23 Employee Benefits

Employee benefit liabilities

Defined benefit plans

Employees are covered under various funded and unfunded pension plans which operate under local regulations and practice. The major part of the defined benefit liability recognised arises from the plans covering employees in Switzerland. The impact on the consolidated financial statements arising from the plans covering employees in Germany and France is far less significant. Generally, the level of benefits is based on years of service and average compensation preceding retirement, and the main benefit is a pension after retirement or a lump-sum payment at the time of retirement. Most plans are funded and the funding is governed by local requirements and with respect to the liability (determined based on actuarial methods) based on the plans’ benefit promises. For several plans, contributions are not only made by the employer, but also by the employee (generally as a part of gross salaries).

In Switzerland, France and Germany, insurance contracts have been issued to defined benefit plans covering own employees, which reinsure a part of the benefit promises made by the plans. Due to the requirements of IFRS 4 Insurance Contracts in combination with IAS 19 Employee Benefits, such insurance contracts are eliminated (self-insurance, non-eligibility as plan asset). To the extent the affected plans are funded by self-insurance, the defined benefit liabilities are backed by the investments relating to the eliminated insurance contracts. These investments are part of the investments presented in the consolidated balance sheet of the Swiss Life Group.

Plan descriptions

Switzerland

Pension plans in Switzerland are governed by the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG). Pension plans must be managed by independent, legally autonomous entities and are under regulatory supervision. The plans covering the Group’s employees in Switzerland are set up as foundations. The foundation board as the most senior governing body must be composed of equal numbers of employee and employer representatives. Main responsibilities of the foundation board are the definition of plan benefits, funding system and the setting of actuarial parameters and investment policies for the plan assets. The BVG defines minimum levels with regard to benefits (including conversion rate for old-age pensions), employer/employee contributions and the interest rate for the accrual of the employee’s pension account. An annual actuarial report according to BVG requirements is prepared which shows the funding level of the respective plan. The measurement basis for the plan’s assets and benefit obligations for this purpose is in accordance with BVG rules.

The primary benefit of Swiss Life’s plans is an old-age pension after reaching retirement age. The level of the old-age pension is determined by the plan’s conversion rate applied to the employee’s individual pension account accumulated at retirement age. There are options for early retirement (with actuarially determined reduction of the conversion rate) and for choosing to receive a lump-sum payment instead of a pension. This old-age pension is funded by monthly contributions from the employer and the employee (deducted from salary) to an individual pension account, which in addition is increased by a yearly interest accrual. The contributions are based on age and on a percentage of the contributory salary. Further funding of an individual pension account comprises mandatory transfers of funds made by new employees from plans of their former employers and discretionary contributions from the employees (with restrictions to maximum amounts). As a consequence of plan amendments in the past, certain age groups are granted guarantees of a minimum level of old-age pensions in case of early retirement. The cost with respect to early retirement of members from these age groups is borne by the employer.

Other benefits comprise survivors’/orphans’ pensions and/or lump-sum payments in case of death as well as disability pensions (if disabled before retirement age) and transfer of vested bene­fits in case of job changes. In these plans, which cover nearly all of the Group’s employees in Switzerland, the cost of the benefits is funded by payment of insurance premiums to group insurance contracts issued by Swiss Life Ltd (self-insurance) and is borne by the employer. In addition, the administration expenses of the plans are also borne by the employer, since the personnel managing the plans are Swiss Life employees.

France

Pension plans in France are covered by various national agreements. Defined benefit plans in France cover retirement benefits for employees, including executive officers, based on the last salary, length of service, cause of termination and the respective national agreement. Furthermore, service anniversary bonuses are based on employee category and length of service.

Germany

Pension plans in Germany are governed by the Law on Occupational Retirement (BetrAVG). The BetrAVG is part of the general labour legislation, which means that the BetrAVG establishes no rules on funding benefit obligations. It only describes the various possible ways of funding benefit obligations without further details on the practice of funding.

There are various defined benefit plans in place. They provide pension benefits after reaching retirement age.

For some plans, the level of the pension benefits is determined by the years of service and the last salary before retirement according to the benefit formula as defined in the pension plan. Other benefits comprise widows’/widowers’ pensions in case of death as well as disability pensions (if disabled before retirement age). The levels of these benefits are determined similar to the old-age pensions assuming service up to normal retirement age. Widows’/widowers’ pensions are 60% of the old age/disability pension benefits.

For some plans, the level of old-age pensions is determined by yearly amounts. Contributions are made in the form of premiums to an individual insurance contract with Swiss Life Germany. The premium is a fixed amount, determined by the rules of the pension plan, and depends on the employee’s status. Every three years there is an adjustment of the contribution amount due to the general development of salaries in the German insurance industry. There is a risk that the employer has to make additional payments in case the benefits of the individual insurance contract do not cover the benefits promised by the plan. Other benefits comprise lump-sum payments in case of death as well as disability pensions (if disabled before retirement age). The levels of these benefits are determined as fixed amounts by the plan depending on the employee’s status. This part of the plan is also covered by insurance contracts with Swiss Life Germany.

