Transcript Task Force on Pensions

ECB/Eurostat Work on
Pensions in the Context of the
SNA Update
The 2008 World Congress on National Accounts and
Economic Performance Measures for Nations
Key Bridge Marriott, Arlington, Virginia
12 to 17 May 2008
Reimund Mink
Reasons for changing the current SNA (i)
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Future treatment of employer pension schemes is
one of the key issues of the current SNA update
Three reasons for changing the current SNA:

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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 commitments of governments and
on impacts of pension reforms)
Convergence of international statistical standards and
international accounting standards (IAS) is aimed at (current
SNA deviates from IAS and IPSAS which treat unfunded
employer pension entitlements as liabilities)
Reasons for changing the current SNA (ii)
Different ‘effects’ on variables
Holdings of (private) life insurance reserves and pension entitlements by
households (as a percentage of GDP)
Country / area
End-2005
Euro area
53
Of which: Germany
53
France
59
Italy
38
Netherlands
United Kingdom
167
140
United States
96
Japan
86
Sources: ESCB, ONS, Federal Reserve Board, Bank of Japan, and OECD.
Reasons for changing the current SNA (iii)
Commitments of governments
Demographic projections: Process of ‘double ageing’
Projected decreasing fertility and increasing life expectancy
Euro area and in the US (in Mio)
280
400
140
W or king age population
Population
Retir ement age population
360
240
100
320
200
60
160
280
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
20
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Recording of pension schemes in the new SNA (i)

Work done since 2002
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IMF electronic discussion group (2002 – 2005)
Eurostat’s Task Force on pensions (December 2004)
IMF/BEA Task Force on pensions (September 2005)
AEG recommendations (Frankfurt 2006 meeting) to treat all
employer pension schemes in the same way
Conclusions of the UN Statistical Commission (February
2006) and follow-up
Compromise (summer 2006)


Flexibility of recording (refers to the treatment of unfunded
government employer pension schemes)
Supplementary table on pensions
Recording of pension schemes (ii)

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Households hold
pension entitlements as
financial assets
Change in stock of
pension entitlements
between balance sheets
arises from:

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

Other
economic
flows
Social contributions (actual and
imputed)
Pension benefits
Financial services
Other economic flows


Social
contributions
 Actual
 Imputed
(of which:
property
income)

Revaluations
 Other
changes
Pension benefits
Financial services
Increase in
pension
entitlements
Revaluations
Other changes in the volume of
assets
Transfers between pension
schemes
Pension reforms
Pension
entitlements at
the beginning of
the period
Opening balance sheet + incoming flows
Pension
entitlements at
the end of the
period
-
outgoing flows
= Closing balance sheet
Recording of government pension schemes (iii)
 Recording of
stocks and flows of
government
pension schemes
in the updated SNA
will be formally
identical to the
recording of nongovernment
pension schemes
Opening balance sheet +
Social
contributions
 Actual
 Imputed
(of which:
property
income)
Based on
model
estimations
Other
economic
flows

Revaluations
 Other
changes
Pension
entitlements at
the beginning of
the period
incoming flows
-
outgoing flows
Opening balance sheet +
incoming flows -
Pension benefits
Financial services
Increase in
pension
entitlements
Pension
entitlements at
the end of the
period
= Closing balance sheet
outgoing flows = Closing balance sheet
Pension schemes in Europe (iv)


Challenges identified in Europe to implement the compromise for government
employer (unfunded) pension schemes (borderline with social security pension
schemes)
The predominant types of pension schemes in European countries are social
security pension schemes and defined benefit (unfunded) government
employer pension schemes
Social insurance
Social security schemes,
(unfunded) general government employee
defined benefit schemes
(first pillar)
Belgium
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
United Kingdom
United States
Defined contribution schemes,
private defined benefit schemes, (funded)
general government employee defined benefit
schemes
(second pillar)
Individual insurance
(third pillar)
The Eurostat/ECB Task Force (v)

