Note 20 Post-Employment Benefits

The Group has established a number of pension plans for its operations throughout the world. In Finland pension cover since 2001 has been entirely arranged through local insurance companies, whereas in Sweden cover is arranged through both insurance companies and book reserves in accordance with the Swedish “PRI/FPG System”. Pension arrangements outside Scandinavia are made in accordance with local regulations and practice, mostly being defined benefit pension plans with retirement, disability, death and termination income benefits; the retirement benefits are generally a function of years worked and final salary and are coordinated with national pensions. The Group also has some fully insured plans and defined contribution plans, the charge to the Income Statement for the latter amounting to EUR 201.8 (EUR 209.2) million for the year.

Group policy for funding its defined benefit plans is intended to satisfy local statutory funding requirements for tax deductible contributions, together with adjusting to market rates the discount rates used in actuarial calculations of liability in book reserves; the charge in the Income Statement for year amounted to EUR 63.3 (EUR 104.5) million before the below adjustment relating to the Finnish Statutory Employment Pension Scheme.

The Group also funds certain other post-employment benefits in North America relating to retirement medical and life insurance programmes, the charge for the year being a gain of EUR 32.9 million as compared with an expense in 2003 of EUR 31.4 million; the gain was as a result of the changes in US healthcare plans detailed below which had a positive effect of EUR 76.8 million.

Retirement age for the management of Group companies has been agreed at between 60 and 65 years and for members of the Executive Management Group, 60.

Amounts previously reported as defined benefit pension liabilities for Finland differ from those amounts shown below following the restatement of the accounting treatment of the Finnish Statutory Employment Pension Scheme (“TEL”). Stora Enso had previously treated the TEL’s disability pension component as a defined contribution scheme, however in April 2004 the major accounting firms interpreted this differently as a defined benefit scheme under IFRS. As a result, Stora Enso changed its treatment at that time and restated its previous results; the Group’s pension provisions were restated from EUR 727.6 million to EUR 911.9 in 2003 and from EUR 747.0 million to EUR 919.0 million in 2002, the difference being EUR 184.3 million and 172.0 million respectively.

In late 2004 the Finnish Ministry of Social Affairs and Health approved changes to the TEL principles for calculating disability pension liabilities under which these are to be accounted for as a defined contribution liability in IFRS accounts. This allowed Stora Enso to release all but EUR 4.4 million of the provision since the above restated figures for 2003 and prior years will remain unchanged. The effect on the Income Statement for 2004 is to reduce defined benefit pension costs by EUR 179.9 million to show a net income of EUR 116.6 million.

Also in 2004, changes in US healthcare plans had a one-time positive non-cash effect of USD 96.4 (EUR 78.6) million; this arose as a reversal of expenses already taken in respect of various US retiree healthcare programs provided to both current and future retirees that are now being modified. These measures were taken as part of the fixed cost reduction programmes in Stora Enso North America.

Pension and Post-Employment Benefit Provisions

	As at 31 December
EUR million	2002	2003	2004

Defined benefit plans	523.9	583.3	343.6
Other post-employment benefits	231.7	204.2	123.9
Stora Enso North America: Overfunded pension plan shown in assets (Note 15)	163.4	124.4	170.3
Total	919.0	911.9	637.8

Balance Sheet Reconciliation

	Year Ended at 31 December
EUR million	2002	2003	2004

At 1 January	919.9	919.0	911.9
Translation difference	-37.5	-37.7	-14.3
Acquisition	-	1.3	0.6
Increase	118.0	121.7	82.5
Decrease	-81.4	-92.4	-342.9
At 31 December	919.0	911.9	637.8

Amounts Recognised in the Balance Sheet

	As at 31 December
	2002	2003	2004	2002	2003	2004
EUR million	Defined Benefit Pension Plans			Other Post- Employment Benefits

Present value of funded obligations	912.5	923.2	1 018.6	12.9	7.7	35.8
Present value of unfunded obligations	732.8	625.6	573.3	361.2	396.8	298.9
Fair value of plan assets	-727.8	-693.4	-818.4	-18.6	-7.3	-35.3
Unrecognised actuarial gains and losses	-384.8	-263.7	-418.2	-137.9	-201.4	-188.3
Unrecognised prior service cost	-8.8	-8.4	-11.7	14.1	8.4	12.8
Net Liability in the Balance Sheet	523.9	583.3	343.6	231.7	204.2	123.9

