1. UK PENSIONS SUPPLEMENTARY TABLE
Tim Gibbs
David Ainslie
ONS Pensions Analysis Unit

2. Aims Introduce how the UK ST work was communicated
Introduce the table for the UK and QA
Look in some detail at the methodology for: - ST column G ‘Classified in general government’ - ST column H ‘Social security pension schemes’

3. Development of the ST 4 years to research/develop
Major contribution from Government Actuary’s Department (designed and quality assured the methodology)
2010 and 2011 tables successfully delivered to Eurostat (voluntary, until mandatory delivery of year 2015 in 2017)

4. April 2012 launch seminar Venue: Royal Statistical Society
Over 70 attendees
UK government departments, including: - ONS - HM Treasury - Business Innovation and Skills - Work and Pensions - National Audit Office - Government Actuary’s Department
Representatives from other EU statistical institutes
Eurostat and ECB
The Pension Regulator, Bank of England and Financial Services Authority

5. Seminar attendees: Media and research
National newspapers (eg Financial and Sunday Times; Daily Telegraph)
Pensions policy and research institutes: - Intergenerational Foundation - Centre for Economics and Business Research - Pensions Policy Institute - Oxford Institute of Population Ageing - Centre for Policy Studies

6. Other attendees: Industry and academics
Pensions providers and pensions consultants (eg Towers Watson; Eversheds; John Ralfe(Consultant))
Trade Union representatives
UK universities

7. Publications to support launch
Main supporting publication 2 December 2011: ‘Compiling estimates of state pension obligations for the National Accounts (a methodology article)’

8. Publications to support launch
Main article 27 April 2012: ‘Pensions in the National Accounts – A fuller picture of the UK’s funded and unfunded pension obligations’

9. Pensions Supplementary Table
Recording
Total
Pension
Counter-parts:
Pension manager
Schemes
entitlements
of non-
resident
households
Defined contri-
bution schemes
Column number A B C D E F G H I J 1
Pension entitlements (incl
contingent pension
entitlements) NA
2.1 to 2.4
– 2.5 2
Increase in pension entitlements
due to social contributions
2.1
Employer actual social
contributions
2.2
Employer imputed social
2.3
Household actual social
2.4
Household social contribution
supplements
2.5
Less: Pension scheme service
charges 3
Other (actuarial) change of
pension entitlements in social
security pension schemes 4
Reduction in pension
entitlements due to payment of
pension benefits 5
Changes in pension
entitlements due to social
contributions and pension
benefits 6
Transfers of pension
entitlements between schemes 7
Change in entitlements due to
negotiated changes in scheme
structure 8
Changes in entitlements due to
revaluations 9
other changes in volume
1+ 5 to 9 10
Pension entitlements (incl.
contingent pension entitlements 11
Output
Changes in pension entitlements due to other flows
Changes in pension entitlements due to transactions
Defined
benefit
schemes
and other
non-defined
contri-
bution
Closing balance sheet
Social security
pension
Related indicator
Classified in
financial
corporations
general
government
Classified in general
Opening balance sheet
General government
Standard national accounts
Relations
Row No.
Not in the standard
accounts
Non-general government
Defined benefit schemes for general government employees

10. Pensions Supplementary Table: Columns

11. Pensions Supplementary Table: Rows

12. ST overview
ST covers all UK pensions schemes in ‘social insurance’ (excludes individual personal pensions which, in the National Accounts, are regarded as a form of life insurance)
ST is in two parts: ‘General government’ (the public sector) Columns D to H - ‘Non-general government’ (the private sector) Columns A and B, Column C = A+B

13. ST Quality Assurance
Developed working closely with ONS National Accounts Methods Committee (NAMC)
Approach approved by Pensions Statistics Advisory Group (PSAG), a group of government and non-government pensions experts
Worked closely with Eurostat, including contributions to the Technical Compilation Guide
Issues referred to NAMC / PSAG / Eurostat, on an ongoing basis

14. ST overview – Columns G and H
ST covers two areas, columns G and H, not previously covered and not part of the core National Accounts under ESA 2010: - Column G, ‘Classified in general government’ (unfunded public sector schemes) - Column H, ‘Social security pension schemes’ (the state pension)

