[29] Retirement benefit obligation and similar obligations

Defined contribution plans

In the case of defined contribution pension plans, entities in the KION Group pay contributions to government or private pension insurance providers based on statutory or contractual provisions, or on a voluntary basis. The total expense arising from defined contribution plans amounted to €170.6 million in 2023 (2022: €152.7 million). Of this total, contributions paid by employers into government-run schemes came to €125.7 million (2022: €116.8 million).

Defined benefit plans

The KION Group 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. As at December 31, 2023, the KION Group had set up defined benefit plans in 16 countries (December 31, 2022: 16 countries). 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. The largest of the KION Group’s defined benefit plans – together accounting for 81.5 percent of the global defined benefit obligation (December 31, 2022: 78.6 percent) and 70.2 percent of the corresponding plan assets (December 31, 2022: 65.5 percent) – are in Germany and the United Kingdom.

Germany

In Germany, the pension benefits granted comprise Company-funded pension entitlements and employees’ payment of part of their salary into the pension scheme. The contributions to the new pension plans are invested in investment funds under contractual trust arrangements (CTAs); resulting returns on plan assets are passed on to the pension beneficiaries when an insured event occurs. Members of the Executive Board and other executives are predominantly covered by individual pension plans. The amount of the benefits paid to executives depends on the type of entitlement. A very small proportion of pension benefits are granted in the form of final-salary-linked benefit obligations. The overwhelming majority of the existing pension entitlements are a combination of a defined benefit obligation and a defined contribution component. Executives who joined the Company or were promoted after 2017 are covered by fund-based individual pension plans.

In cases where entitlements are not securities-linked, some of the KION Group’s pension obligations in Germany under closed plans are financed by way of CTAs. The assets transferred to the trustee qualify as plan assets within the meaning of IAS 19. The trustees are required to follow a defined investment strategy and investment guidelines. There are no statutory minimum funding requirements. In the event of the Company’s insolvency, the company pension scheme in Germany is to a large extent protected by law by the insolvency protection scheme (Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit, PSVaG).

United Kingdom

In the United Kingdom, defined benefit pension obligations predominantly relate to two plans. The defined benefits include not only a life-long retirement pension but also surviving dependants’ benefits. The amount of the pension depends on employees’ length of service and final salary.

The two plans are closed to new employees. Each plan is monitored by its own board of trustees, which oversees the running of the plan as well as its funded status and the investment strategy. The members of the board of trustees are independent of the KION Group.

Under UK law, the board of trustees is obliged to have a valuation of the plan carried out at least every three years. In addition, KION GROUP AG has given default guarantees to the trustees of four pension plans, under which, if any of the companies concerned default, KION GROUP AG will assume all obligations of these companies up to a maximum guaranteed amount. As at December 31, 2023, the guaranteed amount totaled €80.1 million (December 31, 2022: €102.8 million).

Other countries

Furthermore, significant asset volumes are invested in external pension funds with restricted access in the US and Switzerland. Decisions on additions to plan assets take into account the change in plan assets and pension obligations. They also take into account the statutory minimum coverage requirements and the amounts deductible under local tax rules.

Measurement assumptions

The defined benefit obligation is calculated on the basis of the following significant weighted-average assumptions as at the reporting date:

The assumed discount rate was determined on the basis of the yields as at the reporting date on AA-rated, fixed-interest senior corporate bonds with maturities that match the expected maturities of the pension obligations.

Future increases in salaries are re-estimated on an annual basis taking into account factors such as inflation and the overall economic situation.

The biometric mortality rates used in the calculation are based on published country-specific statistics and empirical values. Since 2018, the Heubeck ‘Richttafeln 2018 G’ mortality tables have been used as the biometric basis in Germany. The S2PA tables (standard mortality tables for self-administered pension schemes (SAPS) based on normal health) are applied to the two defined benefit plans in the United Kingdom.

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

The following significant weighted-average assumptions were applied to the calculation of the net interest cost and the current service cost:

Statement of financial position

The change in the present value of the defined benefit obligation is shown in the following table:

A defined benefit plan was reclassified as a defined contribution plan in 2023. This change is shown in the > tables ‘Changes in defined benefit obligation’ and ‘Changes in plan assets’ under Liability transfer out to third parties.

The defined benefit obligation in the other countries was predominantly attributable to subsidiaries in the US (€165.7 million; December 31, 2022: €165.5 million) and Switzerland (€71.8 million; December 31, 2022: €59.5 million).

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

Employees in Germany paid a total of €3.7 million from their salaries into the KION pension plan in 2023 (2022: €3.7 million).

The payments expected for 2024 amount to €92.0 million (in 2022: €40.5 million for 2023), which includes direct payments of pension benefits amounting to €34.1 million (in 2022: €27.5 million for 2023) that are not covered by corresponding reimbursements from plan assets. In 2023, the employer contributions included a non-recurring addition of €50.0 million in Germany in order to increase the funding ratio of the pension plans.

