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.

2014/
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
54 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 54 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 30 countries enrolled in the sixth cycle that began in November 2014.

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, 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

Granted

31,298

€ 31.01

Issued

(28,982)

€ 34.47

Forfeited

(1,158)

€ 32.81

Balance as of December 31, 2014

52,449

€ 31.60

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 € 21 million, € 32 million and € 44 million for the years ended December 31, 2014, 2013 and 2012, respectively.

As of December 31, 2014, the grant volume of outstanding share awards was approximately € 1.7 billion. Thereof, € 1.1 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 € 0.6 billion as of December 31, 2014.

In addition to the amounts shown in the table above, approximately 8.3 million shares were issued to plan participants in February 2015, resulting from the vesting of DB Equity Plan awards granted in prior years (thereof 0.3 million units under the cash plan variant of this DB Equity Plan).

Furthermore, in February 2015 the Group granted awards of approximately 30.2 million units, with a grant value of € 27.11 per unit under the DB Equity Plan. Approximately 0.6 million units of these grants were made under the cash plan variant of the DB Equity Plan.

Taking into account the units issued and granted in February 2015 the balance of outstanding share awards as of month-end February 2015 is approximately 74.3 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 the design and financing of the benefit plans to some extent. Key information is also shown based on participant status, which provides a broad indication of the maturity of the Group’s obligations.

 

Dec 31, 2014

in € m.

Germany

UK

U.S.

Other

Total

Defined benefit obligation related to

 

 

 

 

 

Active plan participants

4,611

813

405

780

6,609

Participants in deferred status

1,983

2,266

478

195

4,922

Participants in payment status

4,669

1,216

492

285

6,662

Total defined benefit obligation

11,263

4,295

1,375

1,260

18,193

Fair value of plan assets

10,634

5,095

1,072

1,109

17,910

Funding ratio (in %)

94

119

78

88

98

 

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

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. 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. 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.

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 post-employment medical plans typically 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 € 197 million and € 151 million at December 31, 2014 and December 31, 2013, 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 2014

379

79

75

72

605

Benefits expected to be paid 2015

375

74

66

69

584

Benefits expected to be paid 2016

386

78

68

56

588

Benefits expected to be paid 2017

403

87

70

57

617

Benefits expected to be paid 2018

423

93

69

57

642

Benefits expected to be paid 2019

440

102

74

56

672

Benefits expected to be paid 2020 – 2024

2,471

654

368

288

3,781

Weighted average duration of defined benefit obligation (in years)

15

21

13

17

16

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. An increase in benefits may also arise due to additional obligations to retirees for the effects of inflation. 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, primarily because 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, any plan surplus emerging in the future will be distributed to the plan members, hence it cannot reduce future Group contributions.

The Group’s expenses for defined contribution plans also include annual contributions by Deutsche Post-bank 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 maintains a Pensions Risk Committee to oversee its pension and related risks on a global basis. This Committee meets quarterly, reports directly to the Senior Executive Compensation Committee 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.). In addition, the Group estimates and provides for uncertain income tax positions which may have an impact on the Group’s plan assets. Significant judgment is required in making these estimates and the Group’s final liabilities may ultimately be materially different. 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 that 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 currently seeks to minimize the impact of pensions on the Group’s IFRS 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 2015. In Germany, no minimum funding requirements typically apply, however the Group will consider reimbursements for benefits paid from the Group’s assets cash contributions into the external pension trusts during the year, 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, 2014

Dec 31, 2013

 

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 %)

2.0

3.7

3.9

2.3

3.6

4.5

4.8

3.4

Rate of price inflation (in %)

1.5

3.4

2.2

2.0

1.9

3.7

2.3

2.2

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

2.0

4.4

2.2

2.6

2.8

4.7

2.3

3.1

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

1.4

3.2

2.2

1.2

1.9

3.5

2.3

1.4

 

 

 

 

 

 

 

 

 

