25. Provisions for pensions and other post-employment benefits

The provisions for pensions and other post-employment benefits in Germany and other countries as of the reporting date are as shown in the following table:

	Pensions		Other post-employment benefit obligations		Total
	Dec 31, 2007	Dec 31, 2008	Dec 31, 2007	Dec 31, 2008	Dec 31, 2007	Dec 31, 2008
	€ million	€ million	€ million	€ million	€ million	€ million
Germany	4,538	4,557	141	109	4,679	4,666
Other countries	438	1,197	384	484	822	1,681
Total	4,976	5,754	525	593	5,501	6,347

The expenses for defined benefit pension plans and other post-employment benefit obligations for the continuing and discontinued operations are comprised as follows:

Expenses for defined benefit pension plans	Germany		Other countries		Total
	2007	2008	2007	2008	2007	2008
	€ million	€ million	€ million	€ million	€ million	€ million
Current service cost	186	134	66	48	252	182
Past service cost	40	(9)	3	(2)	43	(11)
Interest cost	523	567	234	232	757	799
Expected return on plan assets	(315)	(307)	(272)	(267)	(587)	(574)
Plan curtailments	-	-	(27)	(3)	(27)	(3)
Plan settlements	-	-	4	1	4	1
Total	434	385	8	9	442	394

Expenses for other post-employment benefit obligations	Germany		Other countries		Total
	2007	2008	2007	2008	2007	2008
	€ million	€ million	€ million	€ million	€ million	€ million
Current service cost	10	9	27	17	37	26
Past service cost	-	-	(1)	-	(1)	-
Interest cost	6	6	50	47	56	53
Expected return on plan assets	-	-	(28)	(28)	(28)	(28)
Plan curtailments	-	-	(14)	-	(14)	-
Plan settlements	-	-	-	-	-	-
Total	16	15	34	36	50	51

The status of unfunded and funded defined benefit obligations is as follows:

Click on the table to enlarge.

Of the defined benefit obligation for pensions, €4,799 million (2007: €4,762 million) relates to unfunded benefit obligations while €9,272 million (2007: €9,401 million) relates to funded benefit obligations. Of the defined benefit obligation for other post-employment benefits, €185 million (2007: €235 million) relates to unfunded benefit obligations while €654 million (2007: €624 million) relates to funded benefit obligations.

Of the funded pension plans, total overfunding of individual plans amounts to €366 million (2007: €546 million) while underfunding amounts to €955 million (2007: €214 million). Similarly, other funded post-employment benefit obligations of individual funds are underfunded by €404 million (2007: €285 million). Other unfunded post-employment benefit obligations relate mainly to early retirement benefits in Germany.

The Bayer Group has set up funded pension plans for its employees in many countries. Since the legal and tax requirements and economic conditions may vary considerably between countries, assets are managed according to country-specific principles.

Bayer-Pensionskasse VVaG (Bayer-Pensionskasse) in Germany is by far the most significant of the pension funds. This legally independent fund is a private insurance company and is therefore subject to the German Law on the Supervision of Private Insurance Companies. Bayer guarantees the commitments of Bayer-Pensionskasse under German law on secondary liability. Bayer-Pensionskasse is classified as a defined benefit plan for IFRS purposes. The fair value of the plan assets includes real estate leased by Bayer which is recognized at a fair value of €74 million (2007: €51 million).

The investment policy of Bayer-Pensionskasse is geared to compliance with regulatory provisions and to the risk structure resulting from its obligations. In light of capital market movements, Bayer-Pensionskasse has therefore developed a strategic target investment portfolio aligned to its risk structure. Its investment strategy focuses principally on stringent management of downside risks rather than on maximizing absolute returns. It is anticipated that this investment policy can generate a return that enables it to meet its long-term commitments.

A large proportion of the benefit obligations of Bayer Schering Pharma AG, Berlin, Germany, which was acquired in 2006, is covered by Schering Altersversorgung Treuhand Verein. Here too, the investment strategy is geared to the structure of the corresponding obligations. It permits the use of derivatives; nearly all currency risks are fully hedged. With the aid of a risk management system, stress scenarios are simulated and other risk analyses are undertaken (e.g. value at risk).

For plan assets in other countries as well, the key investment strategy criteria are the structure of the benefit obligations and the risk profile. Other determinants are risk diversification, portfolio efficiency and a country-specific and global balance of opportunity and risk capable of ensuring the payment of all future benefits.

The weighted parameters used to value the plan assets to cover pensions and other post-employment benefit obligations were allocated as follows at year-end:

Plan assets to cover pension obligations as of December 31	Germany		Other countries
	2007	2008	2007	2008
	%	%	%	%
Equity securities	26.01	17.68	45.72	37.94
Debt securities	47.16	60.73	44.61	50.17
Real estate and special real estate funds	8.66	8.83	3.12	1.80
Other	18.17	12.76	6.55	10.09
Total	100.00	100.00	100.00	100.00

Plan assets to cover other post-employment benefit obligations as of December 31	Germany		Other countries
	2007	2008	2007	2008
	%	%	%	%
Equity securities	-	-	51.73	39.38
Debt securities	-	-	41.04	44.53
Real estate and special real estate funds	-	-	-	-
Other	-	-	7.23	16.09
Total	-	-	100.00	100.00

At the closing dates, plan assets included roughly the same weightings of Bayer shares as the major stock indices. The other plan assets principally comprise mortgage loans granted, other receivables, fixed-term deposits and cash and cash equivalents.