For some plans, a lump-sum benefit is provided when reaching retirement age. The capital benefit amount depends on the contributions and the performance of an underlying portfolio of assets. The benefit payable is the amount originally paid in plus interest.

Risks covered

With respect to its defined benefit plans the Group faces the risks of adverse development of the prominent actuarial/financial assumptions, such as discount rates, mortality assumptions and future salary growth, inherent in the measurement of plan liabilities. If the high-quality corporate bond yields (which are the basis for assessing the discount rate) decrease, the present value of the defined benefit obligation would increase, which would lead to a higher defined benefit liability in the consolidated balance sheet. However, this effect would be partly offset by the increase in the value of bonds in the plan assets. A higher defined benefit obligation would also result if the average life expectancy (longevity) or the rate of future salary growth were higher than the corresponding values reflected in the financial/actuarial parameters.

With respect to funded plans, the Group faces investment risk. In general, the return of plan assets – together with contributions – must be sufficient to cover the plan’s benefit promises. In particular, if the return is below the discount rate, an actuarial loss would be created with negative impact on the net benefit liability/asset and other comprehensive income. The mitigation of this risk depends on the nature of the benefit promises and the regulatory/legal framework of the plan, and is therefore country-specific.

Switzerland

The responsibility for maintaining a sufficient funding status lies with the foundations. In the case of underfunding (as assessed according to BVG rules, not IFRS) the foundations are required to take appropriate measures to restore a sufficient funding status. Potential measures that could be taken are adjustments to the pension accounts’ interest rate, benefit levels and regular employer/employee contributions. Furthermore, the foundations could require additional contributions from the employer and the employees. Because the funding status of the foundations in Switzerland is sufficient, it is not expected that any such additional contributions will be required in the near future.

The investment risk inherent in achieving an adequate return on the plan assets covering the pension accounts of active employees is borne by the foundations. In addition, the investment risk and actuarial risk relating to old-age pensions lie with the foundations. However, for the major plan, all pensions which were already in payout before 1 January 2011 are fully covered under a group insurance contract issued by Swiss Life Ltd. Furthermore, all insurance risk relating to death/survivors’/disability benefits is fully covered by several group contracts issued by Swiss Life Ltd.

The objective of the investment process is to ensure that the return on the plan assets – together with the contributions – will be sufficient to fulfil the benefit promises. The investment strategy must be in line with the related BVG rules and regulations (e.g. requirements regarding diversi­fication). The foundations are responsible for defining the investment strategy taking into account the objectives, benefit obligations and risk capacity. The implementation of the investment policy is delegated to an investment committee.

France

The investment risk inherent in achieving an adequate return on the plan assets in order to pay the promised benefits to employees, as well as the mortality risk, is borne by the company.

Germany

According to the German BetrAVG there are no specific rules regarding funding of pension obligations. The defined benefit plans are funded by individual insurance contracts with Swiss Life Germany that cover the promised benefits. Because of tax limitations, the individual insurance contracts do not cover the whole level of the benefit promises. Therefore, Swiss Life Germany has established a contractual trust arrangement to cover the additional risks from the pension plan. Plan risks mainly arise from salary increases and from an increase in pension payments.

For the plans that provide lump-sum benefits based on separate asset portfolios, the most significant but low risk is from capital markets fluctuations. The asset portfolios are broadly diversified with corporate bonds, German government bonds, covered bonds and exchange-traded funds.

Amounts recognised as defined benefit assets /liabilities

To assess the funding situation of the defined benefit plans in total, plan assets as well as insurance contracts not eligible as plan assets under IFRS must be set off against the present value of the defined benefit obligation. The total deficit taking into consideration insurance contracts not eligible as plan assets under IFRS amounted to a surplus of CHF 522 million as at 31 December 2022 (2021: deficit of CHF 113 million).

Amounts recognised in profit or loss

Amounts recognised in other comprehensive income

Defined benefit plans

Plan assets

Principal actuarial assumptions

A sensitivity analysis was performed for each significant actuarial assumption showing the impact on the defined benefit obligation of changes in the respective actuarial assumptions that were reasonably possible at the balance sheet date. The calculation is done by leaving all other assumptions unchanged (i.e. at their value used in the calculation of the defined benefit obligation implicit in the net defined benefit asset/liability in the consolidated balance sheet as at end of period). In reality, it is unlikely that a change in assumption would happen in isolation. Some assumptions may well be correlated. In addition, the net effect in the consolidated balance sheet would also be driven by the change in the value of the plan assets.

At 31 December 2022, if the discount rate had been 50 basis points higher (lower), the defined benefit obligation would have decreased by CHF 170 million (increase CHF 190 million). At 31 December 2021, if the discount rate had been 50 basis points higher (lower), the defined benefit obligation would have decreased by CHF 255 million (increase CHF 289 million).

