35 – Employee Benefits

Share-Based Compensation Plans

The Group made grants of share-based compensation under the DB Equity Plan. This plan represents a contingent right to receive Deutsche Bank common shares after a specified period of time. The award recipient is not entitled to receive dividends during the vesting period of the award.

The share awards granted under the terms and conditions of the DB Equity Plan may be forfeited fully or partly if the recipient voluntarily terminates employment before the end of the relevant vesting period. Vesting usually continues after termination of employment in cases such as redundancy or retirement.

In countries where legal or other restrictions hinder the delivery of shares, a cash plan variant of the DB Equity Plan was used for granting awards.

The following table sets forth the basic terms of these share plans.

Grant year(s)

Deutsch Bank Equity Plan

Vesting schedule

Early retirement provisions

Eligibility

1

For members of the Management Board or of the Senior Management Group and all other regulated employees a further retention period of six months applies.

2

Early retirement provisions do not apply to members of the Management Board.

3

For members of the Management Board share delivery after a retention period of three years. For all other regulated employees share delivery after a retention period of six months.

4

For members of the Management Board a different schedule applies. For all other regulated employees share delivery after a further retention period of six months.

2013

Annual Award

1/3: 12 months1

Yes

Select employees as annual retention

1/3: 24 months1

 

1/3: 36 months1

 

Or cliff vesting after 45 months1

Yes2

Members of Management Board or of Senior Management Group

Retention/New Hire

Individual specification

Yes

Select employees to attract or retain key staff

Annual Award – Upfront

Vesting immediately at grant3

No

Regulated employees

2012/
2011

Annual Award

1/3: 12 months4

Yes

Select employees as annual retention

1/3: 24 months4

 

1/3: 36 months4

 

Retention/New Hire

Individual specification

Yes

Select employees to attract or retain key staff

Annual Award – Upfront

Vesting immediately at grant3

No

Regulated employees

2010

Annual Award

Graded vesting in nine equal tranches between 12 months and 45 months

Yes

Select employees as annual retention

 

Or cliff vesting after 45 months

Yes

Select employees as annual retention

Retention/New Hire

Individual specification

No

Select employees to attract or retain key staff

2009

Annual Award

50 %: 24 months

No

Select employees as annual retention

25 %: 36 months

 

25 %: 48 months

 

Retention/New Hire

Individual specification

No

Select employees to attract or retain key staff

Furthermore, the Group offers a broad-based employee share ownership plan entitled Global Share Purchase Plan (“GSPP”). The GSPP offers all active employees at participating Deutsche Bank entities the opportunity to purchase Deutsche Bank shares in monthly installments over one year. At the end of the purchase cycle, the bank matches the acquired stock in a ratio of one to one up to a maximum of ten free shares, provided that the employee remains at Deutsche Bank Group for another year. In total, over 20,000 staff from 31 countries enrolled in the fifth cycle that began in November 2013.

The Group has other local share-based compensation plans, none of which, individually or in the aggregate, are material to the consolidated financial statements.

Activity for Share Plans

 

Share units (in thousands)

Weighted-average grant date fair value per unit

Balance as of December 31, 2011

69,695

€ 37.37

Granted

38,648

€ 30.00

Issued

(43,425)

€ 33.80

Forfeited

(2,419)

€ 38.37

Balance as of December 31, 2012

62,499

€ 35.25

Granted

26,250

€ 34.89

Issued

(35,555)

€ 37.37

Forfeited

(1,903)

€ 34.95

Balance as of December 31, 2013

51,291

€ 33.61

The table also includes the grants under the cash plan variant of the DB Equity Plan.

Share-based payment transactions resulting in a cash payment give rise to a liability, which amounted to approximately € 32 million, € 44 million and € 35 million for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013, the grant volume of outstanding share awards was approximately € 1.7 billion. Thereof, € 1.2 billion had been recognized as compensation expense in the reporting year or prior to that. Hence, compensation expense for deferred share-based compensation not yet recognized amounted to € 0.5 billion as of December 31, 2013.

In addition to the amounts shown in the table above, approximately 11.8 million shares were issued to plan participants in February 2014, resulting from the vesting of DB Equity Plan awards granted in prior years (thereof 0.4 million units under the cash plan variant of this DB Equity Plan).

Furthermore, in February 2014 the Group granted awards of approximately 25 million units, with a grant value of € 35.44 per unit under the DB Equity Plan with modified plan conditions for 2014. Approximately 0.6 million units of these grants were made under the cash plan variant of this DB Equity Plan.

Taking into account the units issued and granted in February 2014 the balance of outstanding share awards as of month-end February 2014 is approximately 65 million units.

