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39 Provisions

Provisions

Dec. 31, 2020

Dec. 31, 2021

in € million

non-current

current

non-current

current

Provisions for pensions and similar obligations

627.8

684.5

Provisions for taxes (current income taxes excl. deferred taxes)

124.2

233.2

Other provisions

Environmental remediation

11.5

19.8

16.8

Personnel obligations

52.3

56.3

39.0

84.4

Outstanding trade invoices

93.4

267.2

Miscellaneous other provisions

19.7

115.1

123.0

125.6

Total other provisions

83.5

264.8

181.8

494.0

Total provisions

711.3

389.0

866.3

727.2

Provisions for Pensions and Similar Obligations

Accounting Policies

When valuing the provisions for pensions, the company pension obligations are determined using the projected unit credit method pursuant to IAS 19 “Employee Benefits,” whereby current pensions and vested pension rights as of the reporting date as well as expected future increases in salaries and pensions, are included in the valuation. An actuarial valuation is performed at every reporting date.

The amount shown in the balance sheet is the total present value of the defined benefit obligations (DBO) after offsetting against the fair value of plan assets.

Actuarial gains and losses are accounted for in full in the period in which they occur and recognized in retained earnings as a component of other comprehensive income and not in profit or loss. The actuarial gains and losses are also no longer recognized with effect on net income in subsequent periods.

Service cost is shown in personnel expenses. The service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the reporting period.

The interest expense is recognized in the financial result. Interest expense is the increase during a period in the present value of a defined benefit obligation that generally arises due to the fact that the benefit obligation is one period closer to being discharged.

Reinsurance contracts that qualify as plan assets have been taken out to cover the pension obligations toward particular individuals. Where the value of those reinsurance contracts exceeds the related pension obligations, the excess is recognized as an asset and shown under other assets.

Obligations from joint defined benefit multi-employer plans at Versorgungsanstalt des Bundes und der Länder (VBL), a pension institution of the Federal Republic of Germany and the Federal States, are stated, in line with IAS 19.34, in the same way as obligations from defined contribution plans, insofar as the information required for the statement of defined benefit plans is not available. The obligations are based on the amounts to be paid for the current period.

Vonovia has pension obligations towards various employees which are based on the length of service. Defined benefit and defined contribution obligations – for which Vonovia guarantees a certain level of benefit – are financed through provisions for pensions. Vonovia has taken out reinsurance contracts for individual people.

Generally, they are pension benefits that depend on the final salary with percentage increases depending on the number of years of service.

The pension commitments cover 6,545 (Dec. 31, 2020: 4,523) eligible persons. The increase results mainly from first-time inclusion of the eligible personnel of the Deutsche Wohnen Group in the pension valuation.

Executives currently working for companies belonging to Vonovia have the opportunity to participate in the “Pension Instead of Cash Remuneration” model (Versorgungsbezüge anstelle von Barbezügen) (eligible persons: 307, incl. persons no longer active). Retirement, invalidity and surviving dependent benefits in the form of a lifelong pension are offered under this deferred compensation model. The retirement benefits can also be paid out as a one-time capital sum. The model was closed in 2021.

Overview of the most important basic data for existing pension plans (all of which have already been closed):

Overview basic date for existing pension plans

VO 1/VO 2 Veba Immobilien

VO 60/VO 91 Eisenbahnges.

Bochumer Verband

Type of benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Pensionable remuneration

Final salary

Final salary

Not applicable

Max. pension level

Yes

Yes

Depends on individual grouping

Total pension model based on final salary

Yes

No

No

Net benefit limit incl. state pension

None

Yes

None

Gross benefit limit

Yes

None

None

Adjustment of pensions

Section 16 (1,2) BetrAVG

Section 16 (1,2) BetrAVG

Adjustment every 3 years by Bochumer Verband (Manage- ment Board resolution)

Supplementary periods

Age of 55

Age of 55

Age of 55 (half)

Legal basis

Works agreement

Works agreement

Commitment to executives in individual contracts

Number of eligible persons

374

654

391

VO 1991/VO 2002 GAGFAH

VO guideline GAGFAH M

VO 2017 VBL-Ersatzversorgung

Type of benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Pensionable remuneration

Salary for September of each year

Final salary

Salary of each year

Max. pension level

Module p.a.

Yes

Module p.a.

Total pension model based on final salary

No

Yes

No

Net benefit limit incl. state pension

None

None

None

Gross benefit limit

None

Yes

None

Adjustment of pensions

1% p.a.

Section 16 (1,2) BetrAVG

1% p.a.

