Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Ana M. de Almeida Deputy-Director | Statistics Department Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 OECD – ABS Workshop on Pensions Canberra, April 2013

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April PENSION ECONOMIC PROJECTIONS FOR EUROPE 2. METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS 3. PORTUGUESE PENSION SCHEMES 3.4 RESULTS OUTILNE 3.3 MODELLING 3.2 COMPILATION 3.1 CHARACTERISTICS 3. 5 MAIN CHALLENGES 1

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 The 2009 Ageing report: Economic and budgetary projections for the EU-27 Member States ( ) – DG ECFIN and EPC AWG, states that sustainability gaps emerge because the discounted values of all future primary balances are too small to offset current debt. 1. PENSION ECONOMIC PROJECTIONS FOR EUROPE The latest projections driven by the 2012 Ageing report: Economic and budgetary projections for the EU-27 Member States ( ) – DG ECFIN and EPC AWG, state that total age-related budgetary expenditure is projected to increase on average by 3.6 p.p of GDP by 2060 in the EU27 and by 4.0 p.p. in the euro area. 2

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 In Portugal, a slight increase of the gross pension expenditure (0.2% of GDP) is projected for this period. According to the 2012 Ageing report, EU gross pension expenditure is projected to increase from 11.3% of GDP in 2010 to 12.9% in PENSION ECONOMIC PROJECTIONS FOR EUROPE Public pensions, gross as % of GDP: (AWG scenario) Medium and long term challenge: An ageing population raises challenges! Policy-makers need to ensure long-term public finances sustainability and future pension expenditure has to be taken into account, especially as Europe is in the midst of the deepest recession in decades, which is putting unprecedented stress on economies. 3

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 In Portugal, elderly population (65 and over) as % of total population is expected to increase from 18% in 2010, to 32% in PENSION ECONOMIC PROJECTIONS FOR PORTUGAL Demographic assumptions 4

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS Pension benefits Social insurance Social security pension schemes Employment related pension schemes Social assistance Individual insurance policies Non-Pension benefits Social insurance schemes require formal participation by the beneficiaries. This participation is linked to employment and is usually evidenced by the payment of contributions to the scheme either by the participants, an employer or both (2008 SNA par. 8.89). On the contrary, in Social assistance benefits are paid out irrespective of qualifying contributions (whether actual or imputed) having been made. 5

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS Social security pension schemes - The beneficiary is enrolled in the scheme or participates usually by paying a contribution to the scheme, or having one paying to the scheme on his behalf. Because it is a contributory scheme, there is some sort of contract between the government and the beneficiaries. Employment-related pension schemes - part of the employees compensation package. Accordingly, negotiations between employees and employers may focus on pension entitlements, as much as on current conditions of service and pay scales. 6

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 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 both 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 assets of the households and liabilities of corporations and/or general government, it is necessary to show them as being built up by contributions over the period of employment. 2. METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS 7

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 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 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. Three main reasons for changing the treatment of unfunded employer retirement pension schemes from the 1993 SNA to 2008 SNA. 2. METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS 8

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 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 sponsored pay-as-you-go schemes are not recorded. Consensus was reached on distinguishing pension schemes sponsored 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). 2. METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS 9

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 The closer the government employer scheme is to the prevailing social security scheme, the less likely is to appear in the core accounts. The less the benefits are tailored to the specific characteristics of the individual and the more they are applicable to the population at large, the less likely is to appear in the core accounts. The greater the ability of the government to alter the benefit formula, the less likely is to appear in the core accounts. 2. METHODOLOGICAL FRAMEWORK FOR PENSION STATISTICS The distinction between those schemes whose entitlements are carried forward to the core accounts and those which are not should be based on the analysis of a set of criteria to be applied to the individual pension schemes: 10

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Portuguese pension schemes are characterized as follows: * General government pension schemes are unfunded defined benefit schemes (on a pay-as-you-go basis) : - Social security general scheme – Regime Geral da Segurança Social (SS) - Civil servants pension scheme – Caixa Geral de Aposentações (CGA) * Non-general government pension schemes are defined benefit schemes, fulfilled with figures from autonomous and non-autonomous pension funds. Portugal participates since 2007, on the annual voluntary Eurostat/ECB questionnaire on pensions, which covers the Supplementary Table PORTUGUESE PENSION SCHEMES - CHARACTERISTICS 11