At 31 December 2022, if the future expected salary growth had increased (decreased) by 50 basis points, the defined benefit obligation would have increased by CHF 9 million (decrease CHF 11 million). At 31 December 2021, if the future expected salary growth had increased (decreased) by 50 basis points, the defined benefit obligation would have increased by CHF 17 million (decrease CHF 18 million).

At 31 December 2022, if the average life expectancy had increased by one year (for both men and women), the defined benefit obligation would have increased by CHF 75 million. At 31 December 2021, if the average life expectancy had increased by one year (for both men and women), the defined benefit obligation would have increased by CHF 115 million.

Expected benefit payments

The contributions expected to be paid for the year ending 31 December 2023 are CHF 88 million. These contributions include amounts payable under insurance contracts issued to defined benefit plans covering own employees.

Defined contribution plans

Certain subsidiaries sponsor various defined contribution plans. Participation in the various plans is based either on completion of a specific period of continuous service or on the date of hire. The plans stipulate contributions by both employers and employees. The expenses under these plans amounted to CHF 6 million in 2022 (2021: CHF 5 million).

Equity compensation plans

For 2022, 2021, 2020, 2019 and 2018 participants in the group share-based payment programme are allocated restricted share units (RSUs). RSUs grant the holder future subscription rights, entitling him or her to receive Swiss Life Holding shares free of charge after a three-year period has elapsed and if certain conditions are fulfilled.

The 2022 equity compensation plan is based on the Group-wide programme “Swiss Life 2024”, which was announced on 25 November 2021. The 2019, 2020 and 2021 equity compensation plans are based on the Group-wide programme “Swiss Life 2021”. The 2018 equity compensation plan is based on the Group-wide programme “Swiss Life 2018”. For the purpose of supporting the achievement of the respective corporate goals, the following performance criteria have been determined by the Board of Directors for the 2019, 2020 and 2021 plans: IFRS profit (50% weighting), risk and fee result (25% weighting) and cash to Swiss Life Holding for further strengthening of the financial substance and payout capacity (25% weighting). For the 2022 equity compensation plan the Board of Directors determined the following performance criteria: IFRS profit (25% weighting), fee result (25% weighting) and cash to Swiss Life Holding (50% weighting).

Since 1 March 2021, a separate equity compensation plan (LTI-AM) has been in place for employees in key positions in the Swiss Life Asset Managers segment who are not participating in the Group’s equity compensation plan, specifically aligned to the targets for the Group-wide asset management and real estate services activity of Swiss Life Asset Managers. Participants in the LTI-AM equity compensation plan are granted restricted share units (AM RSU). AM RSUs grant the holder future subscription rights, entitling him or her to receive Swiss Life Holding shares free of charge after a three-year period has elapsed and if certain conditions are fulfilled. For the purpose of supporting the achievement of the targets, performance criteria have been determined as follows: IFRS profit of the Asset Managers segment (50% weighting), net new assets under third party asset management (25% weighting) and the Asset Managers segment’s cash remittance to Swiss Life Holding (25% weighting).

While the Group equity compensation plan and the LTI-AM equity compensation plan have different groups of participants and are aligned to different targets, they have the same mechanisms.

After expiry of the three-year period of the plan, the target value for each performance criterion is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 share) if all three performance criteria have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced in accor­dance with the weighting of the performance target concerned, or the RSUs expire worthless.

Both programmes also provide for adjustment and reclaiming mechanisms (clawback).

The fair value of the RSUs granted for each programme is determined at the grant date. The fair value was determined by an independent consulting company using the Black-Scholes formula taking into account input factors such as the dividend yield and the historical volatility of the Swiss Life Holding share. The associated expense during the vesting period is recognised under employee benefits expense with a corresponding increase in share premium.

In 2018, the number of RSUs granted under this programme amounted to 43 649. The fair value at the mea­surement date amounted to CHF 300.66. The date of grant was 1 March 2018.

In 2019, the number of RSUs granted under this programme amounted to 40 840. The fair value at the mea­surement date amounted to CHF 380.66. The date of grant was 1 March 2019.

In 2020, the number of RSUs granted under this programme amounted to 42 553. The fair value at the mea­surement date amounted to CHF 377.24. The date of grant was 1 March 2020.

In 2021, the number of RSUs granted under the Group programme amounted to 37 436 and the number of AM RSUs granted to the LTI-AM programme amounted to 7744. The fair value at the measurement date amounted to CHF 394.51. The date of grant was 1 March 2021.

In 2022, the number of RSUs granted under the Group programme amounted to 31 276 and the number of AM RSUs granted to the LTI-AM programme amounted to 8431. The fair value at the measurement date amounted to CHF 481.90. The date of grant was 1 March 2022.

The expense recognised for share-based payment amounted to CHF 18 million in 2022 (2021: CHF 17 million).

Group share-based payment programme (RSU, restricted share units)

Asset Managers share-based payment programme (LTI-AM, restricted share units)