Employer retirement pension
schemes
Reimund Mink and Richard Walton
Paris, 11 October 2005
Paper prepared for the meeting of the OECD National Accounts Working Group
Employer retirement pension schemes
• Current position in the 1993 SNA and in related
manuals
• Reasons for changing the 1993 SNA
• Evaluation of the proposed alternative solutions
• Recording of unfunded pension obligations as liabilities in the core
accounts
• Recording of unfunded pension obligations in a set of supplementary
accounts
• Preferred recommended solution
• Implications for the System
Employer retirement pension schemes
• Current position in the 1993 SNA and in related
manuals
•
1993 SNA does not recognise unfunded obligations as liabilities of
employer pension schemes and as financial assets of beneficiaries;
however, it proposes to show the net present value of assets and
liabilities as memorandum items
• 1995 ESA like 1993 SNA; it further proposes to only include
provisions if they are calculated according to actuarial criteria similar to
those used by insurance
• GFSM 2001 recommends to record government unfunded
obligations as liabilities
Employer retirement pension schemes
• Reasons for changing the 1993 SNA
• Mainly three reasons:
1. Unfunded employer schemes are particularly significant for
government. In the light of ageing populations, there is a wellfounded interest to have more comprehensive statistical
information on future commitments of governments;
2. Different accounting for funded and unfunded schemes leads to
different ‘effects’ on key variables like income, net lending/net
borrowing, financial assets or liabilities;
3. Some convergence of international statistical standards and
international accounting standards (IAS) is aimed at.
Employer retirement pension schemes
• Evaluation of the proposed alternative solutions
• Two options of the recording of unfunded pension obligations
As liabilities
In a set of
in the core accounts
supplementary accounts
This is the proposal made
presented in
by the IMF’s EDG on pensions
This is the view
various papers presented to the
Eurostat Task Force on SNA
Employer retirement pension schemes
•
Evaluation of the proposed alternative solutions
• Recording of unfunded pension obligations as liabilities in the core
accounts
Implications
a) Unfunded schemes treated as if they were funded schemes; strong
assumptions have to be made in relation to the discount rate, the
average life expectancy of the scheme members, and their final
salaries
b) Changes in assets and liabilities for pensions due to various kinds of
(imputed) financial transactions
c) Changes in assets and liabilities for pensions due to revisions of the
actuarial assumptions
Employer retirement pension schemes
•
Evaluation of the proposed alternative solutions
• Recording of unfunded pension obligations as liabilities in a set of
supplementary accounts
Reasons
a) It is arbitrary to treat only the obligations of unfunded employer
pension schemes as liabilities; especially valid for economies with a
large proportion of pensions organised on a pay-as-you-go basis;
b) Intractable measurement issues arise if no stock and flow data are
available based on actuarial criteria; especially valid for government
accounts
c) Pay-as-you-go schemes imply different economic behaviour of
employers and employees (households) than funded schemes
d) Pay-as-you-go schemes imply different structures of financial
markets than funded schemes
Employer retirement pension schemes
• Preferred recommended solution
Recording of stocks and flows related to unfunded pension schemes
operated by governments or other sectors for their employees and to social
security pension schemes in a set of supplementary accounts
• Same rules are applied as for funded schemes, but assumptions
should be made explicit;
• A sensitivity analysis should be conducted;
• As a result, the current treatment of unfunded schemes in the core
accounts does not change, while all supplementary model estimates
are recorded in a separate set of (implicit) transaction accounts, other
flow accounts, and balance sheets.
Employer retirement pension schemes
• Implications for the System
• As unfunded employer pension schemes and social security
schemes are often close substitutes to each other, they should be
treated in the same way
• As actuarial calculations are often not available, rather complicated
model calculations would have to be carried out
• The supplementary set of accounts could be extended to other types
of implicit assets and liabilities like loan provisions or one-off
guarantees.
• The compilation of a supplementary set of accounts has the
advantage to provide the users with a consistent and comprehensive
set of data, also useful for financial stability analysis of corporate and
government sectors.