Post-employment Benefit Plans

Nature of Plans

The Group sponsors a number of post-employment benefit plans on behalf of its employees, both defined contribution plans and defined benefit plans. The Group’s plans are accounted for based on the nature and substance of the plan. Generally, for defined benefit plans the value of a participant’s accrued benefit is based on each employee’s remuneration and length of service; contributions to defined contribution plans are typically based on a percentage of each employee’s remuneration. The rest of this note focuses predominantly on the Group’s defined benefit plans.

The Group’s defined benefit plans are primarily described on a geographical basis, reflecting differences in the nature and risks of benefits, as well as in the respective regulatory environments. In particular, the requirements set by local regulators can vary significantly and determine to some extent the design and financing of the benefit plans. Key information is also shown based on participant status, which provides a broad indication of the maturity of the Group’s obligations.

 

Dec 31, 2013

in € m.

Germany

UK

U.S.

Other

Total

Defined benefit obligation related to

 

 

 

 

 

Active plan participants

3,670

659

359

671

5,359

Participants in deferred status

1,577

1,894

399

122

3,992

Participants in payment status

4,240

1,035

378

229

5,882

Total defined benefit obligation

9,487

3,588

1,136

1,022

15,233

Fair value of plan assets

9,142

4,099

856

921

15,018

Funding ratio (in %)

96

114

75

90

99

 

Dec 31, 2012

in € m.

Germany

UK

U.S.

Other

Total

Defined benefit obligation related to

 

 

 

 

 

Active plan participants

3,583

605

405

741

5,334

Participants in deferred status

1,540

1,742

450

135

3,867

Participants in payment status

4,140

952

426

253

5,771

Total defined benefit obligation

9,263

3,299

1,281

1,129

14,972

Fair value of plan assets

7,741

3,980

949

932

13,602

Funding ratio (in %)

84

121

74

83

91

The majority of the Group’s defined benefit plan obligations relate to Germany, the United Kingdom and the United States. Within the other countries, the largest obligations relate to Switzerland and the Netherlands. In Germany and some continental European countries, post-employment benefits are usually agreed on a collective basis with respective employee works councils or their equivalent. The Group’s main pension plans are governed by boards of trustees, fiduciaries or their equivalent.

Post-employment benefits can form an important part of an employee’s total remuneration. The Group’s approach is that their design shall be attractive to employees in the respective market, but sustainable for the Group to provide over the longer term. At the same time, the Group tries to limit its risks related to provision of such benefits. Consequently the Group has moved to offer defined contribution plans in many locations over recent years.

In the past the Group typically offered pension plans based on final pay prior to retirement. These types of benefits still form a significant part of the pension obligations for participants in deferred and payment status. Currently, in Germany and the United States, the main defined benefit pension plans for active staff are cash account type plans where the Group credits an annual amount to individuals’ accounts based on an employee’s current salary. Dependent on the plan rules, the accounts increase either at a fixed interest rate or participate in market movements of certain underlying investments to limit the investment risk for the Group. Sometimes, in particular in Germany, there is a guaranteed benefit amount within the plan rules, e.g. payment of at least the amounts contributed. In the United Kingdom, the main defined benefit pension plan was redesigned in 2011 for active employees still eligible to the plan to reduce the overall long-term risk exposure to the Group. Upon retirement, beneficiaries may usually opt for a lump sum or for conversion of the accumulated account balance into an annuity. This conversion is often based on market conditions and mortality assumptions at retirement.

The Group also sponsors retirement and termination indemnity plans in several countries, as well as some post-employment medical plans for a number of current and retired employees, mainly in the United States. The latter plans pay stated percentages of medical expenses of eligible retirees after a stated deductible has been met. In the United States, once a retiree is eligible for Medicare, the Group contributes to a Health Reimbursement Account and the retiree is no longer eligible for the Group’s medical program. The Group’s total defined benefit obligation for post-employment medical plans was € 151 million and € 164 million at December 31, 2013 and December 31, 2012, respectively. In combination with the benefit structure, these plans represent limited risk for the Group.

The following amounts of expected benefit payments from the Group’s defined benefit plans include benefits attributable to employees’ past and estimated future service, and include both amounts paid from the Group’s external pension trusts and paid directly by the Group in respect of unfunded plans.

in € m.

Germany

UK

U.S.

