Joe Wilkinson Public Sector Employee Pension Liabilities and Assets: Implication for Canadas Total Government Debt Measures

08/02/2014 Statistics Canada Statistique Canada 2 Outline Introduction Public Service Pension Plans Treatment in Canadian System of National Accounts Background on Public Sector Pensions Outlook and Conclusion

08/02/2014 Statistics Canada Statistique Canada 3 Treatment in Canadian National Balance Sheet Accounts In the CSNA, funded public sector pension plan assets are attributed to Trusteed Pension Plan (TPP) sector The net asset of the fund is recorded as a liability of the TPP sector Unfunded portion of pension obligation recorded as a liability of the government sector, impacting the surplus-deficit and gross and net debt measures The unfunded and funded pension obligation show up as an asset to the household sector This presentation is transparent and makes the treatment of funded and unfunded plans symmetrical, impacting the surplus-deficit and gross and net debt measures

08/02/2014 Statistics Canada Statistique Canada 4 Pension Liabilities and International Debt Comparisons Canada is one of few advanced economies that recognize unfunded pension liabilities when measuring gross and net debt These liabilities are removed from gross and net debt measures for international comparisons by the OECD The adjustment ignores impact of the funded portion of public sector plans on debt Is the current approach a reasonable method of comparison? A better question may be: Should the OECD adjust the Canadian measure or should the OECD adjust the other measures to align with Canada?

08/02/2014 Statistics Canada Statistique Canada 5 Balance Sheet Impact of Funding Pension Plan Liabilities and Assets Including Unfunded Pension Liabilities Excluding Unfunded Pension Liabilities Pension Benefits Obligation 100% of GDP AssetsLiabilities Country A Pension Benefits Obligation 100% of GDP Assets Liabilities Country B Total Liabilities 0% of GDP AssetsLiabilities Country A AssetsLiabilities Country B Pension Assets 20% of GDP Unfunded Pension Obligation 80% of GDP Market Debt 20% of GDP Total Liabilities 100% of GDP Borrowed to found Market Debt 20% of GDP Total Liabilities 20% of GDP Total Liabilities 100% of GDP

08/02/2014 Statistics Canada Statistique Canada 6 Current Canadian Method Unfunded Pension Obligation $222.6 billion 12.6% of GDP Pension Plan Assets $710.9 billion 40.3% of GDP Funded Pension Obligation $710.9 billion 40.3% of GDP Funded Pension Obligation $710.9 billion 40.3% of GDP Unfunded Pension Obligation $222.6 billion 12.6% of GDP Total Pension Asset $933.5 billion 52.9% of GDP Assets Liabilities Government SectorTrusteed Pension Plans (TPP)Household Sector

08/02/2014 Statistics Canada Statistique Canada 7 Alternate Method 1 Unfunded Pension Obligation $222.6 billion 12.6% of GDP Pension Plan Assets $710.9 billion 40.3% of GDP Funded Pension Obligation $710.9 billion 40.3% of GDP Funded Pension Obligation $710.9 billion 40.3% of GDP Unfunded Pension Obligation $222.6 billion 12.6% of GDP Total Pension Asset $933.5 billion 52.9% of GDP Total Pension Obligation $933.5 billion 52.9% of GDP AssetsLiabilitiesAssetsLiabilities Government SectorHousehold Sector

08/02/2014 Statistics Canada Statistique Canada 8 Alternate Method 2 Total Pension Obligation $933.5 billion 52.9% of GDP Less: Pension Plan Assets ($710.9 billion) -40.3% of GDP Funded Pension Obligation $710.9 billion 40.3% of GDP Unfunded Pension Obligation $222.6 billion 12.6% of GDP Total Pension Asset $933.5 billion 52.9% of GDP Unfunded Pension Obligation $222.6 billion 12.6% of GDP AssetsLiabilitiesAssetsLiabilities Government SectorHousehold Sector

08/02/2014 Statistics Canada Statistique Canada 9 G-7 Net Debt Before and After Pension Adjustment (2011) Net Asset Source: OECD Economic Outlook 90, Department of Finance calculations percent of GDP

08/02/2014 Statistics Canada Statistique Canada 10 Outlook/Conclusion Current situation: Different treatments across countries and misunderstanding of unfunded pension liabilities by international organizations Financial indicators like net debt should harmonized across economies if the goal of international comparability is to be met Users who develop related indicators pose a risk to comparability and interpretability of a key aggregate Example of comparable household debt to personal disposable income with the U.S. Government gross and net debt form a significant part of G-20 data gaps initiative. This goal is consistent with more recent G-20 objectives of maintaining uniformity across the databases of international agencies if these are to be as relevant as possible for decision-making