[26] Retirement benefit obligation

The retirement benefit obligation is recognised for obligations to provide current and future post-employment benefits. Post-employment benefit plans are classified as either defined benefit plans or defined contribution plans, depending on the substance of the plan as derived from its principal terms and conditions.

Defined contribution plans

In the case of defined-contribution pension plans, the Group pays contributions to government or private pension insurance providers based on statutory or contractual provisions, or on a voluntary basis. The Group does not enter into any obligations above and beyond the payment of contributions to an external pension fund. The amount of future benefits is based solely on the amount of the contributions paid by the employer (and in some cases the beneficiaries themselves) to the external pension fund, including income from the investment of these contributions. The total expense arising from defined contribution plans amounted to €56,118 thousand in 2011 (2010: €48,867 thousand). Of this total, contributions paid by employers into government-run plans amounted to €53,337 thousand (2010: €46,480 thousand). The defined contribution plan expense is reported within the functional costs.

Defined benefit plans

The KION Group currently grants pensions to almost all employees in Germany and a number of foreign employees. These pensions consist of fixed benefit entitlements and are therefore reported as defined benefit plans in accordance with IFRS. For all of the significant defined benefit plans within the Group, the benefits granted to employees are determined on the basis of their individual income, i.e. either directly or by way of intermediate benefit arrangements.

In accordance with IAS 19 ('Employee Benefits'), pension provisions are recognised to cover obligations arising from the current and future pension entitlements of active and former employees of the KION Group and their surviving dependants.

Some of KION Group's pension obligations in Germany are financed by way of contractual trust arrangements (CTAs), which qualify as plan assets within the meaning of IAS 19. In the United Kingdom, Switzerland and the Netherlands, significant plan assets are invested in external pension funds with restricted access.

In the case of defined benefit plans, the beneficiaries are granted a specific benefit by the Group or an external pension fund. Due to future salary increases, the benefit entitlement at the retirement age of the beneficiary is likely to be higher than the amount granted at the reporting date. Pensions are often adjusted after an employee reaches retirement age. The amount of the Group's obligation, which is defined as the actuarial present value of the obligation to provide the level of benefits currently earned by each beneficiary, is expressed as the present value of the defined benefit obligation, which includes adjustments for future salary and pension increases.

Measurement assumptions

The discount rate used to calculate the defined benefit obligation at each reporting date is determined on the basis of current capital market data and long-term assumptions about future salary and pension increases in accordance with the best estimate principle. These assumptions vary depending on the economic conditions affecting the currency in which benefit obligations are denominated and in which fund assets are invested, as well as capital market expectations.

Benefit obligations are calculated on the basis of current mortality probabilities as determined in accordance with actuarial principles. The calculations also include assumptions about future employee turnover based on employee age and years of service and about the probability of retirement. The defined benefit obligation is calculated on the basis of the following weighted-average assumptions as at the reporting date:

The assumed discount rate is determined on the basis of the yield as at the reporting date on investment-grade, fixed-interest corporate bonds with maturities that match the expected maturities of the pension obligations. Pension obligations in foreign companies are calculated on a comparable basis taking into account any country-specific requirements.

The expected return on plan assets is determined on the basis of the plan's policy regarding the asset classes in which it invests. Expected returns are based on the current yields on government bonds with corresponding maturities, adjusted for specific credit spreads for the different asset classes. The expected return on plan assets is recognised as income in the relevant period. The differences between expected and actual income on plan assets represent experience adjustments and are recognised in other comprehensive income in the year in which they arise.

The rate of remuneration increase relates to expected future increases in salaries, which are estimated on an annual basis taking into account factors such as inflation and the overall economic situation.

The mortality rates used in the calculation are based on published country-specific statistics and empirical values. Since 31 December 2009, the modified Heubeck 2005 G mortality tables have been used in Germany as the basis; the modified tables include a somewhat higher life expectancy for males than the unmodified tables.

The actuarial assumptions not listed in the table above, such as employee turnover, invalidity, etc., are determined in accordance with recognised forecasts in each country, taking into account the circumstances and forecasts of the companies concerned.

The assumptions applied in calculating the defined benefit obligation as at 31 December 2010 also apply to the calculation of the interest cost and the current service cost in 2011.

Differences between the forecast and actual change in the defined benefit obligation and changes in related assets (actuarial gains and losses) are recognised immediately in other comprehensive income in accordance with IAS 19. This serves to ensure that the pension liability on the face of the statement of financial position is always the actuarial present value of obligations not funded by plan assets.

In the case of external pension funds, the actuarial present value of the pension obligations, as calculated in accordance with the projected unit credit method, is reduced by the fair value of the assets of the external pension funds. If the assets of the external pension funds exceed the pension obligations, a corresponding asset is recog-nised in accordance with IAS 19. IAS 19.58 in conjunction with supplementary explanatory guidance in IFRIC 14 states that the recognition of an asset for this excess of pension plan assets over pension obligations is only permitted if the company concerned is entitled to receive a refund of this excess or a reduction in future contribu-tions in its function as the employer responsible for the benefits under the plan. If pension obligations are not covered by the assets of an external pension fund, the net obligation is reported in pension provisions.

Plan assets for the defined benefit plans in the UK exceed the pension obligations. The requirements which limit the asset to be recognised on the statement of financial position do not apply.