Supplementary periods

Age of 55

Age of 55

None

Legal basis

Works agreement

Works agreement

Individual agreement

Number of eligible persons

1,110

379

107

The current pensions according to the classic pension benefit regulations of Bochumer Verband are adjusted in line with Section 20 of those regulations. Section 20 is a rule which is based on Section 16 (1,2) of the German Occupational Pensions Improvement Act (BetrAVG) but which, according to a ruling of the Federal Labor Court of Germany, is an independent rule. Other company pensions are reviewed and adjusted under the terms of the agreement according to Section 16 (1,2) BetrAVG. On every review date, the development of the cost of living since the individual retirement date is reviewed and compensated for. Only in the aforementioned deferred compensation model is the option, available since January 1, 1999, used to raise the current pensions every year by 1% (Section 16 [3] No. 1 BetrAVG). No further risks are seen.

The company has decided to use the internal financing effect of the provisions for pensions and only to back a relatively small portion of the pension obligations with plan assets. Reinsurance policies have been taken out for former Management Board members against payment of a one-time insurance premium in order to provide additional protection against insolvency; these reinsurance policies were pledged to the eligible persons. They constitute plan assets, which are offset against the gross obligation. The fair value of the reinsurance policies for individual persons is higher than the extent of the obligations towards the respective person. This surplus of the fair values of the assets over the obligation is shown under non-current other assets. The conclusion of further reinsurance policies is not planned.

Pension plan obligations and the expenses necessary to cover these obligations are determined using the projected unit credit method prescribed by IAS 19. Both pensions known on the reporting date and vested rights as well as expected future increases in salaries and pensions are included in the measurement. The following actuarial assumptions were made at the reporting date – in each case related to the end of the year and with economic effect for the following year.

Actuarial Assumptions

Actuarial Assumptions

in %

Dec. 31, 2020

Dec. 31, 2021

Actuarial interest rate

0.70

1.10

Pension trend

1.75

1.75

Salary trend

2.50

2.50

The 2018 G mortality tables of Prof. Dr. Klaus Heubeck have been taken for the biometric assumptions without any changes.

The defined benefit obligation (DBO) developed as follows:

Defined benefit obligation (DBO)

in € million

2020

2021

DBO as of Jan. 1

591.0

648.1

Additions due to business combinations

110.4

Interest expense

5.8

4.6

Current service cost

12.2

14.6

Actuarial gains and losses:

Changes in the biometric assumptions

-8.4

4.8

Changes in the financial assumptions

27.4

-41.1

Transfer

44.9

Benefits paid

-24.8

-29.6

DBO as of Dec. 31

648.1

711.8

The present value of the pension obligation is divided among the groups of eligible persons as follows:

Value of the defined benefit obligation

in € million

Dec. 31, 2020

Dec. 31, 2021

Active employees

140.0

157.3

Former employees with vested pension rights

134.4

141.2

Pensioners

373.7

413.3

DBO as of Dec. 31

648.1

711.8

Plan assets comprise solely reinsurance contracts. The fair value of the plan assets has developed as follows:

Fair value of plan assets

in € million

2020

2021

Fair value of plan assets as of Jan. 1

21.8

21.2

Additions due to business combinations

7.7

Return calculated using the actuarial interest rate

0.2

0.1

Actuarial gains:

Changes in the financial assumptions

0.4

0.7

Benefits paid

-1.2

-1.4

Fair value of plan assets as of Dec. 31

21.2

28.3

The actual return on plan assets amounted to € 0.8 million during the fiscal year (2020: € 0.6 million).

The following table shows a reconciliation of the defined benefit obligation to the pension obligation recognized in the balance sheet:

Reconciliation of the defined benefit obligation to the pension obligation recognized in the balance sheet

in € million

Dec. 31, 2020

Dec. 31, 2021

Present value of funded obligations

31.2

36.2

Present value of unfunded obligations

616.9

675.6

Total present value of defined benefit obligations

648.1

711.8

Fair value of plan assets

-21.1

-28.3

Net liability recognized in the balance sheet

627.0

683.5

Other assets to be recognized

0.8

1.0

Provisions for pensions recognized in the balance sheet

627.8

684.5

In 2021, actuarial gains of € 37.0 million (excluding deferred taxes) were recognized in other comprehensive income (2020: € -18.6 million).

The weighted average term of the defined benefit obligations is 15.5 years (Dec. 31, 2020: 16.1 years).

The following table contains the estimated, undiscounted pension payments of the coming five fiscal years and the total of those in the subsequent five fiscal years:

Projected, undiscounted pension payments of the coming five fiscal years and the total of those in the subsequent five fiscal years

in € million

Projected pension payments

2022

31.6

2023

30.9

2024

30.8

2025

31.0

2026

30.5

2027–2031

149.6

Sensitivity Analyses

An increase or decrease in the material actuarial assumptions would have led to the following defined benefit obligation, providing the other assumptions did not change:

Material actuarial assumptions effects on the DBO

in € million

Dec. 31, 2020

Dec. 31, 2021

Actuarial interest rate

Increase of 0.5%

599.5

660.4

Decrease of 0.5%

703.5

769.6

Pension trend

Increase of 0.25%

660.7

726.5

Decrease of 0.25%

635.2

696.9

An increase in life expectancy of 4.9% would have resulted in an increase in the DBO of € 27.9 million as of December 31, 2021 (Dec. 31, 2020: € 31.0 million). This percentage rise corresponds to a one-year increase in the life expectancy of a man who was 65 at the reporting date.

