losses (gains)   253   (6)   247   1,434   12   1,446
Additions from business combinations     89   89     199   199
Disposals from sales of subsidiaries   (37)   (1)   (38)      
Plan amendments     (12)   (12)      
Foreign currency translation adjustments     (2)   (2)      
Transfer of pension plans to comPlan   248   (248)     84   (84)  
Balance at 31 December   12,183   117   12,300   11,406   294   11,700
           
                         
Plan assets                        
Balance at 1 January   9,026   242   9,268   8,286   116   8,402
Interest income on plan assets   102   2   104   194     194
Employer contributions   256   9   265   259   7   266
Employee contributions   169   6   175   162   1   163
Benefits paid   (288)   (19)   (307)   (259)   (2)   (261)
Return on plan assets excluding the part recognised in financial result   (146)     (146)   315   3   318
Additions from business combinations     59   59     190   190
Disposals from sales of subsidiaries   (23)     (23)      
Plan amendments     (9)   (9)      
Administration expense   (4)   (1)   (5)   (3)   (1)   (4)
Transfer of pension plans to comPlan   215   (215)     72   (72)  
Balance at 31 December   9,307   74   9,381   9,026   242   9,268
           
                         
Net defined benefit obligations                        
Net defined benefit obligations recognised at 31 December   2,876   43   2,919   2,380   52   2,432

Movements in recognised defined-benefit obligations are to be analysed as follows:


In CHF million
 
comPlan
  Other
plans
 
2015
 
comPlan
  Other
plans
  2014
restated
Balance at 1 January   2,380   52   2,432   1,247   46   1,293
Pension cost, net   334   12   346   261   7   268
Employer contributions and benefits paid   (256)   (9)   (265)   (259)   (7)   (266)
Disposals from sales of subsidiaries   (14)   (1)   (15)      
Additions from business combinations     30   30     9   9
Expense (income) of defined benefit plans recognised in other comprehensive income   399   (6)   393   1,119   9   1,128
Foreign currency translation adjustments     (2)   (2)      
Transfer of pension plans to comPlan   33   (33)     12   (12)  
Balance at 31 December   2,876   43   2,919   2,380   52   2,432

The weighted average duration of the net present value of the recorded pension obligations is 18 years (prior year: 18 years).

Breakdown of pension plan assets

comPlan

The breakdown of the comPlan’s pension assets by the various investment categories and investment strategy is as follows:

      31.12.2015   31.12.2014

Category
  Investment
strategy
 
Quoted
  Not
quoted
 
Total
 
Quoted
  Not
quoted
 
Total
Government bonds Switzerland   8.0%   2.2%   7.4%   9.6%   5.3%   7.7%   13.0%
Corporate bonds Switzerland   6.0%   7.8%   0.0%   7.8%   8.7%   0.0%   8.7%
Government bonds developed markets, World   10.0%   10.1%   0.0%   10.1%   11.0%   0.0%   11.0%
Corporate bonds developed markets, World   9.0%   9.0%   0.0%   9.0%   7.9%   0.0%   7.9%
Government bonds emerging markets, World   7.0%   6.5%   0.0%   6.5%   6.6%   0.0%   6.6%
Private debt   6.0%   0.0%   4.9%   4.9%   0.0%   1.0%   1.0%
Third-party debt instruments   46.0%   35.6%   12.3%   47.9%   39.5%   8.7%   48.2%
Equity shares Switzerland   5.0%   4.9%   0.0%   4.9%   6.2%   0.0%   6.2%
Equity shares developed markets, World   12.0%   11.0%   0.0%   11.0%   12.7%   0.0%   12.7%
Equity shares emerging markets, World   8.0%   7.4%   0.0%   7.4%   8.1%   0.0%   8.1%
Equity instruments   25.0%   23.3%   0.0%   23.3%   27.0%   0.0%   27.0%
Real estate Switzerland   11.0%   8.2%   3.6%   11.8%   8.1%   2.3%   10.4%
Real estate World   6.0%   3.7%   0.0%   3.7%   4.1%   0.0%   4.1%
Real estate   17.0%   11.9%   3.6%   15.5%   12.2%   2.3%   14.5%
Commodities   4.0%   1.7%   1.9%   3.6%   1.2%   2.6%   3.8%
Private markets   7.0%   0.0%   6.1%   6.1%   0.0%   5.1%   5.1%
Cash and cash equivalents and other investments   1.0%   0.0%   3.6%   3.6%   0.0%   1.4%   1.4%
Cash and cash equivalents and alternative investments   12.0%   1.7%   11.6%   13.3%   1.2%   9.1%   10.3%
Total plan assets   100.0%   72.5%   27.5%   100.0%   79.9%   20.1%   100.0%