Assumed life expectancy at age 65

 

 

 

 

 

 

 

 

For a male aged 65 at measurement date

18.9

23.7

21.7

21.5

18.7

23.6

19.1

21.0

For a female aged 65 at measurement date

22.9

25.3

23.9

24.1

22.8

25.2

20.9

23.3

For a male aged 45 at measurement date

21.5

25.4

23.4

23.2

21.4

25.3

20.5

22.6

For a female aged 45 at measurement date

25.5

27.1

25.6

25.7

25.3

27.0

21.7

24.7

Mortality tables applied

Richttafeln Heubeck 2005G

SAPS Light with CMI 2013 projections

RP2014 Aggregate

Country specific tables

Richttafeln Heubeck 2005G

SAPS Light with CMI 2013 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 – derived based on bond universe information sourced from reputable third-party index providers and rating agencies – reflecting the actual timing, amount and currency of the future expected benefit payments for the respective plan. For longer durations where limited bond information is available, reasonable yield curve extrapolation methods are applied using respective actual swap rates and credit spread assumptions. Consistent discount rates are used across all plans in each currency zone, based on the assumption applicable for the Group’s largest plan(s) 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 broadly 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

 

2014

in € m.

Germany

UK

U.S.

Other

Total

1

BHF Bank, Tilney

2

Includes opening balances of first time application of smaller plans.

3

For funded plans only.

4

Thereof recognized € 952 million in Other assets and € 1,235 million in Other liabilities.

Change in the present value of the defined benefit obligation:

 

 

 

 

 

Balance, beginning of year

9,487

3,588

1,136

1,022

15,233

Defined benefit cost recognized in Profit & Loss

 

 

 

 

 

Current service cost

163

28

21

53

265

Interest cost

330

166

55

35

586

Past service cost and gain or loss arising from settlements

13

1

0

17

31

Defined benefit cost recognized in Other Comprehensive Income

 

 

 

 

 

Actuarial gain or loss arising from changes in financial assumptions

1,883

405

35

184

2,507

Actuarial gain or loss arising from changes in demographic assumptions

0

0

50

(1)

49

Actuarial gain or loss arising from experience

26

(22)

(5)

6

5

Cash flow and other changes

 

 

 

 

 

Contributions by plan participants

4

0

0

13

17

Benefits paid

(379)

(79)

(75)

(72)

(605)

Payments in respect to settlements

0

0

0

(10)

(10)

Acquisitions/Divestitures1

(265)

(57)

0

(15)

(337)

Exchange rate changes

0

265

158

25

448

Other2

1

0

0

3

4

Balance, end of year

11,263

4,295

1,375

1,260

18,193

thereof:

 

 

 

 

 

Unfunded

0

15

197

122

334

Funded

11,263

4,280

1,178

1,138

17,859

 

 

 

 

 

 

Change in fair value of plan assets:

 

 

 

 

 

Balance, beginning of year

9,142

4,099

856

921

15,018

Defined benefit cost recognized in Profit & Loss

 

 

 

 

 

Interest income

322

189

41

32

584

Defined benefit cost recognized in Other Comprehensive Income

 

 

 

 

 

Return from plan assets less interest income

1,334

621

44

126

2,125

Cash flow and other changes

 

 

 

 

 

Contributions by plan participants

4

0

0

13

17

Contributions by the employer

449

3

76

46

574

Benefits paid3

(378)

(78)

(65)

(39)

(560)

Payments in respect to settlements

0

0

0

0

0

Acquisitions/Divestitures1

(238)

(43)

0

(14)

(295)

Exchange rate changes

0

307

122

24

453

Plan administration costs

(1)

(3)

(2)

0

(6)

Balance, end of year

10,634

5,095

1,072

1,109

17,910

Funded status, end of year

(629)

800

(303)

(151)

(283)

 

 

 

 

 

 

Change in irrecoverable surplus (asset ceiling)

 

 

 

 

 

Balance, beginning of year

0

0

0

(29)

(29)

Interest cost

0

0

0

(1)

(1)

Changes in irrecoverable surplus

0

0

0

30

30

Exchange rate changes

0

0

0

0

0

Balance, end of year

0

0

0

0

0

 

 

 

 

 

 

Net asset (liability) recognized

(629)

800

(303)

(151)

(283)4

 

2013

in € m.

