8 August 2018

Calculation of financial expenses for ITP 2

According to generally accepted accounting principles, the total pension costs for ITP 2 book reserve method pensions are be divided into operating cost and financial expense.

The reason for this breakdown is that the increase in the pension liability includes an interest factor in the form of the discount rate. Therefore, the financial expense should be a measure of how much the pension liability has increased as a result of this interest rate.

The rate for calculation of the financial expense is determined by PRI Pensionsgaranti and consists of the gross amount on the discount rate, currently four per cent.

The financial expense is calculated by multiplying the average pension liability during the year by the percentage rate for calculation of financial expense.

The other element of the total pension costs is operating cost. This breakdown makes it possible to compare companies which have purchased insurance from Alecta and companies which have chosen to manage their pension commitments using the book reserve method.