Statement of financial position

The change in the present value of the defined benefit obligation is as follows:

The reduction in the present value of defined benefit obligations arising from actuarial gains relate to the year-over-year increase in the discount rates applicable to pension plans in Germany (€14,150 thousand) and is al-most totally offset by the increase in the present value of defined benefit obligations arising from actuarial losses relating to the year-over-year decrease in the discount rates applicable to pension plans in the United Kingdom (€12,665 thousand).

The effects of the restructuring programme on the defined benefit obligation are reported in the relevant financial year as gains on the curtailment of a plan in accordance with IAS 19.

The following table shows the change in the fair value of plan assets:

In 2010, employer contributions included a non-recurring payment of €9,000 thousand into a German CTA. Decisions on additions to plan assets take into account the change in plan assets and pension obligations. For companies outside Germany, decisions also take into account the statutory minimum coverage requirements and the amounts deductible under local tax rules.

The payments expected for the following year amount to €21,845 thousand (2011: €20,571 thousand), which include expected employer contributions of €8,831 thousand to plan assets (2011: €8,156 thousand) and expected direct payments of pension benefits amounting to €13,014 thousand (2011: €12,415 thousand) that are not covered by corresponding reimbursements from plan assets.

The reconciliation of funded status and net defined benefit obligation to the amounts reported on the face of the consolidated statement of financial position as at 31 December is shown in the following table:

In addition, the KION pension plan for employees of the KION Group in Germany holds plan assets of €18,474 thousand (2010: €16,840 thousand) which are wholly offset by corresponding liabilities relating to the direct pension entitlement plan.

Statement of cash flows

In the case of obligations not covered by external assets, payments to beneficiaries are made directly by the Company and therefore have an impact on cash flows from operating activities. If the benefit obligations are backed by external assets, the payments are made from existing plan assets and have no effect on the Company's cash flow. Instead, any contributions made to the external pension fund by the Company result in net cash used for operating activities.

During the reporting year, pension benefits of €30,539 thousand (2010: €33,307 thousand) were paid in connection with the main pension entitlements in the Group, of which €12,643 thousand (2010: €11,640 thousand) was paid directly by the Company and €17,896 thousand (2010: €21,667 thousand) was paid from plan assets. Cash contributions to plan assets in 2011 amounted to €8,180 thousand (2010: €17,780 thousand). Furthermore, pension benefit payments totalling €215 thousand (2010: €0) were transferred to external pension funds.

Income statement

In accordance with IAS 19, actuarial computations are performed for benefit obligations in order to determine the amount to be expensed in each period in a systematic way. The expenses recognised in the income statement for pensions and similar obligations consist of a number of components that are calculated and disclosed separately.

The service cost is the new pension entitlement arising in the financial year and is recognised in the income statement. It is calculated as the actuarial present value of that proportion of the expected defined benefit obligation when the pension is paid attributable to the year under review on the basis of the maximum length of service achievable by each employee.

The interest cost (i.e. the expense arising from increase in the defined benefit obligation since the end of the previous year because the benefits are one period closer to settlement using the discount rate assumed for the year under review) is recognised in the income statement, as is the expected return on plan assets in the case of benefits covered by external plan assets.

An unrecognised past service cost arises if there is a change to the pension entitlement.

The breakdown of the net cost of the defined benefit obligation (expenses less income) recognised in the income statement for 2011 is as follows:

Overall, the KION Group reported an expense of €19,704 thousand (2010: €18,187 thousand) under net financial income/expenses. This amount comprised the interest cost and the expected return on plan assets. All other components of pension expenses are recognised under functional costs.

The actual total return on plan assets in 2011 was €36,446 thousand (2010: €40,597 thousand).

Other comprehensive income (loss)

The breakdown of actuarial gains and losses on the defined benefit obligation recognised in the statement of comprehensive income in 2011 are as follows:

Primarily experience adjustments to plan assets had increased other comprehensive income by a total of €8,394 thousand as at 31 December 2011 (after deferred taxes).

Additional disclosures

The plan assets of the main pension plans consist of the following components:

The plan assets do not include any real estate or other assets used by the KION Group itself. The increase in the Other category is largely attributable to the change in the portfolio structure of the four large plans in the United Kingdom and concerns inflation-linked UK government bonds.

The expected return in 2012 for the main investment categories of plan assets are as follows:

The total expected return is calculated from the weighted average expected returns from the investment categories in the plan assets.

The present value of the defined benefit obligation is based on the assumptions detailed above. If the discount rate were to increase or decrease by a quarter of one percentage point (rising to 5.9 per cent or falling to 5.4 per cent in the case of Germany as at 31 December 2011), pension entitlements would be €35,632 thousand (2010: €32,312 thousand) lower or €35,747 thousand (2010: €34,559 thousand) higher, respectively. Other comprehen-sive income, after tax, would be €25,999 thousand (2010: €23,147 thousand) higher or €26,036 thousand (2010: €24,757 thousand) lower.

Five-year overview

The following table shows a five-year overview of experience adjustments arising from the differences between actuarial assumptions and actual circumstances:

While the actuarial gains and losses on the present value of the obligation only result in part from experience adjustments, the actuarial gains or losses on the fair value of the plan assets are entirely attributable to experience adjustments.