Germany

UK

U.S.

Other

Total

1

DB Investment Services.

2

Reclassification from post-employment benefit plans into other long-term employee benefit plans.

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 financial assumptions

(4)

278

(71)

(12)

191

Actuarial gain or loss arising from changes in demographic assumptions

(1)

(34)

1

(2)

(36)

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)

Other2

(1)

0

0

(16)

(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

There are no reimbursement rights for the Group.

In Switzerland, a plan merger resulted in a partial liquidation of the plan, resulting in enhancements to accrued benefits for terminating and transferring employees. These resulted in past service costs of € 12 million in 2014. The plan merger, together with unfavorable movements in liabilities relative to assets over the year, resulted in the plan now being in a small deficit position at year end 2014. This has allowed the asset ceiling of € 29 million at the end of 2013 to be removed at year end 2014.

In terms of post-employment benefit plan assets, in addition to regular contributions the Group made to the external pension trusts in 2014, combined ad hoc contributions of around € 100 million were made in the U.S. and Germany to top up the funding position of selected plans; In 2013, contributions of around € 1 million€ 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 IFRS 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 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, 2014

Dec 31, 2013

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. the equity portfolio’s benchmark of the UK retirement benefit plans 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.

Cash and cash equivalents

1,056

102

25

68

1,251

976

134

40

59

1,209

Equity instruments1

134

560

108

208

1,010

138

486

84

259

967

Investment-grade bonds2

 

 

 

 

 

 

 

 

 

 

Government

3,517

1,502

400

255

5,674

3,043

1,201

312

227

4,783

Non-government bonds

5,731

2,035

447

358

8,571

5,118

1,513

333

247

7,211

Non-investment-grade bonds

 

 

 

 

 

 

 

 

 

 

Government

54

0

0

14

68

103

0

0

1

104

Non-government bonds

215

109

12

30

366

135

45

4

22

206

Structured products

14

389

42

29

474

20

531

40

22

613

Insurance

0

0

0

17

17

0

0

0

41

41

Alternatives

 

 

 

 

 

 

 

 

 

 

Real estate

114

117

0

35

266

59

95

0

30

184

Commodities

25

0

0

2

27

25

0

0

2

27

Private equity

51

0

0

0

51

50

1

0

0

51

Other

56

0

0

33

89

40

0

0

3

43

Derivatives (Market Value)

 

 

 

 

 

 

 

 

 

 

Interest rate

482

409

38

73

1,002

(267)

62

43

7

(155)

Credit

(27)

(1)

0

(1)

(29)

36

0

0

0

36

Inflation

(763)

(214)

0

(12)

(989)

(349)

29

0

0

(320)

Foreign exchange

(51)

40

0

(1)

(12)

18

2

0

1

21

Other

26

47

0

1

74

(3)

0

0

0

(3)

Total fair value of plan assets

10,634

5,095

1,072

1,109

17,910

9,142

4,099

856

921

15,018

The following table sets out the Group’s funded defined benefit plan assets only invested in “quoted” assets, i.e. Level 1 assets in accordance with IFRS 13.

 

Dec 31, 2014

Dec 31, 2013

in € m.

Germany

UK

U.S.

Other

Total

Germany

UK

U.S.

