104
Notes to the Consolidated Financial Statements (continued)
26. Employee benefits (continued)
Inflation risk
Life expectancy
Principal actuarial assumptions as at the balance sheet date
Sensitivity analysis
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Heineken N.V. Annual Report 2017
Some of the pension obligations are linked to inflation. Higher inflation will lead to higher liabilities, although in most cases caps on the level of
inflationary increases are in place to protect the plan against extreme inflation. The majority of the plan assets are either unaffected by or loosely
correlated with inflation, meaning that an increase in inflation will increase the deficit.
HEINEKEN provides employees in the Netherlands with an average pay pension plan, whereby indexation of accrued benefits is conditional on the
funded status of the pension fund. In the UK, inflation is partly managed through the use of a mixture of inflation-linked derivative instruments.
These instruments match 35% of the inflation-linked liabilities (2016: 41%).
The majority of the plans' obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase
in the plans' liabilities. This is particularly significant in the UK plan, where inflation-linked increases result in higher sensitivity to changes in
life expectancy. In 2015, the Trustee of SNPP implemented a longevity hedge to remove the risk of a higher increase in life expectancy than
anticipated for the 2015 population pensioners.
Based on the significance of the Dutch and UK pension plans compared with the other plans, the table below only includes the major actuarial
assumptions for those two plans as at 31 December:
The Netherlands UK*
In 2017 2016 2017 2016
Discount rate as at 31 December
Future salary increases
Future pension increases
1.7
2.0
0.9
1.5
2.0
0.4
2.5
2.9
2.7
3.1
The UK plan closed for future accrual, leading to certain assumptions being equal to zero.
For the other defined benefit plans, the following actuarial assumptions apply at 31 December:
Europe Americas
In 2017 2016 2017
Africa, Middle East Eastern Europe
2016 2017 2016
Discount rate as at 31 December
Future salary increases
Future pension increases
Medical cost trend rate
0.7-4.5
0.0-3.5
0.0-1.5
0.0-4.5
0.6-6.8
0.0-3.5
0.0-1.5
0.0-4.5
7.0-8.0
0.0-4.5
0.0-3.5
0.0-7.5
7.0-7.6
0.0-4.5
0.0-3.5
0.0-5.0
1.7-14.5
0.0-5.0
0.0-2.6
0.0-5.0
1.5-15.5
0.0-5.0
0.0-3.5
0.0-5.0
Assumptions regarding future mortality rates are based on published statistics and mortality tables. Forthe Netherlands, the rates are obtained
from the AG-Prognosetafel 2016', fully generational. Correction factors (2016) from 'Sprenkels en Verschuren' are applied on these rates. Forthe
UK, the future mortality rates are obtained by applying the Continuous Mortality Investigation 2014 projection model with an assumed long
term rate of 1.5% p.a. to the Self-Administered Pension Schemes Series 2 (year of birth) tables with a 112% (male)/109% (female) weighting for
pensioners and a 105% (male)/106% (female) weighting for non-pensioners.
The weighted average duration of the defined benefit obligation at the end of the reporting period is 18 years.
HEINEKEN expects the 2018 contributions to be paid forthe defined benefit plans to be in line with 201 7.
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have
affected the defined benefit obligation by the amounts shown below:
31 December 2017 31 December 2016
Effect in millions of
Increase in
assumption
Decrease in
assumption
Increase in
assumption
Decrease in
assumption
Discount rate (0.5% movement)
(738)
846
(695)
798
Future salary growth (0.25% movement)
15
(15)
23
(22)
Future pension growth (0.25% movement)
355
(302)
332
(309)
Medical cost trend rate (0.5% movement)
5
(5)
5
(4)
Life expectancy (1 year)
305
(302)
300
(301)
Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the
sensitivity of the assumptions shown.
