SNA Review: Pension schemes Report of the Eurostat/ECB Task Force and implementation of the supplementary table on pensions Reimund Mink European Central Bank Working Party on National Accounts, Paris, 3 to 5 October 2007 John Verrrinder Eurostat

Overview Pension schemes in Europe Recording of general government pension obligations in the new SNA Measurement of general government pension obligations in Europe

Predominant type of pension schemes in European countries and in the US Social insurance Individual insurance (third pillar) Social security schemes, (unfunded) general government employee defined benefit schemes (first pillar) Defined contribution schemes, private defined benefit schemes, (funded) general government employee defined benefit schemes (second pillar) Belgium Germany Greece Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland United Kingdom United States Pension schemes in Europe

New recording of stocks and flows of general government pension schemes in the new SNA will be formally identical to the recording of stocks and flows of non- government pension schemes Opening balance sheet + incoming flows - outgoing flows = Closing balance sheet Based on model estimations Recording of general government pension obligations in the new SNA (i) Contributions Actual Imputed (of which: property income) Pension payments Financial services Other flows Revaluations Other changes Increase in pension obligations (Implicit) pension obligations at the end of the period (Implicit) pension obligations at the beginning of the period

Recording of general government pension obligations in the new SNA (ii) This new recording of general government pension obligations is based on a worldwide compromise Recording of all pension schemes in social insurance in a supplementary table Distinction between stocks and flows recorded in the core accounts and recorded only in the supplementary table

Recording of general government pension obligations in the new SNA (iii) Eurostat/ECB Task Force on Pensions Methodological issues: Design of the supplementary table (part of chapter 17 of the 2009 SNA) Distinction between (i)Core and non-core national accounts (ii)Non-general government and general government sponsorship (iii)Non-general government and general government sectors (iv)Transactions and other economic flows

Recording of general government pension obligations in the new SNA (iv) Core / non-core national accounts Total CoreNon-core Counterparts: 4) Of which: Resident households SponsorNon-general governmentGeneral government Scheme Position / transaction / other flow Total DC schemes DB schemes and other non-DC schemes 1) DC schemes General government employee DB schemes 2) Social security pension funds Of which: Schemes classified in general government 3) Row number / column number ABCDEFGHIJ Opening balance sheet 1Pension entitlements Transactions 2Social 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 funds 4Pension benefits 5Change in pension entitlements (rows 2+3-4) 6 Changes in pension entitlements due to transfers of entitlements Other economic flows 7Revaluations 5) 8Other changes in volume 5) Closing balance sheet 9Pension entitlements (rows ) Related indicators A supplementary table on pension schemes in social insurance DB – defined benefit; DC – defined contribution. 1) Such other non-DC schemes, often described as hybrid schemes, have both a defined benefit (DB) and a DC element. – 2) Schemes organised for general government employees. - 3) These are non-autonomous DB schemes recorded in the core accounts. - 4) Counterpart data for non-resident households will only be shown separately when pension relationships with the rest of the world are significant. - 5) A more detailed split of these positions should be provided for columns H and I based on the model calculations carried out for these schemes. – 6) These assets do not include pension entitlements or equity held by pension schemes towards their sponsors.

Recording of general government pension obligations in the new SNA (v) Criteria to record pension schemes’ entitlements in the core national accounts or in the supplementary table (preliminary work) Criterion Very importantImportantLess importantUn- important Degree of integration within the general government structure (autonomous versus non-autonomous) PT, IT, NorwayFR, MT, RO, PL, ES AT, CZ, EE, SE, SK, IE, SI FI, DE, NL, DK Risk exposure / ability to change the benefit formula (general government does not have discretion to change unilaterally the benefit formula at any point in time and thereby partially default on its obligations) FR, FI, DE, IT, ES, DK AT, CZ, NL, PL, SK, IE PT, MT, RO, EE, SE, SI Nature of the contract (generally not forced by law to participate) FR, FI, RO, NL, PLPT, SE, SK, ES, SIAT, CZ, MT, EE, IT, IE, Norway DE, DK Legal framework close to social security pension fundsFR, CZ, FI, DE, RO, PL, SK, IE, ES AT, PT, IT, SIMT, EE, NL, SE, Norway DK Funding (funding versus no funding) CZ, PT, RO, SK, IT, Norway AT, EE, SIFR, MT, NL, IE, ES FI, DE, SE, PL, DK  Other criteria listed by the EU members: FR: As important as the legal framework, is the degree of financial integration within the social security (participation in an “equalisation” mechanism); NL: Is the whole population covered? Is it related to a collective labour contract? A collective labour contract is compulsory by law; PT: additional criteria i) the possibility of an individual leaving the scheme being reimbursed of his contributions; ii) the government faculty of arbitrarily changing the rate of contribution; FI: Is the scheme part of collective system covering the large part of community or not.

Measurement of general government pension obligations in Europe (i) Modelling issues: Estimation of pension obligation data Accrued-to-date liability concept Models to carry out actuarial estimates (national models, Freiburg Research Center for Generational Contracts, World Bank Pension Reform Options Simulation Toolkit (PROST)) Parameters (discount rate, wage growth rate, GDP growth; ABO (accrued benefit obligation) versus PBO (projected benefit obligation); benefit formula parameters (years of service, indexation, etc.) Input data (demographic data (population, mortality); pension scheme data (contributors, retirees, pension payments, gross earnings of contributors)

Measurement of general government pension obligations in Europe (ii) First results will be presented in a report to the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB) in January The report will cover Methodological issues Estimates for EU countries Data on stocks, transactions and other flows on general government pension obligations For general government employee defined benefit schemes and for social security pension schemes Based on various models (national, Freiburg, World Bank) A practical guide for compilers