Other

Total

Cash and cash equivalents

1,056

100

14

50

1,220

976

132

35

59

1,202

Equity instruments

131

560

108

206

1,005

99

486

84

259

928

Investment-grade bonds

 

 

 

 

 

 

 

 

 

 

Government

2,255

1,502

0

182

3,939

2,205

1,201

0

219

3,625

Non-government bonds

26

1,887

0

84

1,997

0

0

0

0

0

Non-investment-grade bonds

 

 

 

 

 

 

 

 

 

 

Government

0

0

0

14

14

0

0

0

0

0

Non-government bonds

78

97

0

3

178

0

0

0

0

0

Structured products

0

368

0

29

397

0

0

0

0

0

Insurance

0

0

0

0

0

0

0

0

0

0

Alternatives

 

 

 

 

 

 

 

 

 

 

Real estate

9

68

0

0

77

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

13

13

0

0

0

0

0

Credit

(27)

(1)

0

0

(28)

0

0

0

0

0

Inflation

0

0

0

(3)

(3)

0

0

0

0

0

Foreign exchange

0

40

0

0

40

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

0

0

Total fair value of quoted plan assets

3,528

4,621

122

578

8,849

3,280

1,819

119

537

5,755

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 tables show the asset allocation of the “quoted” and other defined benefit plan assets by key geography in which they are invested.

 

Dec 31, 2014

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, Italian and Dutch corporate bonds.

Cash and cash equivalents

1,052

106

57

7

9

20

1,251

Equity instruments

75

84

415

174

168

94

1,010

Government bonds1

2,089

1,457

628

933

82

553

5,742

Non-government bonds (investment-grade and above)

473

1,644

2,302

3,1062

688

358

8,571

Non-government bonds (non-investment-grade)

18

76

91

132

17

32

366

Structured products

14

409

36

13

2

0

474

Subtotal

3,721

3,776

3,529

4,365

966

1,057

17,414

Share (in %)

21

22

20

25

6

6

100

Other asset categories

 

 

 

 

 

 

496

Fair value of plan assets

 

 

 

 

 

 

17,910

 

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

976

134

40

25

28

6

1,209

Equity instruments

176

84

315

87

221

84

967

Government bonds1

2,332

1,226

346

394

34

555

4,887

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

Share (in %)

28

20

16

22

8

6

100

Other asset categories

 

 

 

 

 

 

(75)

Fair value of plan assets

 

 

 

 

 

 

15,018

Plan assets at December 31, 2014 include derivative transactions with Group entities with a negative market value of around € 255 million. There are € 6 million of securities issued by the Group and around € 70 million in other claims on Group assets included in the fair value of plan assets. The plan assets do not include any real estate which is used by the Group.

Key Risk Sensitivities

The Group’s defined benefit obligations are sensitive to changes in capital market conditions and actuarial assumptions. Sensitivities to capital market movements and key assumption changes are presented in the following table. Each market risk factor or assumption is changed in isolation. Sensitivities of the defined benefit obligations are approximated using geometric extrapolation methods based on plan durations for the respective assumption. Duration is a risk 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 a LDI approach in the majority of its funded defined benefit plans, changes in capital market conditions will impact the plan obligations via 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 capital market movements, the net impact of the change in the defined benefit obligations and plan assets due to a change of the related market risk factor or underlying actuarial assumption 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 and extrapolated linearly to reflect the approximate change of the plan assets’ market value in case of a change in the underlying risk factor.

The sensitivities illustrate plausible variations over time in capital market movements and key actuarial assumptions. The Group is not in a position to provide a view on the likelihood of these capital market or assumption changes. 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. Even though plan assets and plan obligations are sensitive to similar risk factors, actual changes in plan assets and obligations may not fully offset each other due to imperfect correlations between market risk factors and actuarial assumptions. Caution should be used when extrapolating these sensitivities due to non-linear effects that changes in capital market conditions and 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, 2014

Dec 31, 2013

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, the 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

(1,740)

(950)

(90)

(220)

(1,355)

(800)

(60)

(155)

Expected increase in plan assets1

1,525

925

75

115

1,200

640

55

85

Expected net impact on funded status (de-) increase

(215)

