Treatment of social insurance schemes in the 2008 SNA Regional Seminar on Developing a Programme for the Implementation of the 2008 SNA and Supporting Statistics in the ECO Member Countries Ankara, Turkey September 2013 United Nations Statistics Division

2 Overview of social insurance schemes Social security Employment-related social insurance schemes other than social security Outline of Presentation

3 Insurance scheme where the following two conditions are satisfied: Benefits received are conditional on participation in the scheme and constitute social benefits; and At least one of the three conditions following is met: Participation in the scheme is obligatory either by law or under terms and conditions of employment Scheme is collective one operated for the benefit of a designated group of workers, whether employed or non- employed, participation being restricted to members of that group; Employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution Always involves at least one unit (employer, general government, financial corporation, or NPISH) other than the beneficiary Overview of social insurance schemes

4 Two main classes Social security schemes Employment-related social insurance schemes other than social security Can be broken down into various attributes including: Institutional sector allocation Type of benefit (pension and non-pension) Non-pension schemes are not common Autonomy (autonomous vs. non-autonomous) Autonomous social insurance schemes are those schemes with funds which operate as separate and independent institutional units from the units (such as corporations) which create them Funding (funded vs. unfunded) A funded scheme is one where identifiable reserves have been accumulated to meet the obligation to pay future benefits accrued to the present Beneficiaries can be resident or non-resident households Overview of social insurance schemes

5 Terms Social contributions Actual or imputed payments to social insurance schemes to make provision for social insurance benefits to be paid Employers, employees, self employed and unemployed Social insurance benefits Social benefit payable because the beneficiary participates in a social insurance scheme and the social risk insured against has occurred Contribution supplements Investment income payable on pension entitlements which is retained by pension funds Equivalent of premium supplements Overview of social insurance schemes

6 Social insurance scheme covering the entire community, or large sections of the community, that are imposed, controlled and financed by government units Individual must participate in the scheme to receive social security benefits Two types Pension Non-pension Social security

7 Output Separate unit Sum of costs of non-market output No separate unit Output is included with the output of the level of government at which it operates Social security

8 Recording of transactions (similar for pension and non-pension) Value of output Production account of social security fund (general government) Employers and employees actual social contributions Generation of income account Uses of employers Allocation of primary income account Resources of households Secondary distribution of income account Uses of households Resources of social security fund Social security benefits Secondary distribution of income account Social security

9 Recording of transactions (similar for pension and non- pension) Government (individual) final consumption expenditure Use of disposable income account Social transfers in kind Redistribution of income in kind account Service charge (output of social security fund) Adjusted disposable income account (actual final consumption) Rest of the world account (Exports of goods and services) Social security

10 Two types Pension Defined contribution Defined benefit Non-pension Unfunded Funded Employment-related social insurance schemes other than social security

11 Defined contribution Fund must exist Benefits payable on retirement are defined exclusively in terms of the level of the fund built up from the contributions made over working life and increases in value that result from the investment of these funds Entire risk to provide adequate income in retirement is borne by participant Employment-related social insurance schemes other than social security – pension

12 Defined benefit Fund may exist. If not, a notional fund is assumed to exist Benefits payable on retirement are determined actuarially by the use of a formula, either alone or as a minimum amount payable Risk to provide an adequate income in retirement is borne either by the employer or is shared between the employer and employee Employment-related social insurance schemes other than social security – pension

13 Employment-related social insurance schemes other than social security – pension Output Operated by employer Sum of costs of market output Employer uses pension administrator to administer scheme Output is explicit fee paid to pension administrator Insurance corporation runs scheme for several employers (multiemployer scheme) Output is calculated as: Social contributions plus contribution supplements minus benefits payable minus increases (plus decreases) in pension entitlements

