Canadian Pension
Satellite Account
Presentation to the OECD Working Party on
Financial Statistics and Working Party on
National Accounts
Patrick O’Hagan
October 3rd, 2007
Pensions in the SNA …
 SNA was developed in a period when an aging
population was not an issue
 The impact of this phenomenon now evident on postwar economies, and economic issues surrounding
pensions coming to the forefront
 Coincidentally, treatment of pensions garnered
significant attention in the revisions to SNA93
 In Canada the SNA, while developed was not set up to
address some of these emerging issues related to
pensions … therefore a Pension Satellite Account (PSA)
was conceived to better articulate pension stocks and
flows and to fill in gaps in data
 PSA is largely analytical in nature
 Last year Canada agreed to present an overview of the
PSA at the 2007 WPFS-WPNA meeting
CSNA sector-based
 Institutional sector-based accounts architecture
to the CSNA are designed to articulate
economic behaviour. The sector accounts
include: the income and outlay account; the
capital account, the financial account and the
balance sheet account (including the other
changes in assets).
 Incomes and current and expenditures in the
sector accounts consolidate to GDP income
arising from production and GDP final
expenditure on production
CSNA Core Sector Accounts and Satellite Accounts in
Income and Expenditure Accounts Division
GDP –
Income arising
from production
Persons
Corporations
GDP –
Final expenditure on
production
Governments
Real GDP –
by expenditure
component
- PE
-I
- X,M
Non-residents
Current account transactions
- Incomes, outlays
Capital account transactions
- Capital investment, saving
Financial account transactions
- Financial asset flows
Satellite
Accounts:
Non-profit
- Liability flows
Other changes in assets account
Tourism
Revaluations and other volume changes
Pensions
Balance sheet account
Non-financial assets
Financial assets
Financial Liabilities
Net worth
Diverse treatment of pensions in the
CSNA sector accounts

Income and outlay, saving
Financial transactions
Accumulated saving (wealth)
Benefit payments / withdrawals
Gains and losses on pension assets
Actuarial evaluations

Pension flows … not fully articulated in CSNA





Dimensions to the PSA
 The PSA adopts the stock-flow structure to the
sequence of sector accounts
 Supplementary detail to sectors … in particular
to the household sector
 PSA covers the entire universe of the
retirement regime in Canada in considerable
detail
 The three tiers are: (i) government-sponsored
social security, (ii) employer-sponsored pension
plans (including both private and public, as
well as funded and unfunded) and (iii)
voluntary individual retirement saving plans
Structure of the PSA
Opening
wealth
position
Social
security
Employersponsored
plans
Individual
savings
plans
Inflows:
Outlays:
Contributions, Withdrawals,
investment- other flows
income
Other
Closing
changes:
wealth
Gains/losses, position
etc
Social security plans
 Canada/Quebec Pension Plan



Funded (invested) assets are recorded in
Government sector, and affect net debt of
government
No liability of government is recognized to
households for this social program
Household pension transfer income
 Old Age Security


No assets -- PAYG social program system … benefit
payments (expense) out of government general
revenue
Household pension transfer income
Individual retirement saving plans –
Accumulation and payout products
 Registered retirement saving plans (RRSP) introduced
in 1957. Contributions to RRSP are tax-sheltered with
a limit and are on a voluntary basis. Withdrawals are
allowed but subject to income tax at the time of
withdrawal
 The amount will be converted to payout vehicle such as
registered retirement income fund (RRIF) or an
annuity when the owner turns age 69
 Typically part of insurance companies and banks or
investment funds liabilities to households. A selfdirected RRSP (sometimes referred to as a selfadministered plan) allows many more investment
options than a regular RRSP … measurement issues
Composition of individual retirement
saving plans
Self-directed RRSP
Investment fund
RRIF
LIC+ seg f
Deposits
$ billion
800
600
400
200
1990
1992
1994
1996
1998
2000
2002
2004
Employer-sponsored contributory plans
detail





Defined benefit, defined contribution, hybrid
Others (e.g., profit-sharing)
Funded, unfunded …public, private
Surplus, deficit
By institutional investor
۰by asset type
 Assets, income … valuation issues
Trusteed Pension Funds: Bulk of
Employer-sponsored pension plans
$ billion, TPP by f inancial instrument
1000
real estate
Stocks;
800
f ixed income
600
400
200
0
1993
1995
1997
1999
2001
2003
2005
Two features of the Canadian SNA
treatment of ESPP
 All ESPP pension plans have a similar treatment with
respect to their impact on personal saving and wealth.
Specifically, an government unfunded plan (no invested
assets) ― by virtue of the fact that it is recognized as a
liability (by government) ― is treated as a household
sector asset, with corresponding saving flows
 Second, Canada has a treatment for that does not
require the D8 adjustment described in SNA93 to bring
personal saving and personal disposable income into
line. Essentially the pension funds are consolidated in
the household sector
Institutional dimensions to pension saving
and wealth feed into PSA
 Trusteed pension plans
 Insurance companies
 Government consolidated revenue
arrangements
 Deposit accepting institutions
 Mutual funds
 Other
 Social schemes
Institutional investors assets drive net
assets pension growth






