Post-employment benefits

Defined benefit plans

Swisscom maintains several pension plans for employees in Switzerland and Italy. Expenses of defined benefit plans totalled CHF 295 million in 2013 (prior year: CHF 80 million). Of this amount, CHF 258 million (prior year: CHF 50 million) was recorded as personnel expense and CHF 37 million (prior year: CHF 30 million) as finance expense.

comPlan

The majority of Swisscom’s employees 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 to be 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 6.4% up to the end of 2013. From 2014 onwards, the conversion rate was reduced to 6.11%. The accumulated savings result from employee and employer contributions which are paid into the individual savings account of each individual insured person as well as the interest accruing on the accumulated savings. The interest rate to be applied to the accumulated pension savings is laid down annually by the Foundation Council of comPlan. The legal form of comPlan is that of a foundation. The Foundation Council, which is constituted by a 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 deficit is permitted. The Foundation Council must take appropriate measures in order to rectify the funding deficit within a reasonable time. Pursuant to BVG, additional employer and employee contributions may be incurred whenever a significant funding deficit 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 2013, the funding ratio as defined by BVG of comPlan was approx. 106% (prior year: 103.4%). 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 assumed by an external investment controller. The Foundation Council determines the investment strategy within the framework of the legal provisions. Within its terms of reference, the Investment Commission may undertake the asset allocation.

In 2012, the Foundation Council resolved to make various amendments to the pension plan which are designed to ensure long-term financial stability considering the low interest rates and growing life expectancy. The amendments will take effect in 2014 and encompass measures affecting pension benefits. In particular, the rate of conversion and thus the level of future retirement benefits for new pensioners was lowered. The amendments to the pension plan led to a reduction in defined benefit obligations of CHF 157 million which was taken to income in the fourth quarter of 2012.

Other pension plans

In addition to various smaller pension plans in Switzerland, other plans include the pension plan for Fastweb employees. Employees of the Italian subsidiary Fastweb have acquired a title in future pension benefits up to the end of 2006. These benefits are recorded in the balance sheet as defined benefit obligations.

Pension cost


In CHF million
 
comPlan
 
Other plans
 
2013
 
comPlan
 
Other plans
  2012
restated
Current service cost   244   7   251   200   2   202
Plan amendments     (3)   (3)   (157)     (157)
Administration expense   3   1   4   3   1   4
Employment termination benefits   6     6   1     1
Total recognised in personnel expense   253   5   258   47   3   50
Interest cost on net defined benefit obligations   37     37   29   1   30
Total recognised in financial expense   37     37   29   1   30
Total expense of defined benefit plans recognised in income statement   290   5   295   76   4   80

In addition, other comprehensive income includes an actuarial gain of CHF 847 million (prior year: actuarial loss of CHF 769 million) which is recorded as a gain. This may be analysed as follows:


In CHF million
 
comPlan
 
Other plans
 
2013
 
comPlan
 
Other plans
  2012
restated
Actuarial gains and losses from:                        
Change of the demographic estimates         533   7   540
Change of the financial estimates   (384)   (24)   (408)   521   1   522
Experience adjustments to defined benefit obligations   (165)   2   (163)   140   1   141
Return on plan assets excluding the recognised part of financial result   (272)   (4)   (276)   (432)   (2)   (434)
Total (income) expense of defined benefit plans recognised in other comprehensive income   (821)   (26)   (847)   762   7   769

Expenses in 2013 for defined contribution plans aggregated CHF 11 million (prior year: CHF 12 million).

Status of pension plans


In CHF million
 
comPlan
 
Other plans
 
2013
 
comPlan
 
Other plans
  2012
restated
                         
Defined benefit obligations                        
Balance at 1 January   9,823   107   9,930   8,559   120   8,679
Current service cost   244   7   251   200   2   202
Interest cost on defined benefit obligations   188   2   190   197   2   199
Employee contributions   152   2   154   144   1   145
Benefits paid   (331)   (6)   (337)   (335)   (7)   (342)
Actuarial (gains) losses   (549)   (22)   (571)   1,194   9   1,203
Additions from acquisition of subsidiaries     85   85      
Plan amendments     (13)   (13)   (157)     (157)
Employment termination benefits   6     6   1     1
Transfer of pension plans to comPlan           20   (20)  
Balance at 31 December   9,533   162   9,695   9,823   107   9,930
           
                         
Plan assets                        
Balance at 1 January   7,772   50   7,822   7,129   61   7,190
Interest income on plan assets   151   2   153   168   1   169
Employer contributions   273   3   276   224   4   228
Employee contributions   152   2   154   144   1   145
Benefits paid   (331)   (4)   (335)   (335)   (5)   (340)
Return on plan assets excluding the recognised part of financial result   272   4   276   432   2   434
Additions from acquisition of subsidiaries     70   70      
Plan amendments     (10)   (10)      
Administration expense   (3)   (1)   (4)   (3)   (1)   (4)
Transfer of pension plans to comPlan         13   (13)  
Balance at 31 December   8,286   116   8,402   7,772   50   7,822
           
                         
Net defined benefit obligations                        
Net defined benefit obligations recognised at 31 December   1,247   46   1,293   2,051   57   2,108

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


In CHF million
 
comPlan
 
Other plans
 
2013
 
comPlan
 
Other plans
  2012
restated
Balance at 1 January   2,051   57   2,108   1,430   59   1,489
Pension cost, net   290   5   295   76   4   80
Employer contributions and benefits paid   (273)   (5)   (278)   (224)   (6)   (230)
Additions from acquisition of subsidiaries     15   15      
(Income) expense of defined benefit plans, recognised in other comprehensive income   (821)   (26)   (847)   762   7   769
Transfer of pension plans to comPlan         7   (7)  
Balance at 31 December   1,247   46   1,293   2,051   57   2,108

The weighted average duration of the net present value of the recorded pension obligations is 16.9 years.