Other

Total

Actual benefit payments 2013

375

70

107

102

654

Benefits expected to be paid 2014

377

66

65

61

569

Benefits expected to be paid 2015

385

73

63

57

578

Benefits expected to be paid 2016

401

77

66

57

601

Benefits expected to be paid 2017

422

87

66

58

633

Benefits expected to be paid 2018

445

93

66

59

663

Benefits expected to be paid 2019 – 2023

2,532

605

351

293

3,781

Weighted average duration of defined benefit obligation (in years)

14

20

12

15

15

Multi-employer Plans

In Germany, the Group is a member of the BVV together with other financial institutions. The BVV offers retirement benefits to eligible employees in Germany as a complement to post-employment benefit promises of the Group. Both employers and employees contribute on a regular basis to the BVV. The BVV provides annuities of a fixed amount to individuals on retirement and increases these fixed amounts if surplus assets arise within the plan. According to legislation in Germany, the employer is ultimately liable for providing the benefits to its employees. BVV is a multi-employer defined benefit plan, however the Group accounts for it as a defined contribution plan since insufficient information is available to identify assets and liabilities relating to the Group’s current and former employees. The main reason for this treatment is that the BVV does not fully allocate plan assets to beneficiaries nor to member companies. According to the BVV’s most recent disclosures, there is no current deficit in the plan that may affect the amount of future Group contributions. Furthermore, plan surplus emerging in the future will be distributed to the plan members, hence it cannot reduce future Group contributions. If the BVV were to be wound up in the future, there would be no additional liability to the Group.

The Group’s expenses for defined contribution plans also include annual contributions by Deutsche Postbank AG to the pension fund for postal civil servants in Germany. Responsibility for the liability for these benefits lies with the German government.

Governance and Risk

The Group established a Pensions Risk Committee chaired by a Management Board member to oversee its pension and related risks on a global basis. This Committee meets quarterly, reports directly to the Management Board and is supported by the Pensions Operating Committee.

Within this context, the Group develops and maintains guidelines for governance and risk management, including funding, asset allocation and actuarial assumption setting. In this regard, risk management means the management and control of risks for the Group related to market developments (i.e., interest rate, credit spread, price inflation, etc.), asset investment, regulatory or legislative requirements, as well as monitoring demographic changes (i.e., longevity, etc.). Especially during and after acquisitions or changes in the external environment (i.e., legislation, taxation, etc.), topics such as the general plan design or potential plan amendments are considered. Any plan changes follow a process requiring approval by Group Human Resources. To the extent the pension plans are funded, the assets held mitigate some of the liability risks, but introduce investment risk.

In the Group’s key pension countries, the Group’s largest post-employment benefit plan risk exposures relate to potential changes in credit spreads, price inflation and longevity, although these have been partially mitigated through the investment strategy adopted.

Overall, the Group seeks to minimize the impact of pensions on the Group’s financial position from market movements, subject to balancing the trade-offs involved in financing post-employment benefits. The Group measures its pension risk exposures on a regular basis using specific metrics and stress scenarios developed by the Group for this purpose.

Funding

The Group maintains various external pension trusts to fund the majority of its defined benefit plan obligations. The Group’s funding policy is to maintain coverage of the defined benefit obligation by plan assets within a range of 90 % to 100 % of the obligation, subject to meeting any local statutory requirements. The Group has also determined that certain plans should remain unfunded, although their funding approach is subject to periodic review, e.g. when local regulations or practices change. Obligations for the Group’s unfunded plans are accrued on the balance sheet.

For most of the externally funded defined benefit plans there are minimum funding requirements. The Group can decide on any additional plan contributions, with reference to the Group’s funding policy. There are some locations, e.g. the United Kingdom, where the trustees and the Bank jointly agree contribution levels. In most countries the Group expects to receive an economic benefit from any plan surpluses of plan assets compared to defined benefit obligations, typically by way of reduced future contributions. Given the nearly fully funded position and the investment strategy adopted in the Group’s key funded defined benefit plans, any minimum funding requirements that may apply are not expected to place the Group under any material adverse cash strain in the short term. For example, in the United Kingdom and the United States, the main plan funding contributions in these countries are expected to be broadly nil in 2014. In Germany, no minimum funding requirements typically apply, however the Group will consider cash contributions into the external pension trusts in the fourth quarter of 2014, with reference to the Group’s funding policy.

For post-retirement medical plans, the Group accrues for obligations over the period of employment and pays the benefits from Group assets when the benefits become due.

Actuarial Methodology and Assumptions

December 31 is the measurement date for all plans. All plans are valued by independent qualified actuaries using the projected unit credit method. A Group policy provides guidance to local actuaries on setting actuarial assumptions to ensure consistency globally.

The key actuarial assumptions applied in determining the defined benefit obligations at December 31 are presented below in the form of weighted averages.

 

Dec 31, 2013

Dec 31, 2012

 

Germany

UK

U.S.1

Other

Germany

UK

U.S.1

Other

1

Cash balance interest crediting rate in line with the 30-year US government bond yield.