15. Column G - Why is it important?
Column G represents unfunded public sector schemes (e.g., Civil Service, Teachers, National Health Service)
Almost all the information for Column G is available from published Resource Accounts
Problems include: - locating the appropriate Accounts - late, or irregular, publication of Accounts - identifying the correct figure (without an accountancy background)
Example of Resource Accounts ‘Cabinet Office: Civil Superannuation Accounts ’

16. Compiling Column G
Resource Accounts are financial year. Need to adjust to calendar year (eg, for calendar year 2011, take and Accounts)
Police and Fire Resource Accounts unavailable. Use ‘Whole of Government Accounts’ to obtain rating up figure

17. Compiling Column G –Service charge
New row, 2.5 ‘Less: Pension scheme service charges’
Not available for all schemes, but is available for small number of very large column B schemes
Estimate for the other schemes based on the proportions in the schemes where available

18. Compiling Column G – Discount rate
For the ‘General government’ part of the ST and, therefore, for ST column G, ESA 2010 requires all Member States to use the same rate of 5 %
This is usually conceptualised as: - 5% nominal
- 3% real (5% nominal: the additional 2% represents inflation)
The 5% is generally referred to as the discount rate

19. Column G - Sensitivity Analysis
Earlier article presented detailed sensitivity analyses: Pensions in the National Accounts, July 2011
Covered liabilities of four largest schemes: - NHS - Teachers - Civil Service - Armed Forces
1% fall in discount rate increased liabilities by 16%
1% increase in discount rate reduced liabilities by 14%

20. ST column H ‘Social security pension schemes’
The contributory state pension: - Basic State Pension (BSP)
- Additional State Pension (ASP)
Accrued to date basis for ST
Excludes
- social assistance (income-related benefits)
- Pension Credit (a means-tested benefit for pensioners)
- Excludes other non-contributory state pensions eg winter fuel allowance.

21. ST column H: Defering pensions
People can defer receipt of state pension beyond SPA
Initial entitlement increased at fairly generous rate for deferral
Can take additional amount as a lump sum if deferred for more than a year

22. ST column H: Not debt State pension liabilities are not debt
- Possible to change the obligations by enacting legislation
referred to as ‘contingent pension obligations’

23. ST column H: How we get data?
Data from Department of Work and Pensions (2 models)
DWP estimates take into account future accumulation of pension rights
DWP data needs to be adjusted to ST basis

24. ST column H: The BSP model
The BSP is a payouts-based model for SPA and above - people currently over working age (pensioners) - inflows of workers to SPA
Life expectancy projections for single year of age and by sex
Additional adjustments eg country of residence, marital status and widowhood

25. ST column H: The AP model
The AP is an accruals-based model. Estimates based on entitlements built up during working lives
Then revalued by earnings growth
After SPA, ASP is increased each year in line with inflation, until death
Again, mortality rates based on ONS national population projections
Additional adjustments made for earnings level, number of jobs, single year of age, marital status and contracting-out of ASP.

26. ST column H: ASP entitlments
Consequently, accrued ASP entitlements = - Earnings x rate of accrual, revalued in line with earnings growth until SPA - Earnings x rate of accrual, uprated in line with inflation from SPA

27. ST column H: Adjusting to a ST basis
Need to remove any future accruals
Relatively simple for AP as an accruals-based model
More complex for BSP. Need to rework to entitlement to date rather than entitlement at SPA
For both BSP and AP, had to further adjust DWP estimates to reflect only legislation enacted to date
All discounted by the standard rate for government schemes: 3% real; 5% nominal

28. ST column H: Sensitivity to discount rate
Based on UK state pension entitlements at end 2010: Nominal discount rate (%)
Change in pension entitlements (£ billion) , Change in pension entitlements (%) % % % %

29. Conclusion
4 years to research/develop. Will continue to review the methodology and improve quality until 2017 mandatory delivery
Pleased to work with other countries, if helpful (although UK is not using the model-based approach)
Questions?

30. UK PENSIONS SUPPLEMENTARY TABLE
Tim Gibbs
David Ainslie
ONS Pensions Analysis Unit