The major pension funds in the United States and the United Kingdom posted a negative performance in fiscal 2008 because stocks make up a higher proportion of their investments. Bayer-Pensionskasse, however, which is Bayer’s most significant German pension plan, reported a positive return on assets in 2008.

The following weighted parameters were used to value the pension obligations as of December 31 and the expense of pensions and other post-employment benefits in the respective year:

Parameters for pension and other post-employment benefit obligations	Germany		Other countries		Total
	2007	2008	2007	2008	2007	2008
	%	%	%	%	%	%
Pension obligations
Discount rate	5.50	6.00	6.45	6.30	5.75	6.10
Projected future remuneration increases	2.85	3.00	4.65	4.00	3.10	3.25
Projected future benefit increases	1.75	2.00	3.25	2.95	1.95	2.25
Other post-employment benefit obligations
Discount rate	5.10	6.40	6.85	6.45	6.55	6.45

Parameters for benefit expense	Germany		Other countries		Total
	2007	2008	2007	2008	2007	2008
	%	%	%	%	%	%
Pension benefit obligations
Discount rate	4.60	5.50	5.65	6.45	4.90	5.75
Projected future remuneration increases	2.60	2.85	4.10	4.65	2.85	3.10
Projected future benefit increases	1.50	1.75	2.45	3.25	1.60	1.95
Expected return on plan assets	5.25	4.75	7.85	7.45	6.20	5.55
Other post-employment benefit obligations
Discount rate	4.30	5.10	6.25	6.85	6.00	6.55
Expected return on plan assets	-	-	8.25	8.25	8.25	8.25

Altering individual parameters by 0.5 percentage points while leaving the other parameters unchanged would impact pension and other post-employment benefit obligations as of year end 2008 as follows:

	Germany		Other countries		Total
	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease
	€ million	€ million	€ million	€ million	€ million	€ million
Pension benefit obligations
Change in discount rate	(623)	697	(217)	240	(840)	937
Change in projected future remuneration increases	65	(58)	27	(25)	92	(83)
Change in projected future benefit increases	445	(413)	37	(15)	482	(428)
Other post-employment benefit obligations
Change in discount rate	(1)	1	(38)	42	(39)	43

Altering individual parameters by 0.5 percentage points while leaving the other parameters unchanged would impact pension expense in 2009 as follows:

	Germany		Other countries		Total
	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease	0.5 per- centage point increase	0.5 per- centage point decrease
	€ million	€ million	€ million	€ million	€ million	€ million
Pension benefit obligations
Change in discount rate	(5)	5	(3)	3	(8)	8
Change in projected future remuneration increases	8	(7)	3	(3)	11	(10)
Change in projected future benefit increases	33	(31)	2	(1)	35	(32)
Change in expected return on plan assets	(30)	30	(13)	13	(43)	43
Other post-employment benefit obligations
Change in discount rate	-	-	(1)	1	(1)	1
Change in expected return on plan assets	-	-	(1)	1	(1)	1

Provisions are also set up for the obligations of Group companies, particularly in the United States, to provide post-employment benefits in the form of health care cost payments to retirees. The valuation of health care costs is based on the assumption that they will increase at a rate of 11% (assumption in 2007: 11%), which should decline to 5% by 2016 (assumption in 2007: 5% by 2015). The table shows the impact of a one percentage point change in the assumed rate of cost increases:

	Increase of one percentage point	Decrease of one percentage point
	€ million	€ million
Impact on other post-employment benefit obligations	80	(67)
Impact on pension expense	8	(7)

The following payments were made in 2008 and 2007, and are expected to be made in 2009, for employer contributions to funded and unfunded pension plans that provide pensions and other post-employment benefits:

	Germany			Other countries
	2007	2008	2009 projected	2007	2008	2009 projected
	€ million	€ million	€ million	€ million	€ million	€ million
Pension obligations	415	311	306	139	100	80
Other post-employment benefit obligations	48	47	47	33	35	44
Total	463	358	353	172	135	124

Pensions and other post-employment benefits payable in the future are estimated as follows:

	Germany		Other countries		Total
	Pension obligations	Other post- employment benefit obligations	Pension obligations	Other post- employment benefit obligations	Pension obligations	Other post- employment benefit obligations
	€ million	€ million	€ million	€ million	€ million	€ million
2009	564	47	194	44	758	91
2010	579	35	182	45	761	80
2011	600	12	188	48	788	60
2012	623	3	203	49	826	52
2013	647	3	207	51	854	54
2014-2018	3,615	9	1,242	285	4,857	294

The actuarial gains and losses related to defined benefit obligations and plan assets, recognized in a separate statement of recognized income and expense outside of profit or loss, are as follows:

Click on the table to enlarge.

In Germany, no unrealized gains/losses exist in relation to other post-employment benefit obligations.

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