Discount rate (in %)

3.6

4.5

4.8

3.4

3.7

4.6

3.8

3.0

Rate of price inflation (in %)

1.9

3.7

2.3

2.2

2.1

3.3

2.4

2.2

Rate of nominal increase in future compensation levels (in %)

2.8

4.7

2.3

3.1

3.0

4.3

2.4

3.2

Rate of nominal increase for pensions in payment (in %)

1.9

3.5

2.3

1.4

2.1

3.2

2.4

1.2

 

 

 

 

 

 

 

 

 

Assumed life expectancy at age 65

 

 

 

 

 

 

 

 

For a male aged 65 at measurement date

18.7

23.6

19.1

21.0

18.6

23.6

19.0

21.4

For a female aged 65 at measurement date

22.8

25.2

20.9

23.3

22.7

25.3

20.8

23.9

For a male aged 45 at measurement date

21.4

25.3

20.5

22.6

21.3

25.3

20.4

23.1

For a female aged 45 at measurement date

25.3

27.0

21.7

24.7

25.2

27.3

21.7

25.4

Mortality tables applied

Richttafeln Heubeck 2005G

SAPS Light with CMI 2010 projections

RP2000 Combined Healthy

Country specific tables

Richttafeln Heubeck 2005G

SAPS Light with CMI 2010 projections

RP2000 Combined Healthy

Country specific tables

For the Group’s most significant plans in the key countries, the discount rate used at each measurement date is set based on a high quality corporate bond yield curve reflecting the actual timing, amount and currency of the future expected benefit payments for the respective plan. Consistent discount rates are used across all plans in each currency zone, based on the assumption applicable for the Group’s largest plan in that zone. For plans in the other countries, the discount rate is based on high quality corporate or government bond yields applicable in the respective currency, as appropriate at each measurement date with a duration consistent with the respective plan’s obligations.

The price inflation assumptions in the eurozone and the United Kingdom are set with reference to market measures of inflation based on inflation swap rates in those markets at each measurement date. For other countries, the price inflation assumptions are typically based on long term forecasts by Consensus Economics Inc.

The assumptions for the increases in future compensation levels and for increases to pensions in payment are developed separately for each plan, where relevant. Each is set based on the price inflation assumption and reflecting the Group’s reward structure or policies in each market, as well as relevant local statutory and plan-specific requirements.

Among other assumptions, mortality assumptions can be significant in measuring the Group’s obligations under its defined benefit plans. These assumptions have been set in accordance with current best practice in the respective countries. Future potential improvements in longevity have been considered and included where appropriate.

Reconciliation in Movement of Liabilities and Assets – Impact on Financial Statements

The following tables set out the reconciliation of the movement of post-employment defined benefit plan liabilities and assets for 2013 and 2012 respectively in accordance with IAS 19R. The figures for 2012 have been adjusted to be in accordance with IAS 19R, so do not exactly reconcile with the amounts presented in the Group’s Financial Report 2012.

 

2013

in € m.

Germany

UK

U.S.

Other

Total

1

DB Investment Services.

2

Reclassification of post-employment benefit plan as other long-term employee benefit plan.

3

For funded plans only.

4

Thereof recognized € 628 million in Other assets and € 840 million in Other liabilities. In addition € 25 million and € 57 million are recognized in Assets and Liabilities held for sale, respectively.

Change in the present value of the defined benefit obligation:

 

 

 

 

 

Balance, beginning of year

9,263

3,299

1,281

1,129

14,972

Defined benefit cost recognized in Profit & Loss

 

 

 

 

 

Current service cost

163

28

24

70

285

Interest cost

340

145

48

33

566

Past service cost and gain or loss arising from settlements

19

2

(3)

(42)

(24)

Defined benefit cost recognized in Other Comprehensive Income

 

 

 

 

 

Actuarial gain or loss arising from changes in demographic assumptions

(1)

(34)

1

(2)

(36)

Actuarial gain or loss arising from changes in financial assumptions

(4)

278

(71)

(12)

191

Actuarial gain or loss arising from experience

(12)

3

14

(10)

(5)

Cash flow and other changes

 

 

 

 

 

Contributions by plan participants

5

0

0

14

19

Benefits paid

(375)

(70)

(107)

(102)

(654)

Payments in respect to settlements

0

0

0

0

0

Acquisitions/Divestitures1

90

0

0

0

90

Exchange rate changes

0

(63)

(51)

(40)

(154)

Other

(1)

0

0

(16)2

(17)

Balance, end of year

9,487

3,588

1,136

1,022

15,233

thereof:

 

 

 

 

 

Unfunded

7

14

154

137

312

Funded

9,480

3,574

982

885

14,921

 

 

 

 

 

 

Change in fair value of plan assets:

 

 

 

 

 

Balance, beginning of year

7,741

3,980

949

932

13,602

Defined benefit cost recognized in Profit & Loss

 

 

 

 

 

Interest income

316

175

35

30

556

Defined benefit cost recognized in Other Comprehensive Income

 

 

 

 

 

Return from plan assets less interest income

(601)

98

(46)

(8)

(557)

Cash flow and other changes

 

 

 

 

 