Breakdown of pension plan assets

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

      31.12.2013   31.12.2012

Category
  Investment
strategy
 
Quoted
  Not
quoted
 
Total
 
Quoted
  Not
quoted
 
Total
Government bonds Switzerland   10.0%   10.7%   8.3%   19.0%   12.3%   9.0%   21.3%
Corporate bonds Switzerland   8.0%   11.1%     11.1%   12.2%     12.2%
Government bonds World-developed markets   11.0%   10.1%     10.1%   10.7%     10.7%
Corporate bonds World-developed markets   8.0%   1.2%     1.2%      
Government bonds World-emerging markets   6.0%   5.4%     5.4%   5.8%     5.8%
Third-party debt instruments   43.0%   38.5%   8.3%   46.8%   41.0%   9.0%   50.0%
Equity shares Switzerland   5.0%   7.9%     7.9%   8.2%     8.2%
Equity shares foreign developed markets   12.0%   14.2%     14.2%   13.9%     13.9%
Equity shares foreign emerging markets   8.0%   5.9%     5.9%   5.9%     5.9%
Equity instruments   25.0%   28.0%     28.0%   28.0%     28.0%
Real estate Switzerland   11.0%   6.6%   1.0%   7.6%   7.1%     7.1%
Real estate World   4.0%   3.7%     3.7%   4.6%     4.6%
Real estate   15.0%   10.3%   1.0%   11.3%   11.7%     11.7%
Commodities   4.0%   3.0%     3.0%   2.8%     2.8%
Private markets   5.0%   1.3%   3.5%   4.8%   1.8%   2.7%   4.5%
Hedge Funds   7.0%   0.6%     0.6%     2.4%   2.4%
Cash and cash equivalents and other investments   1.0%     5.5%   5.5%     0.6%   0.6%
Cash and cash equivalents and alternative investments   17.0%   4.9%   9.0%   13.9%   4.6%   5.7%   10.3%
Total plan assets   100.0%   81.7%   18.3%   100.0%   85.3%   14.7%   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 done 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 investments is 4.74 years (prior year: 4.97 years) and the average rating of these investments 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. Illiquid investments constitute a low percentage of total plan assets. Following this investment strategy, comPlan anticipates a target value for the value fluctuation reserve of 15.7% (basis: 2013 financial year).

Plan assets include 2,013 shares of Swisscom Ltd with a fair value of CHF 6 million (prior year: CHF 6 million). The effective return on plan assets in 2013 amounted to CHF 429 million (prior year: CHF 604 million).

In 2014, Swisscom expects to make payments to the pension funds for ordinary employee contributions totalling CHF 231 million (excluding payments for early retirements and changes to the pension plan).

Actuarial assumptions

  2013   2012
Assumptions   comPlan   Other plans   comPlan   Other plans
Discount rate at 31 December   2.30%   2.85%   1.94%   2.44%
Expected rate of salary increases   2.24%   2.19%   2.24%   2.06%
Expected rate of pension increases   0.10%   0.10%   0.10%   0.10%
Interest on old age savings accounts   2.30%   2.30%   1.50%   1.50%
Longevity at age of 65 – men (number of years)   21.29   21.29   21.18   21.18
Longevity at age of 65 – women (number of years)   23.76   23.76   23.66   23.66

The discount rate is based upon CHF-denominated corporate bonds with a AA rating issued by domestic and foreign issuers and quoted on the Swiss Exchange. Future growth factors for salaries corresponds to a long-term historical average value which is specific to Swisscom. Growth in pensions reflects comPlan’s ability to meet future pension increases based on the assumptions made. Interest accruing on the retirement savings equates the discount rate. From 2012 on, Swisscom applies the BVG2010 generation tables for life-expectancy assumptions. The change from period tables to generation tables resulted in an actuarial loss of CHF 534 million in 2012.

Sensitivity analysis

  Defined benefit obligations   Current service cost 1

In CHF million
  Increase
Assumption
  Decrase
Assumption
  Increase
Assumption
  Decrase
Assumption
Discount rate (change +/–0.5%)   (654)   752   (26)   31
Expected rate of salary increases (changes +/– 0.5%)   55   (51)   5   (5)
Expected rate of pension increases (change +0.5%; –0.1%)   577   (109)   19   (3)
Interest on old age savings accounts (change +/– 0.5%)   98   (89)   7   (6)
Longevity at age of 65 – (change +/–1 year)   111   (113)   3   (3)
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 a year, respectively. In the process, only one of the assumptions is adjusted each time, the remaining parameters remaining unchanged. In the sensitivity analysis in view of a negative movement in pension increases, only a change of -0.1% was made as the reduction in pension benefits is not possible.