Deposits
Fixed income securities
Equities
Investment fund units
Real estate
Of which: Foreign
 Investments, income, capital gains in PSA
Key sources of data for the PSA
 Surveys of institutional investors (insurance,
pension funds, banks)
 Enterprise surveys for employers
 Government public accounts and other
government administrative data
 Tax data
 Household survey data
 Some degree of modeling and derived data
 FOCUS ON ANALYSIS
Analytical issues
 Understanding personal saving and
wealth accumulation
 Structure of the pension system
 Economic forecasts
 Projections to tax revenue
 Impact on capital markets
 Sustainability
 Dimensions of risk
2004/09
2002/12
2001/03
1999/06
1997/09
1995/12
1994/03
1992/06
1990/09
1988/12
1987/03
1985/06
1983/09
1981/12
1980/03
Downward trend in personal saving
supported by pension saving
Personal Savings Rate
25
20
15
10
5
0
Evolution of pension saving and wealth
 Despite the downward trend in personal saving since
1990, household wealth has continued to accumulate at
good pace … essentially substituting capital gains
(price appreciation of assets) for saving out of current
income
 Pension saving is an increasing share of a downward
trending personal saving; pension wealth has been a
significant contributor to the growth in household net
worth
 Pension assets account for close to half of the size of the
total financial assets and close to one-third of the net
worth
 Impact of increasing pension payments/withdrawals
Downward trend in personal saving
supported by pension saving
$million
80
60
40
20
1990
1992
1994
1996
1998
2000
-20
-40
-60
-80
saving
non-pension saving
2002
2004
Capital gains result in a different
interpretation of personal saving
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
55
45
35
25
15
5
-5
-15
1991
%
Modified Personal Saving Rate
(Including Capital Gains)
Forecasting the economy, with less
spending out of current income
 Personal expenditure accounts for about 60%
of GDP
 As population ages, increasing sources of funds
from other than income ― dis-saving in
financial account
 Propensity to spend quite high out of
retirement dis-saving
 Need to systematically articulate this detail
drawn from the PSA for users
Projecting tax revenue for fiscal
purposes
 There is already a gap between reported SNA
income and income taxes paid, largely because
realized capital gains are excluded from SNA
income
 Increasingly taxes will be generated out of
ESPP pension benefit payments and individual
retirement plan withdrawals
 Need to systematically articulate this detail
drawn from the PSA for users
Impact on capital markets
 Assets in ESPP, social security and individual
saving plans are very significant
 As assets in these funds grew sharply beginning
in about 1987-90s, they have had a substantial
influence on capital markets – both growth and
fluctuations
 As these funds are drawn down by retirees over
the years to come, the impact on these markets
is unclear
 PSA provides the detail required to make
assessments of this impact
Sustainability
 The question of will there be enough (and what
is the distribution by age and income class) to
finance the wave of retiring baby-boomers
 If not, implications for standard of living… for
government fiscal balances
 Coverage by individual and ESPP
 PSA by soon adding a link to household survey
micro data will provide the detail required to
support projections and assessments to study
sustainability
Shifting composition of pension assets
RRSP
RPP
C/QPP
% of total pension assets
100%
80%
60%
40%
20%
0%
1990
1992
1994
1996
1998
2000
2002
2004
Pension system risks
 To employers, in particular corporations with
DB ESPP, as asset values fluctuate
 To individuals as employers move towards DC
ESPP, as known benefit streams provide
income security
 To individuals in relation to returns on
individual retirement saving plans
 PSA provides the detail required to undertake
analysis of potential risks to pension assets
Risk: Gains and losses on largest
segment of funded ESPP
Billions
Contributions and net captial gains/losses
15
10
5
0
1993/03 1994/06 1995/09 1996/12 1998/03 1999/06 2000/09 2001/12 2003/03 2004/06 2005/09
-5
-10
Employee contributions
Employer contributions
Net capital gains/losses
Individual risk …shift from defined
benefit to defined contribution ESPP
%
DB
DC
120
100
80
60
40
20
0
1980
1990
Participants
2004
1980
1990
Plans
2004
Future PSA work
 Initial estimates released in paper in 2008
 Shift database frequency to quarterly
 Development of standard supplementary SNA
tables on pension incomes, saving and wealth,
payments/withdrawals, taxes paid and estimates of
personal expenditure from retirees for current
analysis
 Expand detail on actuarial deficits/surpluses
 Link up with household micro data to expand the
analytical capability