Contributions by plan participants

5

0

0

14

19

Contributions by the employer

1,960

3

53

53

2,069

Benefits paid3

(352)

(69)

(95)

(79)

(595)

Payments in respect to settlements

0

0

0

0

0

Acquisitions/ Divestitures1

73

0

0

0

73

Exchange rate changes

0

(81)

(38)

(19)

(138)

Plan administration costs

0

(7)

(2)

(2)

(11)

Balance, end of year

9,142

4,099

856

921

15,018

Funded status, end of year

(345)

511

(280)

(101)

(215)

 

 

 

 

 

 

Change in irrecoverable surplus (asset ceiling)

 

 

 

 

 

Balance, beginning of year

0

0

0

0

0

Changes in irrecoverable surplus

0

0

0

(29)

(29)

Balance, end of year

0

0

0

(29)

(29)

 

 

 

 

 

 

Net asset (liability) recognized

(345)

511

(280)

(130)

(244)4

 

2012

in € m.

Germany

UK

U.S.

Other

Total

1

Comparative figures for 2012 are adjusted for the impact by application of IAS 19R.

2

Includes opening balances of first time application of smaller plans.

3

For funded plans only.

4

Thereof recognized € 926 million in Other assets and € 2,296 million in Other liabilities.

Change in the present value of the defined benefit obligation:1

 

 

 

 

 

Balance, beginning of year

7,984

2,904

1,232

1,000

13,120

Defined benefit cost recognized in Profit & Loss

 

 

 

 

 

Current service cost

140

28

27

62

257

Interest cost

385

149

54

38

626

Past service cost and gain or loss arising from settlements

17

2

0

13

32

Defined benefit cost recognized in Other Comprehensive Income

 

 

 

 

 

Actuarial gain or loss arising from changes in demographic assumptions

0

2

29

4

35

Actuarial gain or loss arising from changes in financial assumptions

1,181

208

98

97

1,584

Actuarial gain or loss arising from experience

(67)

(2)

(45)

(14)

(128)

Cash flow and other changes

 

 

 

 

 

Contributions by plan participants

4

0

0

15

19

Benefits paid

(382)

(68)

(97)

(76)

(623)

Payments in respect to settlements

0

0

0

(2)

(2)

Acquisitions/Divestitures

0

0

0

0

0

Exchange rate changes

0

76

(24)

(9)

43

Other2

1

0

7

1

9

Balance, end of year

9,263

3,299

1,281

1,129

14,972

thereof:

 

 

 

 

 

Unfunded

1,152

14

177

172

1,515

Funded

8,111

3,285

1,104

957

13,457

 

 

 

 

 

 

Change in fair value of plan assets:

 

 

 

 

 

Balance, beginning of year

7,085

3,765

933

811

12,594

Defined benefit cost recognized in Profit & Loss

 

 

 

 

 

Interest income

347

194

40

34

615

Defined benefit cost recognized in Other Comprehensive Income

 

 

 

 

 

Return from plan assets less interest income

550

(35)

47

50

612

Cash flow and other changes

 

 

 

 

 

Contributions by plan participants

4

0

0

15

19

Contributions by the employer

46

26

36

53

161

Benefits paid3

(291)

(67)

(87)

(32)

(477)

Payments in respect to settlements

0

0

0

(2)

(2)

Acquisitions/ Divestitures

0

0

0

0

0

Exchange rate changes

0

99

(18)

4

85

Plan administration costs

0

(2)

(2)

(1)

(5)

Balance, end of year

7,741

3,980

949

932

13,602

Funded status, end of year

(1,522)

681

(332)

(197)

(1,370)

 

 

 

 

 

 

Change in irrecoverable surplus (asset ceiling)

 

 

 

 

 

Balance, beginning of year

0

0

0

0

0

Changes in irrecoverable surplus

0

0

0

0

0

Balance, end of year

0

0

0

0

0

 

 

 

 

 

 

Net asset (liability) recognized

(1,522)

681

(332)

(197)

(1,370)4

There are no reimbursement rights for the Group.

Restructuring has led to plan amendments and curtailments in Switzerland, resulting in a decrease in the related pension obligation during 2013. € 46 million of this reduction has been recognized as a past service credit in 2013. The restructuring has led to the plan’s assets exceeding its defined benefit obligations at December 31, 2013. The Group has recognized a € 29 million irrecoverable surplus because it does not expect to be able to realize the full economic benefit of this position; the economic benefit of the component treated as an asset is estimated based on the present value of the expected potential future reduction in Group contributions.

In terms of post-employment benefit plan assets, in addition to regular contributions the Group made to the external pension trusts in 2013, contributions of around € 1.45 billion were made to fund the majority of Postbank’s previously underfunded defined benefit obligations in Germany.