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Data are compiled under co-operation between Banco de Portugal and National Statistics Institute from the following institutions: Ministry of Finance Insurance and Pension Funds Portuguese Supervisory Authority Ministry of Labour and Social Solidarity Budget data broken down by pension type Average gender-specific retirees benefits Average gender-specific pension profile for future retirees Retirement criteria 3. 2 PORTUGUESE PENSION SCHEMES - COMPILATION 12

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Contract between Banco de Portugal and the Research Center for Generational Contracts of the Albert-Ludwigs Universität Freiburg for a report and an estimation for the Portuguese pension entitlements: Estimating pension entitlements of government employer and social security pension schemes in Portugal PORTUGUESE PENSION SCHEMES - MODELLING Actuarial cross-section country model based on the accrued to date gross liabilities approach of government pension schemes: current pension payments and present value of pensions to be paid in the future to current workers on the basis of accrued rights. The core presumption is a projection of per capita future pension benefits based on today´s existing retirees´ benefits. 13

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Model other main assumptions :. Projected Benefit Obligations (PBO) – Expected future pay increases, whether determined by promotions or general wage growth;. GDP growth rate according to Ageing Working Group (1.7%);. Wage growth rate : 1.5%;. Discount rate of 3%: 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 PORTUGUESE PENSION SCHEMES - MODELLING 14

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 The model aims to estimate the accrued-to-date liabilities of the base year : current value of pensions in disbursement; present value of future pensions due to past and actual contributions of current workers : This means that in every period, the existing retirees pension benefits and the pension rights accrued until the base year, which are both discounted by the factor for every future year, are multiplied by the number of members of the age cohort. This is done for every age-group, beginning with the ones born in, which goes back 100 years prior to the base year PORTUGUESE PENSION SCHEMES - MODELLING 15

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April PORTUGUESE PENSION SCHEMES – RESULTS IN 2011 (M) % + 204% = 326% of GDP

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Institutional arrangements Update information on demographic assumptions; Collection of information from different institutions Micro data is in general difficult to gather and tends to be afflicted with inaccuracies, Supplementary table broken down by type of pension scheme – identification of the column for each case Modelmain challenges 3. 5 PORTUGUESE PENSION SCHEMES - MAIN CHALLENGES 17

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Column Standard national accounts, Non- general government, Total, fulfilled with figures from autonomous pension funds classified in the financial corporations sector in the financial accounts item Insurance technical reserves Column Standard national accounts, General government, Defined benefit schemes for general government employees, Classified in financial corporations Column Not in the standard national accounts, General government, Defined benefit schemes for general government employees, Classified in general government (CGA) Column Not in the standard national accounts, General government, Social security pension scheme (SS) 3. 5 PORTUGUESE PENSION SCHEMES - MAIN CHALLENGES 18

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 An institutional framework (which includes the relevant national entities – NCB, NSI, MF, MLSS ) is aimed with the following purposes: 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 Ensure the provision of data on time and with quality Compile pension statistics to fulfil the reporting obligations to international organizations Combine all the expertise to improve the estimations and to analyze the results PORTUGUESE PENSION SCHEMES - MAIN CHALLENGES 19

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April National specific assumptions Demographic specifications and other heterogeneous agents´ components such as: ability, skills, … Incorporate model specifications in order to measure the main changes and future reforms related to pension schemes in Portugal Comparison of the results with the Freiburg model and other actuarial models. Development of a national dynamic general equilibrium model: 3. 5 PORTUGUESE PENSION SCHEMES - MAIN CHALLENGES 20

Pension statistics for the new ESA: Compilation, modelling and some results for Portugal in 2011 Workshop on Pensions OECD - ABS, Canberra April 2013 Thank You for Your attention ! Any questions? Ana M. de Almeida 21