1. Pension schemes in Korea

Supplementary table on pension schemes in social insurance account needs to be recorded. - Transition from 93SNA to 08SNA - Publication of 12 Supplementary table on pension schemes scheduled in 2014 Korean govt adopted accrual basis accounting in its accounting system. - Implementation of 01GFS Several conferences and T/F meetings ongoing - regarding new statistical measurement and recording method, coverage and classification of each pension scheme 2. Introduction of new statistical standards

Classification of public pension schemes almost finished through Fiscal Management Conference and working group T/F meetings - Classification of private retirement pension schemes is being discussed by Flow-of-Funds Account Team of Bank of Korea and related govt officials. - Fiscal Management Conference is a ministerial meeting for discussing issues about govt financial stats and fiscal reforms where related govt officials and BOK members participate. All pension schemes in public sector have been classified into the not in the core account 3. Up to date outcome of continuing conferences and T/F meetings

National Pension scheme in H account. Govt Employees Pension scheme and Military Personnel Pension scheme in G account. Conference participants considered several characteristics and referred to the 5 criteria suggested from the CMFB final report. The most important criteria applied are as follows.. - The degree of integration within the govt structure - The risk exposure and ability to change the benefit formula - The funding of a scheme 3. Up to date outcome of continuing conferences and T/F meetings

Currently available data are pension liabilities of Govt Employees Pension and Military Personnel Pension Stock data of private sector pension schemes belong to either DB or DC. - DC : market value is applied - DB : identical method with Govt Employees Pension is applied - Flow data have no clear distinction between the two. As a representative case, methodology on Govt Employees Pension is presented from the next slide. 4. Ongoing recording of the supplementary table on pension schemes

Evaluation system and concept - PUCM (Projected Unit Cost Method) - PBO (Projected Benefit Obligation) - Only until 2012 fiscal year can pension liabilities be recognized by applying hypothesis other than PBO. - Liabilities of GEP 2011 calculated by ABO concept Govt Employees Pension (GEP) assessment and recording in Ongoing recording of the supplementary table on pension schemes

Detailed procedure of GEP liabilities calculation Liabilities of current workers 1. Estimated pension payment of each cohort is calculated by considering expected retirement time/point of each cohort and current remuneration. 2. Each cohorts pension liabilities is calculated by applying proportion of ones tenure to estimated pension payments. 3. Pension liabilities of officials in service as of 31st Dec 2011 are the summation of each cohorts pension liabilities. Govt Employees Pension (GEP) assessment and recording in Ongoing recording of the supplementary table on pension schemes

Detailed procedure of GEP liabilities calculation Liabilities of pensioners 1. Pension liabilities are calculated by estimating each cohorts pension amount payable according to the benefit formula. 2. Pension liabilities of pensioners as of 31st Dec 2011 are the summation of each cohorts pension liabilities. Govt Employees Pension (GEP) assessment and recording in Ongoing recording of the supplementary table on pension schemes

Detailed procedure of pension cost calculation Pension cost is calculated by adding exact amount of current term pension benefit payment obligation (or current term pension benefit) to the figure made by subtracting pension liabilities as of 31st Dec 2010 from pension liabilities as of 31st Dec Interest cost is calculated by applying expected 2011 discount rate which is used on 31st Dec 2010 to the present pension liabilities. In case of past service cost, there could be variations in pension liabilities amount due to the change in wage payable for past service. There could be some actuarial profits or losses when fluctuation of present value of pension liabilities occurs. Govt Employees Pension (GEP) assessment and recording in Ongoing recording of the supplementary table on pension schemes

Outline of actuarial assumptions Govt Employees Pension (GEP) assessment and recording in 2011 ItemDescriptionCalculation Method Demographic Retirement rate Assumption for calculating cash flows by using time and probability of benefit occurrence due to retirement Exploiting info of retirees and current officials for past specific 3 years Jenkinss five-term interpolation, Greville cubic 11 polynomial smoothing Yearly quit rate by job classification, sex, age, and retirement duration Mortality Assumption for calculating cash flows by using time and probability of benefit occurrence due to death Exploiting info of the dead, pensioners, and current officials for past 5 specific years Jenkinss five-term interpolation, Greville cubic 11 polynomial smoothing Calculating and applying by including mortality into quit rate Pension Selectivity Assumption for reflecting selectivity among beneficiaries (lump-sum payment or pension) Exploiting info of retirees and current officials for past specific 3 years Jenkinss five-term interpolation, Greville cubic 11 polynomial smoothing Yearly rate of selection by job classification, sex, age, and retirement duration 4. Ongoing recording of the supplementary table on pension schemes

Outline of actuarial assumptions Govt Employees Pension (GEP) assessment and recording in 2011 ItemDescriptionCalculation Method Demographic Rate of merit The growth rate of benefit for each age and working period The static increasing rate not considering wage growth rate Reflecting benefit differences between age and working period Automatically calculated by wage structure for each age, sex, job classification, and working period Financial Inflation rate Assumption for reflecting the level of pension amount at receiving point 2008 National Pension financial figures applied. Discount rate Assumption for making present value of expected future benefit National bond yield (10-year average) 4. Ongoing recording of the supplementary table on pension schemes

Unit : billion won, data extracted at the end of Dec 2011 Assessment result for pension liabilities Item2010 fiscal year (A)2011 fiscal year (B)B-A Pension liabilities254, , , Ongoing recording of the supplementary table on pension schemes

2011 total GEP liabilities comprise 23% of 2011 nominal GDP GDP : 1,237,128.2 (in billion won) Assessment result for pension liabilities 4. Ongoing recording of the supplementary table on pension schemes

Table 3 : Pension liabilities in Korea -at the end of 2011 In trillion, % of GDP Private sector Sub-total private sector Government Sub- total Governm ent TO TAL Supple- mentary table column ABEGH DC individual DC Workplace funded DB Workplace funded Workplace unfunded pensions In trillion won 342 (290+52) % GDP 27.6 * GEP pension and Military Personnel pension only 4. Ongoing recording of the supplementary table on pension schemes

Bond yield year year year year year Usage of 10 year average national bond yield as a discount rate & demographic change & frequent assessment period Korean economy is going through a structural change 5. Possible problems and limitations

Korean life expectancy has been increasing. (by population census carried out every 5 years) 5. Possible problems and limitations

Frequent Assessment Period Fluctuation of Discount rate Demographic Change Change in Pension Liability 5. Possible problems and limitations

Reference 1.Task Force on the statistical measurement of the assets and liabilities of pension schemes in general government, 31 January and 1 February 2008, Final Report of the Eurostat/ECB Task Force on the statistical measurement of the assets and liabilities of pension schemes in general government to the CMFB 2.Ministry of Strategy and Finance, 2011, Fund Financial Statements( ) for 2011 fiscal year 3.Statistics Korea, 4th Dec 2012, 2011 Life Tables for the Nation and Provinces 4.ECOS, the Bank of Korea