Investment Strategy

The Group’s primary investment objective is to immunize the Group to large swings in the funded status of its defined benefit plans, with some limited amount of risk-taking through duration mismatches and asset class diversification to reduce the Group’s costs of providing the benefits to employees in the long term.

For the majority of the Group’s funded defined benefit plans, a liability driven investment (LDI) approach is applied. The aim is to minimize risks from mismatches between fluctuations in the present value of the defined benefit obligations and plan assets due to capital market movements. This is achieved by allocating plan assets to match closely the market risk factor exposures of the pension liability to interest rates, credit spreads and inflation. Thereby, plan assets broadly reflect the underlying risk profile and currency of the pension obligations.

Where the desired hedging level for these risks cannot be achieved with physical instruments (i.e., corporate and government bonds), derivatives are employed. Derivative overlays mainly include interest rate and inflation swaps. Other instruments are also used, such as credit default swaps and interest rate futures. In practice, a completely hedged approach is impractical, for instance because of insufficient market depth for ultra-long-term corporate bonds, as well as liquidity and cost considerations. Therefore, plan assets contain further asset categories to create long-term return enhancement and diversification benefits such as equity, real estate, high yield bonds or emerging markets bonds.

Plan asset allocation to key asset classes

The following table shows the asset allocation of the Group’s funded defined benefit plans applying a full “look through” approach to determining its exposures to key asset classes, i.e. exposures include physical securities in discretely managed portfolios and underlying asset allocations of any commingled funds used to invest plan assets.

Asset amounts in the following table include both “quoted” (i.e. Level 1 assets in accordance with IFRS 13 - amounts invested in markets where the fair value can be determined directly from prices which are quoted in active, liquid markets) and “other” (i.e. Level 2 and 3 assets in accordance with IFRS 13) assets.

 

Dec 31, 2013

Dec 31, 2012

in € m.

Germany

UK

U.S.

Other

Total

Germany

UK

U.S.

Other

Total

1

Allocation of equity exposure is broadly in line with the typical index in the respective market, e.g. in UK the benchmark is the MSCI All Countries World Index.

2

Investment-Grade means BBB and above. Average credit rating exposure for the Group’s main plans is around A rating.

Cash and cash equivalents

133

134

40

59

366

57

61

44

65

227

Equity instruments1

138

486

84

259

967

532

409

86

166

1,193

Investment-grade bonds2

 

 

 

 

 

 

 

 

 

 

Government

3,886

1,201

312

227

5,626

1,933

1,146

337

251

3,667

Non-government bonds

5,118

1,513

333

247

7,211

4,815

2,005

353

271

7,444

Non-investment-grade bonds

 

 

 

 

 

 

 

 

 

 

Government

103

0

0

1

104

143

109

8

4

264

Non-government bonds

135

45

4

22

206

394

13

6

28

441

Structured products

20

531

40

22

613

5

212

68

21

306

Insurance

0

0

0

41

41

0

0

0

40

40

Alternatives

 

 

 

 

 

 

 

 

 

 

Real estate

59

95

0

30

184

40

93

0

30

163

Commodities

25

0

0

2

27

55

0

0

6

61

Private equity

50

1

0

0

51

49

0

0

0

49

Other

40

0

0

3

43

63

0

0

21

84

Derivatives (Market Value)

 

 

 

 

 

 

 

 

 

 

Interest rate

(267)

62

43

7

(155)

(48)

(44)

47

26

(19)

Credit

36

0

0

0

36

(116)

0

0

(1)

(117)

Inflation

(349)

29

0

0

(320)

(222)

(24)

0

(14)

(260)

Foreign exchange

18

2

0

1

21

38

0

0

1

39

Other

(3)

0

0

0

(3)

3

0

0

17

20

Total fair value of plan assets

9,142

4,099

856

921

15,018

7,741

3,980

949

932

13,602

The following table sets out the Group’s funded defined benefit plan assets invested in “quoted” assets, i.e. Level 1 assets in accordance with IFRS 13. A consistent breakdown is shown for reference purposes.

 

Dec 31, 2013

Dec 31, 2012

in € m.

Germany

UK

U.S.

Other

Total

Germany

UK

U.S.

