Increase in liabilities Forward explained in more detail

Pensions in payment are paid from a pension fund's assets. But how much money is needed for this in the long term? Several factors influence the level of these so-called 'pension liabilities'. At Forward, those liabilities increased by over €60 million to €386 million in 2023. Besides newly accrued pensions, the two main causes of this were:

• Interest rates
  On a pension fund's liabilities, the interest rate has a similar effect as on an ordinary savings account:
  Suppose you need €1,000 in 10 years' time. Then, with a low interest rate, you have to put in a larger amount now than with a high interest rate.
  
  Interest rates, which were exceptionally low for a couple of years, were initially raised several times by banks in 2023. This caused a sharp decline in Forward's liabilities. However, a sharp fall in interest rates occurred in the last quarter of the year, closing 2023 with a lower interest rate than it started with (2.15% vs 2.23%). As a result, Forward's liabilities increased sharply.

• The pension increase on 1 January 2024
  The annual increase in the accrued pensions of active members (people currently working at Unilever) is based on the collective wage increase at Unilever in the previous year. In 2023, that increase was 6.5%.
  
  Due to the high lower limit for a full pension increase (indexation), not the full percentage was possible, but 81% of it. This means that the accrued pensions of all over 2,700 employees were increased by 5.27% on 1 January 2024. This also caused a significant increase in liabilities.
  
  For all former Unilever employees (including current pensioners), the annual increase will be based on price developments. However, on our reference date of 31 October 2023, the price level was lower than a year earlier, when inflation peaked.
  
  The fund board decided to deduct the negative rate of 1.98% from future indexations. Thus, this did not affect Forward's liabilities.

 

July 2024