14 Employment-related social insurance schemes other than social security – pension Recording of transactions (defined contribution) Value of output Production account Employers and employees actual pension contributions Generation of income account Uses of employers Allocation of primary income account Resources of households Secondary distribution of income account Uses of households Resources of pension fund Investment income payable on pension entitlements Allocation of primary income account Contribution supplements in secondary distribution of income account

15 Employment-related social insurance schemes other than social security – pension Recording of transactions (defined contribution) Social insurance pension benefits Secondary distribution of income account Financial account Changes in pension entitlements Use of disposable income account Financial account Service charge (output) Use of disposable income account (final consumption) Rest of the world account (Exports of goods and services) Secondary distribution of income account

16 Employment-related social insurance schemes other than social security – pension Recording of transactions (defined benefit) Similar to defined contribution, but increase in pension entitlements is actuarially determined considering Current service increase (increase in entitlement associated with the wages and salaries earned in the current period) Past service increase (increase in the value of the entitlement since retirement is one year nearer) Decrease in the level of entitlement due to the payment of benefits to retirees of the scheme Other factors (reflected in other changes in assets account)

17 Employment-related social insurance schemes other than social security – pension Recording of transactions (defined benefit) Sum of employers and employees actual pension contributions may be insufficient to meet current service increase and service charge of pension fund Imputed employers pension contribution is needed to ensure equality Generation of income account Allocation of primary income account Secondary distribution of income account

18 Employment-related social insurance schemes other than social security – pension Recording of transactions (defined benefit) Past service increase reflects investment income payable on pension entitlements which may not be matched by actual property income earned from investing pension funds Imputed interest on the pension funds claim on the pension manager Allocation of primary income account Claim of pension fund on pension manager Represents imputed employers social contribution and imputed interest on pension funds claim on the pension manager Financial account

19 Unfunded Typically operated and managed by employers Employers make imputed non-pension contribution on behalf of employees No investment income and thus, no contribution supplements Output is calculated as sum of costs of market output Employment-related social insurance schemes other than social security – non-pension

20 Employment-related social insurance schemes other than social security – non-pension Recording of transactions (unfunded non-pension) Value of output Production account Employers imputed non-pension contributions Generation of income account Uses of employers Allocation of primary income account Resources of households Secondary distribution of income account Uses of households Resources of pension fund

21 Employment-related social insurance schemes other than social security – non-pension Recording of transactions (unfunded non-pension) Social insurance non-pension benefits Secondary distribution of income account Service charge (output) Use of disposable income account (final consumption) Rest of the world account (Exports of goods and services) Secondary distribution of income account

22 Funded May be carried out by insurance corporations or employees on behalf of present and past employees (for example, health cover) Liabilities are recorded only when and to the extent that they exist in the employers accounts Output is calculated in the same way as output of non-life insurance Employment-related social insurance schemes other than social security – non-pension

23 Recording of transactions (funded non-pension) Value of output Production account Employers and employees non-pension contributions Generation of income account Uses of employers Allocation of primary income account Resources of households Secondary distribution of income account Uses of households Resources of non-pension fund Investment income payable on non-pension entitlements Allocation of primary income account Contribution supplements in secondary distribution of income account Employment-related social insurance schemes other than social security – non-pension

24 Recording of transactions (funded non-pension) Social insurance non-pension benefits Secondary distribution of income account Financial account Changes in non-pension entitlements Secondary distribution of income account Financial account Service charge (output) Use of disposable income account (final consumption) Rest of the world account (Exports of goods and services) Secondary distribution of income account Employment-related social insurance schemes other than social security – non-pension

SNA, Chapter 17, Part 2 (Social insurance schemes), Handbook on Financial Production, Flows and Stocks in the System of National Accounts Joint UNSD/ECB publication UNSD responsible for Chapters 1-3; ECB responsible for Chapters Chapter 3 discusses calculation and allocation of output of various types of financial services including explicit fees, FISIM, money lending, central bank output, dealers margins, insurance and social insurance Volume measures Draft on June-2013.pdf circulated for global review in Jun-Jul June-2013.pdf Key references

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