Other

Total

Cash and cash equivalents

133

132

35

59

359

57

61

44

65

227

Equity instruments

99

486

84

259

928

528

409

86

145

1,168

Investment-grade bonds

 

 

 

 

 

 

 

 

 

 

Government

3,048

1,201

0

219

4,468

1,912

1,146

0

239

3,297

Non-government bonds

0

0

0

0

0

0

0

0

0

0

Non-investment-grade bonds

 

 

 

 

 

 

 

 

 

 

Government

0

0

0

0

0

0

0

0

0

0

Non-government bonds

0

0

0

0

0

0

0

0

0

0

Structured products

0

0

0

0

0

0

0

0

0

0

Insurance

0

0

0

0

0

0

0

0

0

0

Alternatives

 

 

 

 

 

 

 

 

 

 

Real estate

0

0

0

0

0

0

0

0

0

0

Commodities

0

0

0

0

0

0

0

0

0

0

Private equity

0

0

0

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

0

0

Derivatives (Market Value)

 

 

 

 

 

 

 

 

 

 

Interest rate

0

0

0

0

0

0

0

0

0

0

Credit

0

0

0

0

0

0

0

0

0

0

Inflation

0

0

0

0

0

0

0

0

0

0

Foreign exchange

0

0

0

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

0

0

Total fair value of quoted plan assets

3,280

1,819

119

537

5,755

2,497

1,616

130

449

4,692

All the remaining assets are invested in “other” assets, the majority of which are invested in Level 2 assets in accordance with IFRS 13, being primarily investment-grade corporate bonds. A relatively small element overall is in Level 3 assets in accordance with IFRS 13, being primarily real estate, insurance policies and derivative contracts.

The following table shows the asset allocation of the Group’s funded defined benefit plans by key geography at December 31, 2013. Asset amounts include both “quoted” and “unquoted” assets.

 

Dec 31, 2013

in € m.

Germany

United Kingdom

United States

Other Eurozone

Other developed countries

Emerging markets

Total

1

Includes investment-grade and non-investment-grade government bonds.

2

Majority of this amount relates to bonds of French and Dutch corporate bonds.

Cash and cash equivalents

133

134

40

25

28

6

366

Equity instruments

176

84

315

87

221

84

967

Government bonds1

3,175

1,226

346

394

34

555

5,730

Non-government bonds (investment-grade and above)

686

1,025

1,627

2,7392

855

279

7,211

Non-government bonds (non-investment-grade)

5

28

84

55

20

14

206

Structured products

21

534

39

10

8

1

613

Subtotal

4,196

3,031

2,451

3,310

1,166

939

15,093

Other asset categories

 

 

 

 

 

 

(75)

Fair value of plan assets

 

 

 

 

 

 

15,018

Plan assets at December 31, 2013 include derivative transactions with Group entities with a negative market value of € 419 million. There are € 2 million of securities issued by the Group included in the fair value of plan assets. The plan assets do not include any real estate which is used by the Group.

Sensitivity to Key Assumptions

The Group’s defined benefit obligations are sensitive to changes in actuarial assumptions. Sensitivity to key assumption changes are presented in the following table. Each assumption is changed in isolation. Sensitivities are approximated using extrapolation methods based on plan durations for the respective assumption. Duration is a standard measure that indicates the broad sensitivity of the obligations to a change in an underlying assumption and provides a reasonable approximation for small to moderate changes in those assumptions.

For example, the discount rate duration is derived from the change in the defined benefit obligation to a change in the discount rate based on information provided by the local actuaries of the respective plans. The resulting duration is used to estimate the remeasurement liability loss or gain from changes in the discount rate. For other assumptions, a similar approach is used to derive the respective sensitivity results.

Since the Group applies an LDI approach in the majority of its funded defined benefit plans, changes in market conditions will impact the actuarial assumptions – mainly discount rate and price inflation rate – as well as the plan assets. Consequently, to aid understanding of the Group’s risk exposures related to key market movements, the net impact of the change in the defined benefit obligations and plan assets is shown; for sensitivities to changes in actuarial assumptions that do not impact the plan assets, only the impact on the defined benefit obligations is shown.

Asset-related sensitivities are derived for the Group’s major plans by using risk sensitivity factors determined by the Group’s Market Risk Management function. These sensitivities are calculated based on information provided by the plans’ investment managers.

The sensitivities illustrate plausible possible variations over time in the key actuarial assumptions. The Group is not in a position to provide a view on the likelihood of these changes in assumptions. While these sensitivities illustrate the overall impact on the funded status of the changes shown, the significance of the impact and the range of reasonable possible alternative assumptions may differ between the different plans that comprise the aggregated results. Caution should be used when extrapolating these sensitivities due to non-linear effects that changes in the key actuarial assumptions may have on the overall funded status. Any management actions that may be taken to mitigate the inherent risks in the post-employment defined benefit plans are not reflected in these sensitivities.

 

Dec 31, 2013

Dec 31, 2012

in € m.

Germany

UK

U.S.

Other

Germany

UK

U.S.

Other

1

Expected changes in the fair value of plan assets contain the simulated impact from the biggest plans in Germany, UK, the U.S., Channel Islands, Switzerland, the Netherlands and Belgium which cover over 99 % of the total fair value of plan assets. The fair value of plan assets for other plans is assumed to be unchanged for this presentation.

2

Incorporates sensitivity to changes in nominal increase for pensions in payment to the extent linked to the price inflation assumption.