Mandate agreed by Committee on Monetary, Financial
and Balance of Payments Statistics (CMFB) in June 2006
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Methodological work (supplementary table)
Modelling work
Six Task Force meetings
Participants from ten European countries, the European
Commission (ECFIN), OECD, IMF, SNA Editor
Report presented to the CMFB in January 2008
(www.cmfb.org)
Compilation Guide
The supplementary table (i)


Standard table for the new SNA (new chapter 17)
Covers all pension schemes in social insurance,
including social security pension schemes (thus
boundary of social insurance/social assistance important)

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Shows pension schemes data together and helps to
compile comparable national accounts
Follows stock-flow relationship and covers
transaction and other flow data as economic events
for changes in pension entitlements
Includes survivors and disability pensions which are
part of pension schemes
The supplementary table (ii)
Core / non-core national accounts
Core
Sponsor
Non-core
Non-general government
General government
General government employer
DB schemes
Scheme
Position / transaction /other flow
Row number / column number
Opening balance sheet
1
Pension entitlements
Transactions
2
Social contributions relating to pension schemes
Employer actual social contributions
Employer imputed social contributions
Employee actual social contributions
Employee imputed social contributions/ property income
Self employed and non-employed social contributions
3
Other (actuarial) accumulation of pension entitlements in
social security pension schemes
4
Pension benefits
5
Change in pension entitlements (rows 2+3-4)
6
Changes in pension entitlements due to transfers of
entitlements
Other economic flows
7
Revaluations
8
Other changes in volume
Closing balance sheet
9
Pension entitlements (rows 1+5+6+7+8)
Related indicators
Total
Total
DC
schemes
A
B
C
DB
schemes
and other
non-DC
schemes
DC
sche-mes
D
E
Of which:
Schemes
classified
in general
government
F
G
H
Social
security
pension
schemes
Counterparts: Of
which:
Resident
households
I
J
The supplementary table – columns (iii)

Core-non-core…

Core schemes’ entitlements recorded in core national accounts

Task Force found a basket of criteria:
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Degree of integration within the government structure (autonomous versus non-autonomous)
Risk exposure/ability to change the benefit formula (government does not have discretion to
change unilaterally the benefit formula at any point in time and thereby partially default on its
obligations)
Nature of the contract (generally not forced by law to participate)
Legal framework close to social security pension schemes
Funding (funding versus no funding)
To be developed further in the European System of Accounts (ESA)
revision
Government or non-government sector
Sponsored by government or not (concept of sponsor)
Defined contribution or defined benefit (including
hybrid) schemes
The supplementary table – rows (iv)
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Pension entitlements at the beginning and the end of
the period and flows in between
Social contributions

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Pension reforms

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Employer imputed social contributions are commonly
calculated as a residual
Social security pension schemes have specific row to reflect
lack of employer imputed social contributions
Household social contribution supplements = imputed property
income on all pension schemes
If affecting accrued entitlements, generally treated as
transactions (other economic flows if imposed by third party)
Treatment of payments for financial services / output
Assets of pension schemes held for sole purpose of
paying pensions
Modelling of government pension schemes (i)

Lack of significant expertise amongst statisticians,
thus…
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rely on experts and existing data, and
develop knowledge and modelling skills

Accrued-to-date liabilities concept

Use the actuarial approach
Need to give guidance on assumptions to improve
comparability of data, but accept that sometimes data
is available with assumptions already in place

Modelling of government pension schemes (ii)
Accrued-to-date liabilities (ADL) of a pension scheme are
calculated as the present value of the current pension benefits
and of the projected future pension benefits paid to all
pensioners and to current workers living in the base year b:
ADLb 
b D
b

t b k b D
fut
(ptexis

p
)
,k
t ,k
Dt ,k
t b
(1 r )
The pension entitlements of the existing retirees (ptexis
) and the
,k
pension entitlement of the current workers (future retirees) are
accrued to the base year ( ptfut,k ) and discounted by (1+r) for
each future year (t-b) and multiplied with the corresponding
number of members of the age cohort Dt,k.
Modelling - key assumptions (iii)