If several assumptions are changed simultaneously, the cumulative effect is not necessarily the same as if there had been a change in just one of the assumptions.

The provisions for pensions include € 3.5 million (Dec. 31, 2020: € 4.3 million) for pension obligations which were transferred to third parties as part of an assumption of debt and which relate to vested rights and the payment of current pensions. A corresponding non-current receivable is shown under miscellaneous other assets.

Other Provisions

Accounting Policies

Other provisions are recognized when there is a present obligation, either legal or constructive, vis-à-vis third parties as a result of a past event if it is probable that a claim will be asserted and the probable amount of the required provision can be reliably estimated. Provisions are discounted if the resulting effect is material. The carrying amount of discounted provisions increases in each period to reflect the passage of time and the unwinding of the discount is recognized within interest expense. The discount rate is a pre-tax rate that reflects current market assessments.

Provisions for restructuring expenses are recognized when the Group has set up and communicated a detailed formal plan for restructuring and has no realistic possibility of withdrawing from these obligations.

Provisions for onerous contracts are recognized when the expected benefits from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is stated at the lower of the present value of the fulfillment obligation and the cost of terminating the contract, i.e., a possible indemnity or fine for breach or non-fulfillment of contract.

Provisions are reviewed regularly and adjusted to reflect new information or changed circumstances.

The provisions for pre-retirement part-time work arrangements are basically to be classified as other long-term employee benefits that are to be accrued over the employees’ service periods.

The assets of the insolvency policy to secure fulfillment shortfalls arising from pre-retirement part-time work arrangements are offset against the amounts for fulfillment shortfalls contained in the provisions for pre-retirement part-time work arrangements.

A contingent liability is a possible obligation toward third parties that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events or a present obligation that arises from past events for which an outflow of resources is not probable or the amount of which cannot be estimated with sufficient reliability. According to IAS 37, contingent liabilities are not generally recognized.

Development of Other Provisions during the Fiscal Year

Development of Other Provisions During the Fiscal Year

in € million

As of Jan. 1, 2021

Changes in scope of consolidation

Additions

Reversals

Interest accretion to provisions

Revaluation from currency effects

Utilization

As of Dec. 31, 2021

Other provisions

Environmental remediation

11.5

10.7

16.6

-2.2

36.6

Personnel obligations

108.6

37.2

55.1

-3.1

0.1

-0.1

-74.4

123.4

Outstanding trade invoices

93.4

172.0

156.5

-8.6

-0.1

-146.0

267.2

Miscellaneous other provisions

134.8

124.3

45.1

-31.6

5.6

-0.1

-29.5

248.6

348.3

344.2

273.3

-43.3

5.7

-0.3

-252.1

675.8

Development of Other Provisions during the Previous Year

Development of Other Provisions During the Previous Year

in € million

As of Jan. 1, 2020

Changes in scope of consolidation

Additions

Reversals

Interest accretion to provisions

Netting plan assets

Utilization

As of Dec. 31, 2020

Other provisions

Environmental remediation

13.0

0.2

-1.7

11.5

Personnel obligations

133.5

0.1

55.8

-5.1

0.1

-75.8

108.6

Outstanding trade invoices

109.8

2.8

97.2

-13.6

-102.8

93.4

Miscellaneous other provisions

155.3

13.9

45.5

-17.2

0.4

-63.1

134.8

411.6

16.8

198.5

-35.9

0.7

-243.4

348.3

Reversals of provisions are generally offset against the expense items for which they were originally established.

The provisions for environmental remediation primarily refer to site remediation of locations of the former Raab Karcher companies and the Kabelwerk Köpenick cable factory. Remediation has either already begun or an agreement has been reached with the authorities as to how the damage is to be remedied. The cost estimates are based on expert opinions detailing the anticipated duration of the remediation work and the anticipated cost.

The personnel obligations are provisions for pre-retirement part-time work arrangements, provisions for bonuses, severance payments not relating to restructuring and other personnel expenses. The other personnel expenses include a provision for the long-term incentive plan (LTIP) determined in accordance with IFRS 2 of € 22.6 million (Dec. 31, 2020: € 30.0 million) (see chapter [E48] Share-Based Payments).

The material individual cost items under miscellaneous other provisions include costs associated with legal disputes in the amount of € 34.2 million (Dec. 31, 2020: € 23.6 million), litigation costs in the amount of € 31.4 million (Dec. 31, 2020: € 10.7 million), costs associated with company tax audits in the amount of € 8.2 million (Dec. 31, 2020: € 6.0 million), provisions for other contractually agreed guarantees in the amount of € 4.2 million (Dec. 31, 2020: € 3.2 million) and onerous contracts in the amount of € 1.8 million (Dec. 31, 2020: € 2.1 million).

The Group expects to settle the lion’s share of the provision over the coming year.