3

Estimated to be equivalent to an increase of around 1 year in overall life expectancy.

Discount rate (–100 bp):

 

 

 

 

 

 

 

 

(Increase) in DBO

(1,355)

(800)

(60)

(155)

(1,305)

(715)

(90)

(180)

Expected increase in plan assets1

1,200

640

55

85

950

660

75

90

Expected net impact on funded status (de-) increase

(155)

(160)

(5)

(70)

(355)

(55)

(15)

(90)

 

 

 

 

 

 

 

 

 

Discount rate (+100 bp):

 

 

 

 

 

 

 

 

Decrease in DBO

1,185

650

55

130

1,140

585

80

150

Expected (decrease) in plan assets1

(1,200)

(640)

(55)

(85)

(950)

(660)

(75)

(90)

Expected net impact on funded status (de-) increase

(15)

10

0

45

190

(75)

5

60

 

 

 

 

 

 

 

 

 

Credit spread (–100 bp):

 

 

 

 

 

 

 

 

(Increase) in DBO

(1,355)

(800)

(140)

(155)

(1,305)

(715)

(175)

(180)

Expected increase in plan assets1

705

170

35

20

805

185

35

20

Expected net impact on funded status (de-) increase

(650)

(630)

(105)

(135)

(500)

(530)

(140)

(160)

 

 

 

 

 

 

 

 

 

Credit spread (+100 bp):

 

 

 

 

 

 

 

 

Decrease in DBO

1,185

650

125

130

1,140

585

155

150

Expected (decrease) in plan assets1

(705)

(170)

(35)

(20)

(805)

(185)

(35)

(20)

Expected net impact on funded status (de-) increase

480

480

90

110

335

400

120

130

 

 

 

 

 

 

 

 

 

Rate of price inflation (–50 bp):2

 

 

 

 

 

 

 

 

Decrease in DBO

325

265

0

55

325

250

0

55

Expected (decrease) in plan assets1

(195)

(260)

0

(15)

(225)

(275)

0

(15)

Expected net impact on funded status (de-) increase

130

5

0

40

100

(25)

0

40

 

 

 

 

 

 

 

 

 

Rate of price inflation (+50 bp):2

 

 

 

 

 

 

 

 

(Increase) in DBO

(335)

(285)

0

(60)

(340)

(270)

0

(55)

Expected increase in plan assets1

195

260

0

15

225

275

0

15

Expected net impact on funded status (de-) increase

(140)

(25)

0

(45)

(115)

5

0

(40)

 

 

 

 

 

 

 

 

 

Rate of real increase in future compensation levels (–50 bp):

 

 

 

 

 

 

 

 

Decrease in DBO, net impact on funded status

70

10

0

20

75

15

0

25

 

 

 

 

 

 

 

 

 

Rate of real increase in future compensation levels (+50 bp):

 

 

 

 

 

 

 

 

(Increase) in DBO, net impact on funded status

(70)

(10)

0

(20)

(75)

(15)

0

(30)

 

 

 

 

 

 

 

 

 

Longevity improvements by 10 %:3

 

 

 

 

 

 

 

 

(Increase) in DBO, net impact on funded status

(220)

(75)

(20)

(15)

(210)

(60)

(25)

(15)

Expected cash flows

The following table shows expected cash flows for post-employment benefits in 2014, including contributions to the Group’s external pension trusts in respect of funded plans, direct payment to beneficiaries in respect of unfunded plans, as well as contributions to defined contribution plans.

 

2014

in € m.

Total

Expected contributions to

 

Defined benefit plan assets

215

BVV

50

Pension fund for Postbank's postal civil servants

100

Other defined contribution plans

230

Expected benefit payments for unfunded defined benefit plans

35

Expected total cash flow related to post-employment benefits

630

Expense of employee benefits

The following table presents a breakdown of the expenses for post-employment benefits and share-based payments according to the requirements of IAS 19R and IFRS 2 respectively, and contains such amounts which have been recognized as part of restructuring expenses.

in € m.

2013

2012

2011

1

Comparative figures for 2011 and 2012 are adjusted for the impact by application of IAS 19R.

Expenses for defined benefit plans:1

 

 

 

Service cost

261

289

243

Net interest cost (income)

10

11

42

Total expenses defined benefit plans

271

300

285

Expenses for defined contribution plans:

 

 

 

BVV

51

51

53

Pension fund for Postbank’s postal civil servants

97

105

112

Other defined contribution plans

221

219

186

Total expenses for defined contribution plans

369

375

351

Total expenses for post-employment benefit plans

640

675

636

Employer contributions to mandatory German social security pension plan

230

231

226

Expenses for share-based payments:

 

 

 

Expenses for share-based payments, equity settled

918

1,097

1,261

Expenses for share-based payments, cash settled

29

17

28