ESA2010: Recording of pension
schemes in national accounts
OECD Workshop on the implementation
of the 2008 SNA
Paris, 25-27 October 2011
Ismael Ahamdanech Zarco. Eurostat. Unit C5.
OUTLINE
1. BACKGROUND
2. COMPILATION OF DATA ON PENSIONS: ADL
approach and assumptions
3. SUMMARY AND CONCLUSIONS
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Important definitions
 Social insurance vs social assistance vs individual
insurance policies
 Funded vs unfunded pension schemes
 Defined contribution vs defined benefit vs notional
defined contribution pension schemes
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1. BACKGROUND
Starting Point
 Future treatment of employer pension schemes was
one of the key issues of the 1993 SNA update
 Three reasons for changing the 1993 SNA:
– Different accounting of funded and unfunded employer
pension schemes leads to different ‘effects’ on variables like
income, saving, financial assets or liabilities
– Unfunded employer pension schemes are particularly
significant for general government and the public sector
(statistical information on obligations of governments and
on impacts of pension reforms)
– Convergence of international statistical standards and
international accounting standards (IAS) is aimed at (1993
SNA deviates from IAS and IPSAS which treat unfunded
employer pension entitlements as liabilities)
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1. BACKGROUND
Latest Developments and Outlook:
 November 2010:
– Seminar on pensions in Eurostat
 20 DEC 2010:
– Commission decision on ESA 2010 covering table 29
(supplementary table) which is envisaged to be
mandatory from 2014.
 DEC 2010-2012:
- Annual voluntary Eurostat/ECB questionnaire on
pensions (covering supplementary table)
- Technical compilation guide developed jointly by
Eurostat and the ECB to help countries in compiling
pension data.
- Next seminar on pensions compilation: Spring 2012
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2. COMPILATION
Outline
 The supplementary table: Table 29 in ESA 2010 TP
 Overview of the concept of accrued-to-date liabilties (ADL)
 Distinction of pension schemes covered in the supplementary
table
 Measuring unfunded public pension entitlements
- A) Calculation procedure
- B) Key assumptions
- C) Data requirements
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2. COMPILATION
The supplementary table on pension schemes in social insurance
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2. COMPILATION
Scope of pension liabilities
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2. COMPILATION
Scope of pension liabilities
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2. COMPILATION
Scope of pension liabilities
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2. COMPILATION
Which type of entitlements are included in the new supplementary
table?
• pensions vs. non-pensions
• gross vs. net concept
• social insurance vs. social assistance
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2. COMPILATION
Which type of entitlements are included in the new supplementary
table?
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2. COMPILATION
Which type of entitlements are included in the new supplementary
table ?
• funded vs. pay-as-you-go (new: public schemes)
• defined contribution (DC) vs. defined benefit (DB) vs. notional
defined contribution (NDC)
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2. COMPILATION
Measuring unfunded public pension entitlements
Actuarial Model
A) Calculation procedure
B) Key assumptions
C) Data requriements
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2. COMPILATION
A) Calculation procedure
Overview of the calculation of pension entitlements
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2. COMPILATION
A) Calculation procedure
D
E x,g,t =
ps, g , f * B

s  x 1
accrued
s ,g , f
*(1  r ) xs
• Forward looking approach:
o estimation of future pension benefits accrued-to-date
o requires a projection of historical data into the future
• Stock concept:
o sum of accrued future pension benefits in present value of a given
base year
• Dependent on present and future demography
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2. COMPILATION
A) Calculation procedure
The example of a 70 year old retiree: Discounting and summing up future
expected pension benefits
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2. COMPILATION
A) Calculation procedure
ABO vs. PBO - what makes the difference?
Future wage growth due to:
• promotions
• general wage growth in the economy
To ensure comparable results across Europe the PBO approach should be
applied
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2. COMPILATION
B) Key assumptions: The discount rate
The discount rate answers the questions:
What are future payment streams worth today?
Future (pension)
payment in year t +1
Pt 1
PVt 
1 r
Present value in
base year t
Discount rate
Which amount do I have to set aside today in order to finance a future
(pension) payment ?
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2. COMPILATION
B) Key assumptions: The discount rate
What is the appropriate choice of the discount rate for the estimation of ADL?
 “High quality” government bonds are a suitable proxy for the discount
rate.
 The maturity of these bonds should be similar to the respective
entitlements.
 A stable discount rate should be applied to avoid the noise which arises
from frequent changes.
To ensure comparability the same discount rate should be applied for all
EU countries and for all government-managed pension schemes.
 One discount rate of 3 % (5 %) in real (nominal) terms for all EU countries
and pension schemes (applied in the AWG context)
Sensitivity analysis of the discount rate – case study Portugal
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2. COMPILATION
B) Key assumptions: Wage growth
AWG productivity/wage growth paths – the example of Germany, Poland and Spain
Wage growth based on the AWG labour productivity forecasts
Note: The assumptions on wage growth and discount rate are not
independent from each other and determine the level of pension entitlements
to a large extent.
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2. COMPILATION
B) Key assumptions: Demographic assumptions
Future increase of the life expectancy
Changes of the life expectancy based on the newest EUROPOP population projection
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2. COMPILATION
C) Data requirements
Demographic data:
1) Population by age and sex
2) Age- and gender-specific mortality data in the base year
3) Age- and gender-specific fertility data in the base year
Pension data:
1) Aggregate of pension benefits by age and sex
2) Data on past contribution career (e.g. reference earnings, contribution years)
3) Benefit formula design:
- accrual factor, indexation of pensions
- adjustment of parameters (e.g. sustainabilty factor)
4)
Recent reforms of the pension system (e.g. change of retirement age,
reference earnings)
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3. SUMMARY AND CONCLUSIONS
 Important changes in treatment of pensions from SNA 93
to SNA 2008 looking for more international comparability.
 This change implies:
– Better understanding of Government sector.
– Knowledge of important data to understand household behaviour.
 Eurostat is involved in the development of this new
dataset:
– Chapter 17 in the proposal of ESA 2010.
– Table 29 (supplementary table) compulsory in the proposal of new
TP
– Technical Compilation Guide and seminars to support countries in
the compilation.
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3. SUMMARY AND CONCLUSIONS
VERY IMPORTANT
 Scope of pensions liabilities: Different approaches to
measurement, different implications for economic
analysis and economic policy recommendations.
 Regarding compilation:
– Compilation procedure.
– Key assumptions (especially interest rate).
– Data requirements.
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THANKS FOR YOUR
ATTENTION¡¡
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