The investment strategy pursues the goal of achieving the highest possible return on assets within the framework of its risk tolerance and thus of generating income on a long-term basis in order to meet all financial obligations. This is achieved through a broad diversification of risks over various investment categories, markets, currencies and industry segments in both developed and emerging markets. The interest rate duration of interest-bearing assets is 5.77 years (prior year: 5.71 years) and the average rating of these assets is A–. Within the overall portfolio, all foreign currency positions are hedged against the Swiss franc following a currency strategy to the extent necessary to meet a pre-determined ratio of 94% (CHF or CHF-hedged). The unquoted and therefore rather illiquid investments make up 27.5% of total plan assets. Following this investment strategy, comPlan anticipates a target value for the value fluctuation reserve of 18.1% (basis: 2016 financial year).

Other pension plans

The other plans pursue the goal of achieving the highest possible return on assets within the framework of its risk tolerance and thus of generating income on a long-term basis in order to meet all financial obligations. This is achieved through a broad diversification of risks over various investment categories, markets, currencies and industry segments.

Additional information on plan assets

As of 31 December 2015, plan assets include Swisscom Ltd shares and bonds with a fair value of CHF 5 million (prior year: CHF 7 million). The effective return on plan assets in 2015 amounted to CHF –42 million (prior year: CHF 519 million).

In 2016, Swisscom expects to make payments to the pension funds for ordinary employee contributions totalling CHF 250 million (excluding payments for early retirements and changes to the pension plan).

Actuarial assumptions

  2015   2014
Assumptions   comPlan   Other plans   comPlan   Other plans
Discount rate at 31 December   0.94%   1.46%   1.13%   1.31%
Expected rate of salary increases   1.75%   1.64%   1.75%   1.81%
Expected rate of pension increases       0.10%   0.10%
Interest on old age savings accounts   0.94%   1.34%   1.13%   1.13%
Longevity at age of 65 – men (number of years)   21.49   21.49   21.39   21.39
Longevity at age of 65 – women (number of years)   23.96   23.96   23.86   23.86

The discount rate is based upon CHF-denominated corporate bonds with an AA rating issued by domestic and foreign issuers and listed on the Swiss Exchange. Future growth factors for salaries correspond to a long-term historical average value which is specific to Swisscom. Zero growth in pensions reflects comPlan’s lack of potential. Interest accruing on the retirement savings equates to the discount rate. From 2012 on, Swisscom applies the BVG 2010 generation tables for life-expectancy assumptions.

Sensitivity analysis comPlan

  Defined benefit obligations   Current service cost 1

In CHF million
  Increase
Assumption
  Decrease
Assumption
  Increase
Assumption
  Decrease
Assumption
Discount rate (change +/–0.5%)   (899)   1,040   (39)   47
Expected rate of salary increases (changes +/– 0.5%)   79   (74)   8   (8)
Expected rate of pension increases (change +0.5%; –0.0%)   792     29  
Interest on old age savings accounts (change +/– 0.5%)   118   (108)   8   (8)
Longevity at age of 65 (change +/–0.5 year)   166   (168)   5   (5)
1 The sensitivity refers to the current service cost recorded in personnel expense.

The sensitivity analysis takes into consideration the movement in pension-fund obligations as well as current-service costs in adjusting the actuarial assumptions by half a percentage point and half a year, respectively. In the process, only one of the assumptions is adjusted each time, the other parameters remain unchanged. In the sensitivity analysis in view of a negative movement in pension increases, no change was made as the reduction in pension benefits is not possible.