Pension and similar obligations

12 Months Ended

Dec. 31, 2023

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Pension and similar obligations

23. Pensions and similar obligations

AB InBev sponsors various post-employment benefit plans worldwide, which include both defined contribution plans, defined benefit plans, and other post-employment benefits. In accordance with IAS 19 Employee Benefits post-employment benefit plans are classified as either defined contribution plans or defined benefit plans.

DEFINED CONTRIBUTION PLANS

For defined contribution plans, AB InBev pays contributions to publicly or privately administered pension funds or insurance contracts. Once the contributions have been paid, the group has no further payment obligation. The regular contributions constitute an expense for the year in which they are due. For 2023, contributions paid into defined contribution plans for the company amounted to 166m US dollar compared to 164m US dollar for 2022 and to 147m US dollar for 2021.

DEFINED BENEFIT PLANS

During 2023, the company contributed to 84 defined benefit plans, of which 65 are retirement or leaving service plans, 15 are medical cost plans and 4 other long-term employee benefit plans. Most plans provide retirement and leaving service benefits related to pay and years of service. In many of the countries the plans are partially funded. When plans are funded, the assets are held in legally separate funds set up in accordance with applicable legal requirements and common practice in each country. The medical cost plans in Barbados, Brazil, Canada, Colombia, South Africa and US provide medical benefits to employees and their families after retirement. Many of the defined benefit plans are closed to new entrants.

The present value of funded obligations includes a 113m US dollar liability related to two medical plans in Brazil, for which the benefits are provided through the Fundação Antonio Helena Zerrenner (“FAHZ”). The FAHZ is a legally distinct entity which provides medical, dental, educational and social assistance to current and retired employees of Ambev. As at 31 December 2023, the actuarial liabilities related to the benefits provided by the FAHZ are fully offset by an equivalent amount of assets existing in the fund. The net liability recognized in the statement of financial position is nil.

The employee benefit net liability amounts to 1 661m US dollar as at 31 December 2023 compared to 1 523m US dollar as at 31 December 2022. In 2023, the fair value of the plan assets increased by 75m US dollar and the defined benefit obligations increased by 212m US dollar. The increase in the employee benefit net liability is mainly driven by decreases in the discount rates partially offset by favorable asset returns.

The company’s net liability for post-employment and long-term employee benefit plans comprises the following as at 31 December 2023 and 2022:

Million US dollar	2023		2022
Present value of funded obligations		(4 784)		(4 604)
Fair value of plan assets		3 882		3 807
Present value of net obligations for funded plans		(902)		(797)
Present value of unfunded obligations		(619)		(587)
Present value of net obligations		(1 521)		(1 384)
Unrecognized asset		(38)		(43)
Net liability		(1 559)		(1 427)
Other long term employee benefits		(102)		(96)
Total employee benefits		(1 661)		(1 523)
Employee benefits amounts in the statement of financial position:
Liabilities		(1 673)		(1 534)
Assets		12		11
Net liability		(1 661)		(1 523)

The changes in the present value of the defined benefit obligations are as follows:

Million US dollar	2023		2022		2021
Defined benefit obligation at 1 January		(5 191)		(7 478)		(8 496)
Current service costs		(50)		(69)		(80)
Interest cost		(302)		(229)		(212)
Past service gain/(cost)		4		-		(5)
Settlements		99		114		176
Benefits paid		469		549		553
Contribution by plan participants		(2)		(2)		(3)
Actuarial gains/(losses) – demographic assumptions		17		(2)		(41)
Actuarial gains/(losses) – financial assumptions		(220)		1 854		460
Experience adjustments		(44)		(116)		16
Exchange differences		(182)		243		154
Transfers and other movements		-		(55)		-
Defined benefit obligation at 31 December		(5 403)		(5 191)		(7 478)

As at the last valuation date, the present value of the defined benefit obligation was comprised of approximately 1.1 billion US dollar relating to active employees, 1.0 billion US dollar relating to deferred members and 3.3 billion US dollar relating to members in retirement.

The changes in the fair value of plan assets are as follows:

Million US dollar	2023		2022		2021
Fair value of plan assets at 1 January		3 807		5 381		5 649
Interest income		217		157		137
Administration costs		(17)		(17)		(19)
Return on plan assets exceeding interest income		94		(1 084)		197
Contributions by AB InBev		218		220		241
Contributions by plan participants		2		2		3
Benefits paid net of administration costs		(469)		(551)		(553)
Assets distributed on settlements		(97)		(112)		(172)
Exchange differences		127		(188)		(102)
Transfers and other movements		-		(2)		-
Fair value of plan assets at 31 December		3 882		3 807		5 381

Actual return on plans assets amounted to a gain of 311m US dollar in 2023 compared to a loss of (927)m US dollar in 2022.

