17 RETIREMENT BENEFITS
Retirement benefits are provided through a number of funded and unfunded defined benefit plans and defined contribution plans, the most significant of which are in the Netherlands, UK and USA. Benefits comprise principally pensions; retirement healthcare and life insurance are also provided in certain countries.
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Retirement benefit expense |
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$ million |
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2017 |
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2016 |
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2015 |
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Defined benefit plans: |
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Current service cost, net of plan participants’ contributions |
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1,500 |
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1,527 |
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1,855 |
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Interest expense on obligations |
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2,309 |
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2,643 |
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2,944 |
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Interest income on plan assets |
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(2,019 |
) |
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(2,358 |
) |
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(2,495 |
) |
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Other |
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(404 |
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(116 |
) |
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207 |
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Total |
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1,386 |
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1,696 |
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2,511 |
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Defined contribution plans |
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429 |
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485 |
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473 |
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Total retirement benefit expense |
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1,815 |
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2,181 |
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2,984 |
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Retirement benefit expense is presented principally within production and manufacturing expenses and selling, distribution and administrative expenses in the Consolidated Statement of Income. Interest income on plan assets is calculated using the same rate as that applied to the related defined benefit obligations for each plan to determine interest expense.
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Remeasurements |
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$ million |
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2017 |
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2016 |
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2015 |
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Actuarial gains/(losses) on obligations: |
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Due to changes in demographic assumptions |
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933 |
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809 |
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(517 |
) |
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Due to changes in financial assumptions [A] |
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(4,495 |
) |
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(11,391 |
) |
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6,381 |
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Due to experience adjustments |
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37 |
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642 |
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121 |
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Total |
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(3,525 |
) |
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(9,940 |
) |
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5,985 |
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Return on plan assets in excess of interest income |
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4,942 |
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5,106 |
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298 |
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Other movements |
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50 |
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18 |
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55 |
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Total remeasurements |
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1,467 |
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(4,816 |
) |
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6,338 |
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[A] Mainly in the discount rates applied.
Experience adjustments arise from differences between the actuarial assumptions made in respect of the year and actual outcomes.
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Defined benefit plans |
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$ million |
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Dec 31, 2017 |
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Dec 31, 2016 |
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Obligations |
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(104,285 |
) |
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(94,405 |
) |
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Plan assets |
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93,243 |
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81,276 |
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Net liability |
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(11,042 |
) |
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(13,129 |
) |
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Retirement benefits in the Consolidated Balance Sheet: |
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Non-current assets |
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2,799 |
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1,456 |
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Non-current liabilities |
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(13,247 |
) |
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(14,130 |
) |
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Current liabilities |
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(594 |
) |
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(455 |
) |
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Total |
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(11,042 |
) |
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(13,129 |
) |
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Defined benefit plan obligations |
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$ million, except where indicated |
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2017 |
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2016 |
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At January 1 |
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94,405 |
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89,426 |
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Current service cost |
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1,550 |
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1,585 |
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Interest expense |
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2,309 |
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2,643 |
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Actuarial losses |
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3,525 |
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9,940 |
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Benefit payments |
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(4,579) |
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(3,847) |
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Other movements |
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(949) |
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1,006 |
[A] |
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Currency translation differences |
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8,024 |
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(6,348) |
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At December 31 |
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104,285 |
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94,405 |
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Comprising: |
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Funded pension plans |
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94,903 |
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85,357 |
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Weighted average duration |
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19 years |
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18 years |
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Unfunded pension plans |
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4,824 |
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4,463 |
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Weighted average duration |
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12 years |
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11 years |
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Other unfunded plans |
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4,558 |
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4,585 |
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Weighted average duration |
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13 years |
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13 years |
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[A] Includes additions to obligations on acquisition of BG of $1,958 million.
