Aspectos generales

Provisions for pensions are recognized for benefits in the form of retirement, invalidity and dependents' benefits payable under pension plans. The benefits provided by the Group vary according to the legal, tax and economic circumstances of the country concerned, and usually depend on the length of service and remuneration of the employees.

Group companies provide occupational pensions under both defined contribution and defined benefit plans. In the case of defined contribution plans, the Company makes contributions to state or private pension schemes based on legal or contractual requirements, or on a voluntary basis. Once the contributions have been paid, there are no further obligations for the Company. Current contributions are recognized as pension expenses of the period concerned. In 2006, they amounted to €798 million (previous year: €767 million) in the Volkswagen Group. Contributions to the compulsory state pension system in Germany amounted to €763 million (previous year:

€730 million).

Most pension plans are defined benefit plans, with a distinction made between pensions financed by provisions and externally funded plans.

The pension provisions for defined benefits are measured using the internationally accepted projected unit credit method in accordance with IAS 19, under which the future obligations are measured on the basis of the ratable benefit entitlements earned as of the balance sheet date. Measurement reflects assumptions as to trends in the relevant variables affecting the level of benefits. All defined benefit plans

require actuarial calculations. Actuarial gains or losses arise from changes in the number of beneficiaries and differences between actual trends (for example, in salary and pension increases or changes in interest rates) and the assumptions on which calculations were based. Actuarial gains and losses are taken directly to equity.

Owing to their benefit character, the obligations of the US Group companies in respect of post-employment medical care in particular are also carried under provisions for pensions and other post-employment benefits. These post-employment benefit provisions take into account the expected long-term rise in the cost of healthcare. A one percentage point increase or decrease in the assumed healthcare cost trends only marginally affects the amount of the obligations.

168 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Since 1996, the occupational pension arrangements of the Volkswagen Group in Germany have been based on a specially developed expense-related pension model that is classified as a defined benefit plan under IAS 19. With effect from January 1, 2001, this model was further developed into a pension fund, with the annual remuneration-linked contributions being invested in funds by Volkswagen Pension Trust e.V. as the trustee. By investing in funds, this model offers an opportunity for increasing benefit entitlements, while at the same time fully safeguarding them. For this reason, almost all Group companies in Germany have now joined the fund. Since the fund investments held by the trust meet the criteria of IAS 19 for classification as plan assets, they are deducted from the obligation.

Where the foreign Group companies provide collateral for obligations, this mainly takes the form of shares, fixed-income securities and real estate. These do not include any financial instruments issued by companies of the Volkswagen Group, or any investment property used by Group companies.

The following amounts were recognized in the balance sheet for defined benefit plans:

€ million Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004

Present value of funded obligations 3,235 2,959 2,455 Fair value of plan assets 3,159 2,690 2,068

Funded status 76 269 387

Present value of obligations not externally

financed 13,652 13,618 12,169

Unrecognized past service cost 23 39 –31 Amount not recognized as an asset

because of the limit in IAS 19 42 47 33

Net liability recognized in the balance sheet 13,793 13,973 12,558

of which provisions for pensions and other

post-employment benefits 13,854 14,003 12,633

other assets 61 30 75

GROUP FINANCIALCOMMUNICATION DIVISIONS MANAGEMENTREPORT FINANCIAL STATEMENTS ADDITIONALINFORMATION 169 _{Income Statement}

Balance Sheet

Statement of Recognized Income and Expense Cash Flow Statement

Notes to the Consolidated Financial Statements

Auditors´ Report FI NA NC IA L S T A T E M E N TS

The present value of the obligations is calculated as follows:

€ million 2006 2005

Present value of obligations at January 1 16,577 14,624

Current service cost 400 340

Interest cost 709 714

Actuarial gains/losses –197 1,382

Employee contributions to plan assets 2 6 Pension payments from company assets 509 484

Pension payments from plan assets 77 58

Past service cost 16 –35

Gains from plan curtailments and settlements –5 –39

Changes in consolidated Group –82 –40

Other changes 118 30

Foreign exchange differences –65 137

Present value of obligations at December 31 16,887 16,577

Changes in the composition of the plan assets are shown in the following table:

€ million 2006 2005

Fair value of plan assets at January 1 2,690 2,068

Expected return on plan assets 156 152

Actuarial gains 121 151

Employer contributions to plan assets 326 249 Employee contributions to plan assets 2 6

Pension payments from plan assets 77 58

Changes in consolidated Group –20 –30

Other changes 23 27

Foreign exchange differences –62 125

Fair value of plan assets at December 31 3,159 2,690

Investment of the plan assets to cover future pension obligations resulted in actual gains in the amount of €277 million (previous year: €303 million).

The rate for the expected long-term return on plan assets is based on the long-term returns actually generated for the portfolio, historical overall market returns and a forecast of expected returns on the securities classes held in the portfolio. The forecasts are based on returns expected for comparable pension funds for the remaining period of service, as the investment horizon, as well as on the experience of managers of large portfolios and of experts in the investment industry.

Employer contributions to plan assets are expected to amount to €258 million next year.

170 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Plan assets consist of the following components:

% 2006 2005 Equities 42.9 42.1 Fixed-income securities 48.3 47.7 Cash 4.6 3.1 Real estate 3.4 3.4 Other 0.8 3.7

The following amounts were recognized in the income statement:

€ million 2006 2005

Current service cost 400 340

Interest cost 709 714

Expected return on plan assets 156 152

Past service cost 16 32

Gains from plan curtailments and settlements 5 39 Losses as a result of application of limit under IAS 19.58(b) 5 14

Net income and expenses recognized in profit or loss 969 909

The above amounts are generally included in the personnel costs of the functions in the income statement. Interest cost on pension provisions and the expected return on plan assets are presented in finance costs (note 6).

The net liability recgonized in the balance sheet has changed as follows:

€ million 2006 2005

Net liability recognized in the balance sheet at January 1 13,973 12,558

Changes in consolidated Group –62 –10

Net expense recognized in the income statement 969 909 Benefit payments from company assets

and contributions to funds 835 733

Actuarial gains/losses –318 1,231

Other changes 82 6

Foreign exchange differences –16 12

Net liability recognized in the balance sheet at December 31 13,793 13,973

The experience adjustments, meaning differences between changes in assets and obligations expected on the basis of actuarial assumptions and actual changes in those assets and obligations, are shown in the following table:

€ million 2006 2005 2004

Differences between expected and actual developments:

as % of fair value of the obligation 0.03 0.25 2.63 as % of fair value of plan assets 2.57 2.12 –0.27

GROUP FINANCIALCOMMUNICATION DIVISIONS MANAGEMENTREPORT FINANCIAL STATEMENTS ADDITIONALINFORMATION 171 _{Income Statement}

Balance Sheet

Statement of Recognized Income and Expense Cash Flow Statement

Notes to the Consolidated Financial Statements

Auditors´ Report FI NA NC IA L S T A T E M E N TS

Calculation of the pension provisions was based on the following assumptions:

Germany Abroad

% 2006 2005 2006 2005

Discount rate at December 31 4.50 4.25 2.00 –11.50 1.00 –13.00 Expected return on plan assets 5.00 5.00 4.50 –11.05 4.50 –16.11 Salary trend 1.50 –2.00 1.50 –2.25 1.50 –5.86 1.50 –7.50 Pension trend 1.00 –1.25 1.00 –1.50 1.70 –5.10 1.70 –5.24 Employee turnover rate 1.00 –2.00 1.40 3.00 –7.00 1.68 –7.00 Annual increase in

healthcare costs – – 4.50 –7.75 5.00 –6.50