Discount rate

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Treatment of real wage changes

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Favour government bond yields (suitable maturity)
But corporate bond yields could be used
Take account of future wage changes (ABO versus PBO)
Experience effects are transactions
Demographic data
Other assumptions in some schemes (diversity
across Europe)
Modelling work (iv)
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Task Force looked at three approaches:
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National models
Pension Reform Options Simulation Toolkit (PROST)
developed by the World Bank
Intergenerational accounting-based model developed by the
Research Center for Generational Contracts of the Freiburg
University
Results of data show:
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Pensions entitlements very large, especially for social security
Models allow to carry out sensitivity analyses (by varying key
assumptions)
Putting the data together is time-consuming
Developing national models requires close cooperation
between the national statistical institutes, central banks and
other national institutions like ministries and other
government entities
Modelling of government pension schemes (v)
Social security pension schemes (column I of the supplementary
Pension entitlements
Government employer pension schemes
table)
Country
(column H of the supplementary table)
Country
Country
Germany
DE
Spain
FR
Year
Year
2006
2006
Model
Model
Freiburg
NL
942942
4141
2006
PBOPBO
1,129
1,129
4949
2006
2006
ABO
PBO
1,149223
6423
2006
2006
2006
PL
Netherlands
ABO/PBO
Pension
Pension entitlements
entitlements
Pension
in national
as a
(in national
entitlements
currency
percentage of
currency)
(in % GDP
of GDP)
ABO
ABO
Freiburg
National
Freiburg
2006
France
Wage
growth
2006
2006
2006
PBO
National
Freiburg
Freiburg
Freiburg
Freiburg
PBO
ABO
ABO
PBO
902
20
1,093
61
260
PBOABO
303
20
Spain
Poland
2006
Freiburg
24
National
5
260
25
PBO
303
29
Hungary
ABO
5,231
162
PBO
6,474
200
ABO
4,169
186
PBO
5,669
253
ABO
4,136
185
PBO
5,268
235
ABO
5,386
232
PBO
6,464
278
World Bank
PBO
6,710
289
2006
National
PBO
2,349
240
Freiburg
ABO
1,969
201
PBO
2,333
238
2005
National
PBO
5,623
327
2006
Freiburg
ABO
4,225
247
PBO
5,248
293
2006
World Bank
PBO
5,721
319
Freiburg
ABO
54,272
228
PBO
65,220
275
ABO
690
129
PBO
872
163
ABO
2,695
255
PBO
3,037
287
PBO*
2,579
243
Netherlands
2006
Freiburg
Poland
2006
Freiburg
PBO**
Sweden
as a percentage
of GDP
2005
World Bank
* FUS: Social Insurance Fund
** FER: Disability and Pension Fund (farmers)
Pension entitlements
Freiburg
29 4
ABO
Wage growth
2006
25
France
PBO
2004
Freiburg
2005
50
5
ABO
Germany
2006
53
24
PBO
Czech Republic
4
902
Model
in national
currency
50
941
Year
464
44
5,729
242
2003
5,984
243
2004
6,244
243
2002
National
ABO
* FUS: Social Insurance
Fund; ** FER: Disability and pension6,461
Fund (farmers)
2005
242
2006
Freiburg
6,703
236
ABO
4,760
168
PBO
5,620
198
Modelling of government pension schemes (vi)
Source: Freiburg University
Modelling of government pension schemes (vii)
Source: Freiburg University
Next steps

Follow-up
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Draft Chapter 17 of updated SNA
Revised ESA will draw on Task Force work
Questionnaire in the first half of 2008
Eurostat/ECB seminar in early 2009
Contact Group established for country experts
Feedback to CMFB in January 2009
Since work on pensions is complex, countries should
start work early on implementation
Support by:


Compilation Guide
Further modelling work on pensions