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Defined benefit plan assets |
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$ million, except where indicated |
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2017 |
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2016 |
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At January 1 |
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81,276 |
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80,851 |
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Return on plan assets (in excess of interest income) |
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4,942 |
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5,106 |
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Interest income |
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2,019 |
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2,358 |
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Employer contributions |
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1,804 |
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1,341 |
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Plan participants’ contributions |
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50 |
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58 |
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Benefit payments |
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(4,294) |
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(3,560) |
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Other movements |
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(245) |
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1,211 |
[A] |
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Currency translation differences |
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7,691 |
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(6,089) |
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At December 31 |
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93,243 |
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81,276 |
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Comprising: |
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Quoted in active markets: |
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Equities |
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32% |
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29% |
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Debt securities |
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45% |
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46% |
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Real estate |
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1% |
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1% |
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Investment funds |
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1% |
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1% |
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Other |
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1% |
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1% |
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Other: |
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Equities |
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7% |
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9% |
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Debt securities |
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3% |
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3% |
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Real estate |
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6% |
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6% |
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Investment funds |
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3% |
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2% |
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Other |
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1% |
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2% |
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[A] Includes additions to plan assets on acquisition of BG of $2,194 million.
Long-term investment strategies of plans are generally determined by the relevant pension plan trustees using a structured asset liability modelling approach to define the asset mix that best meets the objectives of optimising returns within agreed risk levels while maintaining adequate funding levels.
Employer contributions to defined benefit pension plans are set by local trustees based on actuarial valuations in accordance with local regulations and are estimated to be $1.0 billion in 2018.
Additional contributions to the Netherlands defined benefit pension plan would be required if the 12-month rolling average local funding percentage falls below 105% for six months or more. At the most recent (2017) funding valuation the local funding percentage was above this level. There are no set minimum statutory funding requirements for the UK plans. Under an agreement with the trustee of the main UK defined benefit plan, Shell will provide additional contributions if the funding position falls below a certain level. For the US plans, under the Pension Protection Act there are minimum required contribution levels; forecast contributions are expected to exceed these.
The principal assumptions applied in determining the present value of defined benefit obligations and their bases were as follows:
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rates of increase in pensionable remuneration, pensions in payment and healthcare costs: historical experience and management’s long-term expectation; |
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discount rates: prevailing long-term AA corporate bond yields, chosen to match the currency and duration of the relevant obligation; and |
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mortality rates: published standard mortality tables for the individual countries concerned adjusted for Shell experience where statistically significant. |
The weighted averages for those assumptions and related sensitivity information at December 31 are presented below. Sensitivity information indicates by how much the defined benefit obligations would increase or decrease if a given assumption were to increase or decrease with no change in other assumptions.
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$ million, except where indicated |
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Effect of using alternative assumptions |
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Assumptions used |
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Increase/(decrease) in defined benefit obligations |
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2017 |
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2016 |
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Range of assumptions |
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2017 |
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2016 |
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Rate of increase in pensionable remuneration |
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5% |
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5% |
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-1% to +1% |
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(2,150) to 2,782 |
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(1,895) to 2,504 |
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Rate of increase in pensions in payment |
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2% |
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2% |
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-1% to +1% |
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(10,120) to 12,662 |
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(8,850) to 11,271 |
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Rate of increase in healthcare costs |
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7% |
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7% |
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-1% to +1% |
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(451) to 551 |
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(455) to 555 |
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Discount rate for pension plans |
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3% |
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3% |
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-1% to +1% |
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19,042 to (14,567) |
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16,904 to (12,912) |
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Discount rate for healthcare plans |
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4% |
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4% |
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-1% to +1% |
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599 to (483) |
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662 to (528) |
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Expected age at death for persons aged 60: |
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Men |
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87 years |
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87 years |
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-1 year to +1 year |
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(1,906) to 2,022 |
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(1,743) to 1,797 |
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Women |
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89 years |
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89 years |
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-1 year to +1 year |
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(1,720) to 1,828 |
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(1,484) to 1,530 |
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2017 |
1 |
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