Outline METHODOLOGICAL FRAMEWORK DATA COMPILATION AND RESULTS FOR PORTUGAL FUTURE DEVELOPMENTS Outline

METHODOLOGICAL FRAMEWORK Definition Definition: Pension entitlements are classified in the SNA 2008 as a subcategory of the financial asset category Insurance, annuities, pension and standardised guarantees schemes, and show the extent of financial claims which existent and future pensioners hold against either their employer or a fund designated by the employer to pay pensions earned as a part of the compensation agreement between the employer and the employee. As a consequence of the recognition of the entitlements as being an asset of the households, it is necessary to show them as being built up by contributions from employers and employees over the period of employment. METHODOLOGICAL FRAMEWORK Definition

METHODOLOGICAL FRAMEWORK Definition The entitlements due under pension schemes comprise two elements: one when the formula determining the amount of the pension is agreed in advance (as under a defined benefit scheme) and one where the amount of the pension depends on the performance of specific financial assets (a defined contribution scheme). For the former an actuarial estimation of the liabilities of the pension provider is used; for the latter the market value of the financial assets held by the pension fund on behalf of the future beneficiaries is used. METHODOLOGICAL FRAMEWORK Definition

METHODOLOGICAL FRAMEWORK From 1993 SNA to 2008 SNA Three main reasons for changing the treatment of unfunded employer retirement pension schemes in the 1993 SNA: Funded and unfunded schemes with different recordings, lead to different effects across countries, on key variables like income, saving, financial assets or liabilities. Unfunded employer schemes are particularly significant for the general government and the public sector; in light of demographic developments and the foreseeable fiscal burden from ageing populations in almost all developed countries, there is well-founded interest in having available more comprehensive statistical information on commitments of governments. Convergence of statistical and accounting international standards, the last (IPSAS) already recognising unfunded employer retirement pension obligations as liabilities. METHODOLOGICAL FRAMEWORK From 1993 SNA to 2008 SNA

METHODOLOGICAL FRAMEWORK Core and non-core accounts Within the discussion of the new international statistical standards, namely SNA 2008, discussions were held concerning the degree of harmonisation in the recording of pension entitlements in the national accounts, when the underlying institutional reality differs significantly across countries. Pension assets (or future rights) in countries with mainly capitalised systems are recorded as household wealth, while future pension rights in countries with government managed pay-as-you-go scheme were not recorded. Consensus was reached on distinguishing pension schemes managed by general government which should be recorded in the core national accounts, from those schemes that should be recorded only in a new Supplementary table on pensions (like social security schemes). METHODOLOGICAL FRAMEWORK Core and non-core accounts

METHODOLOGICAL FRAMEWORK Fiscal sustainability? The overall aim of the table is to present the opening and closing stocks of pension entitlements of social insurance pension schemes (including social security) and the transactions and other economic flows during the period that account for the difference between the opening and the closing positions. Pension entitlements derived for government-managed pay-as-you go schemes are not measures of fiscal sustainability which require elaborate modelling simulations, as they do not take into account the amounts to be received by governments through social contributions. METHODOLOGICAL FRAMEWORK Fiscal sustainability?

METHODOLOGICAL FRAMEWORK Contact Group on Pensions The Contact Group (CG) on the statistical measurement of the assets and liabilities of pension schemes in general government was established by the CMFB in 2008 and took over the follow-up work of the Task Force with the same designation mandated in 2006. The TF/CG has developed an international compromise on the treatment of pension schemes in the updated SNA , particularly focusing on the treatment of unfunded government-managed pension schemes and developed a standard Supplementary table on pension schemes which provides a complete accounting of pension entitlements (stocks and related flows) for all pension schemes in social insurance, including social security pension schemes. It serves a double purpose: presenting users with an overview of pension scheme data and providing the means by which more comparable data could be achieved across countries worldwide.

METHODOLOGICAL FRAMEWORK Supplementary table A Supplementary table to be provided in compulsory terms by all European Union countries in the context of the new ESA regulation: Table 29 of the ESA Transmission Programme Supplementary table on pension schemes in social insurance (annual – 12 months timeliness – from 2014 onwards) METHODOLOGICAL FRAMEWORK Supplementary table In column, core and non-core accounts (GG defined benefit and Social security; pension schemes according to its manager (non GG and GG); and nature of the pension schemes (defined contribution and defined benefit). In row, opening and closing stocks in Households pension entitlements, changes in positions including transactions and changes due to revaluations and other changes in volume.

METHODOLOGICAL FRAMEWORK Supplementary table

METHODOLOGICAL FRAMEWORK Supplementary table The main assumptions behind calculation in the Supplementary table: Pension entitlements for survivors and also for disability or invalidity type benefits provided for within a pension scheme, and only of a social insurance type (excluding benefits which are of the type of social assistance) Recording gross of taxation and social contributions Accrued to date pension entitlements – present value of the current and of the projected future pension benefits paid to all pensioners and current workers, in a certain reference date Discount factor based on yields of central government bonds (where the market is sufficiently liquid and the instruments sufficiently mature) METHODOLOGICAL FRAMEWORK Supplementary table

METHODOLOGICAL FRAMEWORK Supplementary table The Projected Benefit Obligation (PBO) approach will be the most appropriate for the treatment of real wages changes on pension entitlements in national accounts, while assuming a non-zero (usually positive) future development of real wages; unlike the alternative Accumulated Benefits Obligation (ABO) approach which assumes zero future changes in real wages only taking account of wages’ growth due to inflation Demographic assumptions should be based as far as possible in the comparable demographic data compiled by Eurostat (EUROPOP). METHODOLOGICAL FRAMEWORK Supplementary table

METHODOLOGICAL FRAMEWORK Cross-country comparison (2006, PBO, % GDP) Pension entitlements very large, especially for social security Source: Müller et al. (2009), p. 165.