(25)

(15)

(105)

(155)

(160)

(5)

(70)

 

 

 

 

 

 

 

 

 

Discount rate (+100 bp):

 

 

 

 

 

 

 

 

Decrease in DBO

1,505

775

85

180

1,185

650

55

130

Expected (decrease) in plan assets1

(1,525)

(925)

(75)

(115)

(1,200)

(640)

(55)

(85)

Expected net impact on funded status (de-) increase

(20)

(150)

10

65

(15)

10

0

45

 

 

 

 

 

 

 

 

 

Credit spread (–100 bp):

 

 

 

 

 

 

 

 

(Increase) in DBO

(1,740)

(950)

(180)

(230)

(1,355)

(800)

(140)

(155)

Expected increase in plan assets1

880

225

45

40

705

170

35

20

Expected net impact on funded status (de-) increase

(860)

(725)

(135)

(190)

(650)

(630)

(105)

(135)

 

 

 

 

 

 

 

 

 

Credit spread (+100 bp):

 

 

 

 

 

 

 

 

Decrease in DBO

1,505

775

160

190

1,185

650

125

130

Expected (decrease) in plan assets1

(880)

(225)

(45)

(40)

(705)

(170)

(35)

(20)

Expected net impact on funded status (de-) increase

625

550

115

150

480

480

90

110

 

 

 

 

 

 

 

 

 

Rate of price inflation (–50 bp):2

 

 

 

 

 

 

 

 

Decrease in DBO

350

330

0

75

325

265

0

55

Expected (decrease) in plan assets1

(245)

(290)

0

(10)

(195)

(260)

0

(15)

Expected net impact on funded status (de-) increase

105

40

0

65

130

5

0

40

 

 

 

 

 

 

 

 

 

Rate of price inflation (+50 bp):2

 

 

 

 

 

 

 

 

(Increase) in DBO

(365)

(355)

0

(80)

(335)

(285)

0

(60)

Expected increase in plan assets1

245

290

0

10

195

260

0

15

Expected net impact on funded status (de-) increase

(120)

(65)

0

(70)

(140)

(25)

0

(45)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Decrease in DBO, net impact on funded status

80

15

0

15

70

10

0

20

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

(Increase) in DBO, net impact on funded status

(80)

(15)

0

(15)

(70)

(10)

0

(20)

 

 

 

 

 

 

 

 

 

Longevity improvements by 10 %:3

 

 

 

 

 

 

 

 

(Increase) in DBO, net impact on funded status

(275)

(85)

(25)

(20)

(220)

(75)

(20)

(15)

Expected cash flows

The following table shows expected cash flows for post-employment benefits in 2015, 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.

 

2015

in € m.

Total

Expected contributions to

 

Defined benefit plan assets

265

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

680

Expense of employee benefits

The following table presents a breakdown of specific expenses according to the requirements of IAS 19 and IFRS 2 respectively.

in € m.

2014

2013

2012

1

Including expenses for new hire awards and the acceleration of expenses not yet amortized due to the discontinuation of employment including those amounts which are recognized as part of the Group’s restructuring expenses.

2

Excluding the acceleration of expenses for deferred compensation awards not yet amortized.

Expenses for defined benefit plans:

 

 

 

Service cost

296

261

289

Net interest cost (income)

3

10

11

Total expenses defined benefit plans

299

271

300

Expenses for defined contribution plans:

 

 

 

BVV

51

51

51

Pension fund for Postbank’s postal civil servants

97

97

105

Other defined contribution plans

228

221

219

Total expenses for defined contribution plans

376

369

375

Total expenses for post-employment benefit plans

675

640

675

Employer contributions to mandatory German social security pension plan

229

230

231

Expenses for share-based payments, equity settled1

860

918

1,097

Expenses for share-based payments, cash settled1

11

29

17

Expenses for cash retention plans1

815

811

1,133

Expenses for severance payments2

205

274

472