Amounts Recognised in the Income Statement

	Year Ended 31 December
	2002	2003	2004	2002	2003	2004
EUR million	Defined Benefit Pension Plans			Other Post- Employment Benefits

Current service cost	39.1	35.0	38.1	7.1	7.5	8.5
Interest cost	88.9	78.9	73.5	24.6	20.6	22.1
Expected return on plan assets	-55.8	-36.9	-67.5	-2.1	-0.9	-1.8
Net actuarial losses recognised in year	16.3	27.3	20.1	5.6	5.6	-61.7
Settlements/TEL adjustment	-	-	-180.8	-	-	-
Loss curtailment	-	0.2	-	-	-1.4	-
Total Included in Personnel Expenses	88.5	104.5	-116.6	35.2	31.4	-32.9

Defined Benefit Plans: Country Assumptions Used in Calculating Benefit Obligations

	Year Ended 31 December
	2003	2004	2003	2004	2003	2004	2003	2004	2003	2004
	Canada		Finland		Germany		Sweden		USA

Discount rate %	7.0	6.3	5.3	5.0	5.5	5.2	5.5	5.5	6.0	5.8
Expected return on plan assets %	7.5	7.5	5.3	5.0	4.5	4.5	N/A	N/A	8.5	8.0
Future salary increase %	2.0	2.0	4.5	5.0	2.5	2.5	3.0	3.0	5.0	5.0
Future pension increases %	1.5	2.0	2.3	2.3	1.5	1.5	2.0	2.0	-	-
Expected average remaining working years of staff	14.7	14.7	13.0	13.0	13.1	12.5	14.0	13.0	15.5	12.0

Benefit Plan Reconciliation

	Year Ended 31 December
	2002	2003	2004	2002	2003	2004
EUR million	Defined Benefit Pension Plans			Other Post- Employment Benefits

Net liability at 1 January	469.2	523.9	583.3	245.0	231.7	204.2
Translation difference	34.1	27.3	14.3	-38.8	-	-14.9
Acquisition	-	1.3	-	-	-	0.3
Net expense recognised in Income Statement	88.5	104.5	-116.6	35.2	31.4	-32.9
Contributions paid	-61.4	-82.1	-128.0	-9.7	-58.9	-32.8
Settlements	-6.5	8.4	-9.4	-	-	-
Net Liability in the Balance Sheet	523.9	583.3	343.6	231.7	204.2	123.9

Benefit Plan Summary by Country

	As at 31 December 2004
EUR million	Canada	Finland	Germany	Sweden	USA	Other	Total

Present value of funded obligations	158.5	257.8	5.7	-	571.9	60.5	1 054.4
Present value of unfunded obligations	18.5	-	256.0	247.2	313.7	36.8	872.2
Fair value of plan assets	-153.7	-68.9	-2.9	-	-571.9	-56.3	-853.7
Unrecognised actuarial gains and losses	-36.8	-167.4	-1.7	-25.8	-367.9	-5.8	-605.4
Net Liability in the Balance Sheet	-13.5	21.5	257.1	221.4	-54.2	35.2	467.5

Represented by
Defined Benefit Pension Plans	-23.0	21.5	257.1	221.4	-161.8	28.4	343.6
Other Post-Employment Benefits	9.5	-	-	-	107.6	6.8	123.9
Net Liability in the Balance Sheet	-13.5	21.5	257.1	221.4	-54.2	35.2	467.5

Benefit Plan Summary by Country

	As at 31 December 2003
EUR million	Canada	Finland	Germany	Sweden	USA	Other	Total

Present value of funded obligations	149.8	289.1	5.2	-	441.0	45.8	930.9
Present value of unfunded obligations	16.7	-	254.4	237.1	495.6	18.6	1 022.4
Fair value of plan assets	-138.2	-77.2	-2.8	-	-441.0	-41.5	-700.7
Unrecognised actuarial gains and losses	-33.9	-11.0	3.6	-12.7	-409.5	-1.8	-465.1
Net Liability in the Balance Sheet	-5.6	200.9	260.4	224.4	86.1	21.3	787.5

Represented by
Defined Benefit Pension Plans	-15.0	200.9	260.4	224.4	-102.8	15.4	583.3
Other Post-Employment Benefits	9.4	-	-	-	188.9	5.9	204.2
Net Liability in the Balance Sheet	-5.6	200.9	260.4	224.4	86.1	21.3	787.5