| 37 | POST-RETIREMENT BENEFIT OBLIGATIONS |
| (a) | Pension—defined contribution |
The group companies participate in defined contribution retirement schemes organized by municipal governments of various provinces in which the group companies operate. Substantially all of the Group’s PRC employees are eligible to participate in these defined contribution retirement schemes. In addition, the group companies implemented an additional defined contribution retirement pension scheme for eligible employees since 2014.
| (b) | Post-retirement benefits |
In addition to the above schemes, the Group provides eligible retirees with other post-retirement benefits, including retirement subsidies, transportation allowance as well as other welfare. The expected cost of providing these post-retirement benefits is actuarially determined and recognized by using the projected unit credit method, which involves a number of assumptions and estimates, including inflation rate, discount rate and etc.
The plan is exposed to interest rate risk and the risk of changes in the life expectancy for pensioners.
The most recent actuarial valuation of the post-retirement benefit obligations was carried out at 31 December 2017 with assistance from a third party consultant using the projected unit credit actuarial valuation method.
The post-retirement benefit obligations recognized in the consolidated statement of financial position are as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
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Post-retirement benefit obligations |
2,670 | 3,063 | ||||||
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Less: current portion |
(168 | ) | (173 | ) | ||||
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Long-term portion |
2,502 | 2,890 | ||||||
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The principal actuarial assumptions utilized as at the end of the reporting period are as follows:
| 2017 | 2016 | |||||||
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Discount rates for post-retirement benefits |
4.10 | % | 3.50 | % | ||||
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Mortality rate |
China Insurance | China Insurance | ||||||
| Life Mortality | Life Mortality | |||||||
| Table (2010-2013). CL5 for | Table (2010-2013). CL5 for | |||||||
| Male and CL6 for Female | Male and CL6 for Female | |||||||
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Annual increase rate of post-retirement medical expenses |
6.50 | % | 6.50 | % | ||||
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Inflation rate of pension benefits |
2.50 | % | 2.50 | % | ||||
A quantitative sensitivity analysis for significant assumptions at the end of the reporting period is shown below:
| Increase/ (decrease) in |
Increase/ (decrease) in |
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| post-retirement | post-retirement | |||||||||||||||
| Increase | benefit | Decrease | benefit | |||||||||||||
| in rate | obligations | in rate | obligations | |||||||||||||
| % | RMB million | % | RMB million | |||||||||||||
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2017 |
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Discount rate for post-retirement benefits |
0.25 | (73 | ) | 0.25 | 77 | |||||||||||
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Annual increase rate of pension benefits |
1.00 | 283 | 1.00 | (240 | ) | |||||||||||
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Annual increase rate of medical expenses |
1.00 | 40 | 1.00 | (33 | ) | |||||||||||
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2016 |
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Discount rate for post-retirement benefits |
0.25 | (95 | ) | 0.25 | 100 | |||||||||||
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Annual increase rate of pension benefits |
1.00 | 325 | 1.00 | (275 | ) | |||||||||||
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Annual increase rate of medical expenses |
1.00 | 46 | 1.00 | (38 | ) | |||||||||||
The sensitivity analyses above have been determined based on a method that extrapolates the impact on net post-retirement benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
Expected contributions to be made in the future years out of the post-retirement benefit obligations were as follows:
| 2017 | 2016 | |||||||
| RMB million | RMB million | |||||||
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Within the next 12 months |
168 | 173 | ||||||
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Between 2 and 5 years |
679 | 706 | ||||||
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Between 5 and 10 years |
851 | 894 | ||||||
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Over 10 years |
3,049 | 3,342 | ||||||
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Total expected payments |
4,747 | 5,115 | ||||||
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The average duration of the post-retirement benefit obligations at the end of 2017 was 13 years (2016: 13 years and a half).
The movements in the post-retirement benefit obligations were as follows:
| 2017 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension cost charged to profit or loss | Remeasurement (gains)/losses in other comprehensive income |
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| 1 January 2017 RMB million |
Service cost RMB million |
Net interest RMB million |
Sub-total included in profit or loss RMB million |
Actuarial changes arising from changes in financial assumptions RMB million |
Actuarial changes arising from changes in demographic assumptions RMB million |
Experience adjustments RMB million |
Sub-total included in other comprehensive |
Benefit settled RMB million |
Transferred out due to disposal of a subsidiary RMB million |
31 December 2017 RMB million |
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Defined benefit obligations/ benefit liability |
3,063 | — | 98 | 98 | (220 | ) | — | 96 | (124 | ) | (200 | ) | (167 | ) | 2,670 | |||||||||||||||||||||||||||||
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| 2016 | ||||||||||||||||||||||||||||||||||||||||
| Pension cost charged to profit or loss | Remeasurement (gains)/losses in other comprehensive income |
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| 1 January 2016 RMB million |
Service cost RMB million |
Net interest RMB million |
Sub-total included in profit or loss RMB million |
Actuarial changes arising from changes in financial assumptions RMB million |
Actuarial changes arising from changes in demographic assumptions RMB million |
Experience adjustments RMB million |
Sub-total included in other comprehensive income |
Benefit settled RMB million |
31 December 2016 RMB million |
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Defined benefit obligations/ benefit liability |
2,750 | — | 88 | 88 | (80 | ) | 373 | 117 | 410 | (185 | ) | 3,063 | ||||||||||||||||||||||||||||
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