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IPE special report May 2018

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Bayer takes €1.1bn pensions accounting hit

GERMANY – German chemicals giant Bayer has taken a €1.1bn pensions obligation hit due to accounting changes amid lower interest rates.

Noting that it was reporting under the new IAS19 accounting standard, the Leverkusen-based firm said: “A quantitative analysis of the actuarial parameters led to an approximately €1.1bn increase in pension obligations as of September 30, 2005 that was directly recognized in equity.”

It added: “The increase was due especially to a considerable drop in long-term interest rates in the principal countries.”

The company’s third-quarter earnings release also disclosed that it made a larger than expected saving after it reorganized various US and German pension schemes earlier this year.

It had expected the move to result in a €200m saving – but in the event it got a €280m boost.

The changes mean that new joiners in Germany after January 1 2005 will be insured via the new Rheinische Pensionskasse.

Those who joined before that date remain with the Bayer Pensionskasse.

“Unlike the Bayer Pensionskasse, the Rheinische Pensionskasse operates on the same basic principle as life insurance, encouraging employees to take responsibility for safeguarding their overall retirement incomes,” Bayer said.

Under the new scheme both employees and the employer make equal contributions to finance the basic pension - based on a guaranteed interest rate of 2.75% a year plus the distribution of any surplus.

In July it replaced current defined benefit schemes in the US with a purely defined contribution plan.

It said: “Pension entitlements under the modified defined-benefit plans will be determined as of December 31, 2005 and frozen.”

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