Report to the AEG
Findings of the Task Force on
Employers’ Retirement Schemes
Adriaan Bloem, IMF
John Ruser, BEA
Co-chairs
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Main points
 SNA is inconsistent in the treatment of funded and
unfunded pension schemes
 To achieve consistency, a majority of the Task Force
recommended that
 All pension liabilities of employers should be recognized,
regardless of extent of funding
 Stocks and flows of all pension schemes should be recorded in
the core accounts, based on actuarial estimates
• Recognizing practical problems and user needs, stocks and
flows of funded and unfunded schemes should be separately
identified
 Even though measurement issues exist, actuarial
estimates are available in many countries
 Borderline between pensions and social security must be
resolved
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Attributes of employers’ pension schemes
TF conclusions
 Pensions schemes provide retirement benefits based on
contractual employer-employee relationship
 May be funded, unfunded, or over- or under-funded
 May or may not be mandated by government
 May be autonomous or non-autonomous
 Autonomous schemes involve institutional units separate from
employers
 Non-autonomous schemes are managed by employers, with or
without segregated reserves
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1993 SNA treatment of pensions
Output
 Autonomous pension schemes : recorded
separately
 Non-autonomous schemes : not recorded
separately
 Ancillary to employer’s main output
 Treatment of non-autonomous funds fails to
recognize that pension schemes provide
services to beneficiaries, not employers
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1993 SNA treatment of pensions
Assets/liabilities
 Employer liabilities and household assets only
recorded for funded schemes
 Fails to recognize employer obligations
(liabilities) and corresponding household assets
for unfunded schemes
 Nowhere else in SNA is a liability recognized
only when there is a matching asset
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1993 SNA treatment of pensions
Compensation of employees
 Recording:
 Funded schemes: actual employer contributions to
pension schemes
 Unfunded schemes: imputed
• In principle, SNA recognizes imputation should be
based on actuarial considerations
• In practice, SNA suggests using benefits paid in
current period
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1993 SNA treatment of pensions
Compensation of employees
 Economic principle:
 Compensation should include the increase in
employers’ pension liabilities from an additional year’s
work, regardless of funding
 Shortcomings of current treatment:
 Changes in employer pension liabilities bear no
necessary relationship to actual employer
contributions or actual benefits paid
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1993 SNA treatment of pensions
Property income
 Only recorded for funded pension schemes
 As investment return on fund assets (insurance
technical reserves)
 Fails to recognize the increase in the assets/liabilities
due to the passage of time, regardless of the
existence of segregated assets
 Investment return includes only property income,
not holding gains
 Anomalous treatment of interest-bearing versus non-
interest bearing securities
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Shortcomings of 1993 SNA treatment
 SNA internally inconsistent
 Compensation of employees in income account
includes imputed employer contributions for unfunded
schemes
 But, the assets/liabilities related to future benefits are
not recognized in the financial accounts or balance
sheets
 In contrast, such assets and liabilities are recognized
for funded schemes
 Under- and over-funding is not recognized as an
employer obligation or claim
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Output – TF conclusions
 In principle, output should be recorded
separately for both autonomous and nonautonomous funds
 Output of pension funds should be measured at
cost
 Including the full management cost of any insurance
company managing a fund
 Output should be recorded as consumed by the
beneficiaries (i.e. households)
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Use of expected holding gains/losses
TF conclusions
 It is appropriate to use expected transactions
and expected holding gains and losses to
explain the service charge of autonomous
pension funds
 But, further work is needed on the implications of
using expectations in the practical calculation of
pension fund output
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Property income – TF conclusions
 The value of property income should be
The expected property income on the accumulated
value of benefits (due to the unwinding of the discount
of these benefits)
Plus the imputed service charge for funds management
 For autonomous funds: The fact that some
property income may be funded from holding
gains is not a reason to exclude this amount
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Developing actuarial estimates
 There are a two main valuation approaches
 Projected benefit obligation (PBO)
 Calculated as part of total pension benefits employee
will earn during entire career, due to years of service
to date
 Accrued benefit obligation (ABO)
 Calculated for years of service to date based on
current wage and salary rates
 PBO > ABO, with large difference in early years
decreasing towards retirement date
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Developing actuarial estimates
TF conclusions
 In the accounts, the accumulated value of benefits
should be based on only service to date (ABO)
 Should not take projected future wages and salaries into account
(as would a PBO calculation)
 But, PBO estimates could be provided in memoranda
 The value of household pension assets is consistent with
the actuarial value of the employer’s liability to provide
future retirement benefits
 Due to service provided to current date
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Discount rate - TF conclusion
 An acceptable discount rate would be the
interest rate on high quality securities relevant to
the sponsor of the pension scheme
 Securities with terms to maturity that are consistent
with the time horizon of the pension liability
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Pension scheme sectoring
TF conclusions
 Autonomous schemes
 Include in the pension subsector of the financial
corporations sector
 Non-autonomous schemes
 Include in the sector of the sponsor
 Unless, quasi-corporations can be established for
funds
• In which case they are sectored the same as
autonomous funds
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Recording issues
TF majority recommendation
 All pension liabilities of employers should be
recognized, regardless of extent of funding
 Stocks and flows of all pension schemes should
be recorded in the core accounts
 Recognizing practical problems and user needs,
stocks and flows of funded and unfunded
schemes should be separately identified
 Specific guidance needs to be given to so-called
“notional defined contribution” schemes
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Social security borderline
TF conclusions
 Basic social security is essentially a
redistributive process imposed and controlled by
government
 benefits provided are not directly linked to the size of
contributions
 Some governments operate schemes combining
this basic social security function with what is
effectively a multi-employer pension scheme
 The criteria for distinguishing basic social
security from employer-related pension schemes
need to be reviewed as a matter of urgency
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Does AEG agree that
1. Liabilities/assets and associated economic flows of all
pension schemes should be recognized in the core
accounts of 1993 SNA?
2. Accumulated benefits and related economic flows for
all defined benefit schemes should be calculated using
actuarial methods?
3. Output should be calculated for non-autonomous
schemes on a cost basis, and cost attributed to the
beneficiaries (i.e. household sector)?
4. Expected holding gains and losses can be used in
order to explain the service charge imposed by
autonomous pension schemes?
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