The reconciliation of funded status and net defined benefit obligation to the amounts reported in the consolidated statement of financial position as at December 31, 2023 is shown in the following table:

Overall, the funding ratio (ratio of plan assets to the present value of the defined benefit obligation) in the KION Group was 54.1 percent (December 31, 2022: 54.1 percent).

The changes in the retirement benefit obligation and similar obligations reported in the statement of financial position are shown in the following table:

Statement of cash flows

Payments totaling €85.9 million (2022: €35.5 million) were made in 2023 for the main pension entitlements in the KION Group. They mostly comprised pension benefits of €26.1 million (2022: €22.3 million) granted directly by the Company and employer contributions to plan assets amounting to €59.7 million (2022: €13.2 million), which included the non-recurring addition of €50.0 million made in 2023 in order to increase the funding ratio of the pension plans. In addition, pension benefits of €31.4 million (2022: €32.3 million) were paid from plan assets.

Income statement

The breakdown of the net cost of the defined benefit obligation (expenses less income) recognized in the income statement for 2023 is as follows:

The total service cost of €26.9 million was recognized in functional costs (December 31, 2022: €35.4 million). The net interest cost of €23.5 million was recognized in net financial expenses (December 31, 2022: €13.7 million).

The actual return on plan assets in 2023, including the remeasurement recognized in other comprehensive income, was €56.8 million (2022: minus €185.3 million).

Other comprehensive income (loss)

The breakdown of the remeasurement of the defined benefit obligation recognized in the consolidated statement of comprehensive income in 2023 is presented in the following table:

The components of the remeasurements of the defined benefit obligation are listed in the > table ‘Changes in defined benefit obligation’. The Other changes line under other comprehensive income (loss) includes the derecognition of a defined benefit plan that has been reclassified as a defined contribution plan. This consists of the reclassification of the accumulated gains and losses on remeasurement to Retained earnings within equity.

The gains and losses on the remeasurement of plan assets were attributable entirely to experience adjustments. As at December 31, 2023, the changes in estimates relating to defined benefit pension entitlements resulted in a €58.7 million decrease in equity after deduction of deferred taxes (December 31, 2022: increase of €410.6 million).

Composition of plan assets

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

Sensitivity analysis

The sensitivities shown in the following table were based on detailed analysis carried out by specialist actuaries following the same approach that was taken to calculate the present value of the defined benefit obligation:

The changes shown in the sensitivity analysis are not representative of an actual change in the present value of the defined benefit obligation because variations in the significant assumptions are unlikely to occur in isolation as, to some extent, the assumptions are interrelated.

Future pension benefit payments

The pension benefit payments are forecast for the next ten years for the defined benefit pension entitlements in existence as at December 31, 2023.

The expected pension benefits break down into future benefits to be paid directly by the employer (for 2024: €34.1 million) and future benefits to be paid from existing plan assets (for 2024: €35.4 million).

As at the reporting date, the average duration of the defined benefit obligation, weighted on the basis of the present value of the defined benefit obligation, was 16.2 years in Germany (December 31, 2022: 15.4 years), 10.8 years in the United Kingdom (December 31, 2022: 10.2 years), and 11.2 years in the other countries (December 31, 2022: 11.5 years).

Risks

The funding ratio, the defined benefit obligation, and the associated costs depend on the performance of financial markets. The return on plan assets was assumed to equal the discount rate, which was determined on the basis of the yield earned on AA-rated, fixed-interest senior corporate bonds. If the actual return on plan assets falls below the discount rates applied, the net obligation arising out of the pension plans increases. The amount of the net obligation is also particularly affected by the discount rates, and the lower level of interest rates in all relevant currency areas is resulting in a larger net obligation. For the new pension plans in Germany, a gross obligation is recognized in the amount of the fair value of the corresponding plan assets, taking the promised guarantee payment into consideration.

The plan assets are predominantly invested in corporate bonds and inflation-linked UK government bonds, particularly in the United Kingdom. The market risk attaching to plan assets – above all in the case of equities – is mitigated by defining an investment strategy and investment guidelines and continually monitoring the assets’ performance. Moreover, a downward trend in financial markets could have a significant effect on minimum funding requirements, some of which apply outside Germany. However, the broad-ranging investment strategy for the KION Group’s plan assets helps to diversify capital market risk.

Investment committees use performance reports to regularly review the structure of the plan assets. The investment strategy for the securities-related plans in Germany is based on a lifecycle model in which the plan assets are reallocated to lower-risk asset classes as the beneficiaries get older. Asset/liability studies are produced for the defined benefit plans with plan assets in Germany, the United Kingdom, and the US at regular intervals. These studies are used as the basis for the investment policy, which also takes local legal requirements into account.

The KION Group also bears the full risk of possible future pension adjustments resulting from changes in longevity and inflation.

Payroll-based contributions to the KION pension plan made by employees in Germany are invested in fund units. If the actual returns on these fund units fall below the minimum rate of return that has been guaranteed to participating employees, the KION Group’s personnel expenses rise.