The changes in the unrecognized asset are as follows:

Million US dollar	2023		2022		2021
Irrecoverable surplus impact at 1 January		(43)		(32)		(31)
Interest expense		(4)		(3)		(2)
Changes excluding amounts included in interest expense		9		(8)		1
Irrecoverable surplus impact at 31 December		(38)		(43)		(32)

The expense recognized in the income statement with regards to defined benefit plans can be detailed as follows:

Million US dollar	2023		2022		2021
Current service costs		(50)		(66)		(80)
Administration costs		(17)		(17)		(19)
Past service cost due to plan amendments, curtailments or settlements		6		2		(2)
(Losses)/gains due to experience and demographic assumption changes		(1)		-		1
Profit from operations		(61)		(81)		(100)
Net finance cost		(88)		(73)		(76)
Total employee benefit expense		(150)		(154)		(176)

The employee benefit expense is included in the following line items of the income statement:

Million US dollar	2023		2022		2021
Cost of sales		(18)		(25)		(30)
Distribution expenses		(9)		(11)		(11)
Sales and marketing expenses		(14)		(17)		(24)
Administrative expenses		(21)		(28)		(34)
Other operating (expense)/income		-		-		(1)
Net finance cost		(88)		(73)		(76)
Total employee benefit expense		(150)		(154)		(176)

Weighted average assumptions used in computing the benefit obligations of the company’s significant plans at the reporting date are as follows:

	2023
	United States		Canada		Mexico		Brazil		United    Kingdom		AB InBev
Discount rate		5.3%		4.6%		9.3%		9.2%		4.7%		5.6%
Price inflation		2.0%		2.0%		3.5%		3.5%		3.2%		2.6%
Future salary increases		-		1.0%		4.3%		6.7%-3.9%		-		3.7%
Future pension increases		-		2.0%		3.5%		3.5%		3.1%		2.8%
Medical cost trend rate		6.8%-4.5%		4.5%		-		7.1%		-		6.7%-6.2%
Life expectation for a 65-year old male		86		87		85		85		87		85
Life expectation for a 65-year old female		88		90		88		87		89		88

	2022
	United States		Canada		Mexico		Brazil		United    Kingdom		AB InBev
Discount rate		5.5%		5.1%		9.5%		10.0%		4.9%		5.9%
Price inflation		2.5%		2.0%		3.5%		3.5%		3.2%		2.7%
Future salary increases		-		1.0%		4.5%-4.0%		7.1%-5.3%		-		4.0%
Future pension increases		-		2.0%		3.5%		3.5%		3.0%		2.7%
Medical cost trend rate		7.0%-4.5%		4.5%		-		7.1%		-		6.8%-6.1%
Life expectation for a 65-year old male		86		87		85		85		87		85
Life expectation for a 65-year old female		88		90		88		87		89		88

Through its defined benefit pension plans and post-employment medical plans, the company is exposed to a number of risks, the most significant are detailed below:

INVESTMENT STRATEGY

In case of funded plans, the company ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are in line with the obligations under the pension schemes. Within this framework, the company’s ALM objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. The company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligation.

ASSET VOLATILITY

In general, the company’s funded plans are invested in a combination of equities, bonds and real estate, generating high but volatile returns from equities and at the same time stable and liability-matching returns from bonds. As the plans mature, the company usually reduces the level of investment risk by investing more in assets that better match the liabilities. Since 2015, the company started the implementation of a pension de-risking strategy to reduce the risk profile of certain plans by reducing gradually the current exposure to equities and shifting those assets to fixed income securities.

CHANGES IN BOND YIELDS

An increase in bond yields will decrease plan liabilities, although this will be partially offset by a decrease in the value of the plans’ bond holdings.

INFLATION RISK

Some of the company’s pension obligations, mainly in the UK, are linked to inflation, and higher inflation will lead to higher liabilities. The majority of the plan’s assets are either unaffected by or loosely correlated with inflation, meaning that an increase in inflation could potentially increase the company’s net benefit obligation.

LIFE EXPECTANCY

The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities.

The weighted average duration of the defined benefit obligation in 2023 is 11.0 years (2022: 11.4 years). An increase in bond yields reduces the average duration.

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

	2023
Million US dollar	Change in    assumption		Increase in    assumption			Decrease in    assumption
Discount rate		0.5%		(275	)		300
Price inflation		0.5%		96			(103)
Future salary increases		0.5%		23			(21)
Medical cost trend rate		1%		25			(22)
Mortality		One year		155			(157)

The above are purely hypothetical changes in individual assumptions holding all other assumptions constant: economic conditions and changes therein will often affect multiple assumptions at the same time and the effects of changes in key assumptions are not linear.

Sensitivities are reasonably possible changes in assumptions, and they are calculated using the same approach as was used to determine the defined benefit obligation. Therefore, the above information is not necessarily a reasonable representation of future results.

The fair value of plan assets at 31 December consists of the following:

	2023						2022
Million US dollar	Quoted		Unquoted		Total		Quoted		Unquoted		Total
Government bonds		38%		-		38%		34%		-		34%
Corporate bonds		27%		1%		28%		30%		-		30%
Equity instruments		22%		-		22%		24%		-		24%
Property		-		6%		6%		-		7%		7%
Insurance contracts and others		3%		3%		6%		4%		1%		5%
		90%		10%		100%		91%		8%		100%

AB InBev expects to contribute approximately 229m US dollar for its funded defined benefit plans and 76m US dollar in benefit payments to its unfunded defined benefit plans and post-retirement medical plans in 2024.