DATA COMPILATION AND RESULTS FOR PORTUGAL Overview of pension schemes There are two main government managed pension schemes in Portugal: Social security general scheme – Regime Geral da Segurança Social (SS) Civil servants’ pension scheme – Caixa Geral de Aposentações (CGA). They are both unfunded defined benefit schemes (on a pay-as-you-go basis). Starting 2006: new civil servants were enrolled in the Social security general scheme – CGA closed for new admissions! DATA COMPILATION AND RESULTS FOR PORTUGAL Overview of pension schemes

DATA COMPILATION AND RESULTS FOR PORTUGAL Pension schemes – Main results

DATA COMPILATION AND RESULTS FOR PORTUGAL Pension schemes – Main results

DATA COMPILATION AND RESULTS FOR PORTUGAL Pension schemes – Main results

DATA COMPILATION AND RESULTS FOR PORTUGAL Freiburg University Model Contract between Banco de Portugal and the Research Center for Generational Contracts of Freiburg University to develop a report and an estimation for the Portuguese pension entitlements according the Freiburg model: “Estimating pension entitlements of government employer and social security pension schemes in Portugal” , delivered in 2010. In conformity with the pension entitlements of EU countries calculated by the CG, also based upon the Freiburg model. DATA COMPILATION AND RESULTS FOR PORTUGAL Freiburg University Model

DATA COMPILATION AND RESULTS FOR PORTUGAL Compilation sources and data Data are compiled under co-operation between Banco de Portugal and National Statistics Institute from the following institutions: DATA COMPILATION AND RESULTS FOR PORTUGAL Compilation sources and data Budget data broken down by pension type Average sex-specific retirees benefits Average sex-specific pension profile for future retirees Retirement criteria Ministry of Labour and Social Solidarity SS Ministry of Finance CGA Insurance and Pension Funds Portuguese Supervisory Authority Private pension funds

DATA COMPILATION AND RESULTS FOR PORTUGAL Model assumptions Actuarial cross-section country model. Accrual estimation of the pension entitlements under the accrued to date gross liabilities approach of the government pension schemes. Projected Benefit Obligations (PBO) vs Accumulated benefit obligations approach (ABO). GDP growth rate according to Ageing Working Group (an average estimate of 1.7% in the period 2007-2060, for Portugal). DATA COMPILATION AND RESULTS FOR PORTUGAL Model assumptions

DATA COMPILATION AND RESULTS FOR PORTUGAL Model assumptions Wage growth rate: 1.5%. Discount rate: 3%, approximately the ten year average of Euro area ten-year government bond yields. Constant employment rate. Mortality / fertility rates: EUROPOP2008 (Migration was ignored). Matlab programme is used for estimations. DATA COMPILATION AND RESULTS FOR PORTUGAL Model assumptions

Portuguese data are provided for in the following columns: Columns A, B and C, private autonomous / non-autonomous pension funds. Column E, autonomous government managed pension funds classified as financial corporations. Column G, civil servants’ pension scheme (CGA). Column H, social security pension scheme (SS). DATA COMPILATION AND RESULTS FOR PORTUGAL Filling in the Supplementary table

DATA COMPILATION AND RESULTS FOR PORTUGAL Supplementary table – Results 2009

FUTURE DEVELOPMENTS Institutional arrangements An institutional framework (which includes the relevant national entities – NCB, NSI, MF, MLSS) is being developed with the following purposes: Collect the necessary pension statistics Ensure the provision of data on time and with quality Compile pension statistics to fulfil the reporting obligations to international organizations Analysis of the results. FUTURE DEVELOPMENTS Institutional arrangements

FUTURE DEVELOPMENTS Institutional arrangements Main reasons to gather these entities: Data providers will be involved in the process of data compilation from the beginning Participation on the definition of methodology / share the responsibilities for the compilation Combine all the expertise to improve the estimations and procedures used in the report. FUTURE DEVELOPMENTS Institutional arrangements

FUTURE DEVELOPMENTS Analysis Development of a national dynamic general equilibrium model which takes into account: National specific assumptions Comparison of the results with the Freiburg model Incorporate model specifications in order to measure the main changes and future reforms related to pension schemes in Portugal FUTURE DEVELOPMENTS Analysis

FUTURE DEVELOPMENTS Analysis Sensitive-case analysis: measuring the impact of social security reforms and demographic changes, in the calculation of pension entitlements Analysis of the sustainability of social security schemes Comments and analyses of the reported figures should be transmitted to the public in order to guarantee a correct interpretation of the results. FUTURE DEVELOPMENTS Analysis

Thank You for Your attention ! Ana M. de Almeida ammalmeida@bportugal.pt