1. Expert Group on National Accounts Modelling and estimating social security pension entitlements in Spain by Alfredo Cristobal alfredo.cristobal@ine.es Director of National Accounts and Employment (INE) UNECE. Geneva, 27 th April 2010 Measuring and recording of pensions Agenda item 5

2. Expert Group on National Accounts. UNECE. Geneva, April 20102 Contents  Introduction  Pension Schemes sponsored by General Government in Spain  Model for estimating household future pension entitlements

3. Expert Group on National Accounts. UNECE. Geneva, April 20103 Contents  Introduction  Pension Schemes sponsored by General Government in Spain  Model for estimating household future pension entitlements

4. Expert Group on National Accounts. UNECE. Geneva, April 20104  Increase of the population longevity (+ or – 6 years till 2048)  Moderate birth rates  Gradual ageing in the demographic structure

5. Expert Group on National Accounts. UNECE. Geneva, April 20105  Same case for people over 65

6. Expert Group on National Accounts. UNECE. Geneva, April 20106  Population aged over 65: Is set to double in 40 years 32% of the total population

7. Expert Group on National Accounts. UNECE. Geneva, April 20107

8. 8 Accrued-to-date pension entitlements  To estimate the impact of these entitlements in Pay-As-You-Go (unfunded) schemes  In principle, should not be included in core accounts (implicit, no real liability)  supplementary table  Narrow measure. By themselves, they are not an indicator of sustainability of public finance To add flows To estimate the expected expenditure of government (AWG)  Substantial amount (two-times GDP or more)  Capacity of government to meet this cost. Government decides … Retirement age Period to be considered for pension calculations Others …

9. Expert Group on National Accounts. UNECE. Geneva, April 20109 Estimates  CMFB Task Force (Spain attended: NSI and Central Bank)  Supplementary table  Working group at domestic level chaired by NSI  National model  Data for 2005 to 2008 (flows and stocks)

10. Expert Group on National Accounts. UNECE. Geneva, April 201010 Contents  Introduction  Pension Schemes sponsored by General Government in Spain  Model for estimating household future pension entitlements

11. Expert Group on National Accounts. UNECE. Geneva, April 201011 Spain: two pension schemes sponsored by GG  Government Employer social security scheme for officials belonging to the so called Administracion General del Estado (Clases Pasivas)  Social security scheme for the rest of workers

12. Expert Group on National Accounts. UNECE. Geneva, April 201012 Clases Pasivas  Officials from … Central Government Army, Justice, Law Courts Public universities related to the State  Those officials initially belonging to Central Government and currently working in the State Government (Regional) after transferring powers  Ex-presidents, vice-presidents and ministers

13. Expert Group on National Accounts. UNECE. Geneva, April 201013 Similarities  People obliged by law to participate. No personal election  Risk exposure (borne by GG in both cases)  Legal framework  Funding (both unfunded)  Ability of GG to change the conditions or the benefit formula  No duplicity: if pension entitlements for both schemes have been accumulated, choose one of them

14. Expert Group on National Accounts. UNECE. Geneva, April 201014 People covered in 2005 …  Active population (thousands) Clases Pasivas: 938 (4,6%) Social Security: 19.325  Pensioners (thousands) Clases Pasivas: 515 (6,5%) Social Security: 7.395

15. Expert Group on National Accounts. UNECE. Geneva, April 201015 Contents  Introduction  Pension Schemes sponsored by General Government in Spain  Model for estimating household future pension entitlements

16. Expert Group on National Accounts. UNECE. Geneva, April 201016 Domestic Working Group  Ministry of Labour and Social Affairs  Social Security Treasury  Ministry of Finance  Audit Office of the General Government  Central Bank  National Statistical Institute (chair)

17. Expert Group on National Accounts. UNECE. Geneva, April 201017 2 similar models  Social Security  Government employer pension scheme

18. Expert Group on National Accounts. UNECE. Geneva, April 201018 Social Security: Model  Just contributory pensions Retirement pensions Retirement by disability Disability allowance Widowhood Orphanage  Social contributions are not fully related with pensions  Individuals Active population (currently paying social contributions not having generated a pension yet) Current pensioners  Total of pension entitlements = + Pensions of existing pensioners (case 1) + Future pensions of current active population (case 2)

19. Expert Group on National Accounts. UNECE. Geneva, April 201019 Case 1: Already existing pensions  Number of pensions * average amount of contributory pension Type of pension, sex, age of birth  Actuarial techniques  Assumptions on Revaluations Life expectancy Discount rate  Present value of the pension entitlements

20. Expert Group on National Accounts. UNECE. Geneva, April 201020 Case 2: Future pensions of active population  Sample of working lives (+/- 800.000 individuals) Stochastic model + assumptions  Pension generated by each individual in the sample (type, date, amount) Grossing up factors (+ or – by 25)  Pensions generated by whole active population

21. Expert Group on National Accounts. UNECE. Geneva, April 201021 Sample of working lives  Target population: almost 30 million  Sample size: 1,2 million (+- 4%) Of these, 835 th active population  Distribution (random draw) 607 th will receive a retirement pension with different ages from 50 to 99 154 th will receive a disability pension with different ages from 18 to 66 63 th will receive a widowhood pension by decease of the partner included both in the sample with different ages from 15 to 73 11 th will not receive any benefit by decease without partner

22. Expert Group on National Accounts. UNECE. Geneva, April 201022  Sample of working lives. For each individual Number of days paying social contributions to Social Security Average contributions base (salaries)  Simulation process (stochastic model and assumptions) Future salaries (PBO) Frequency of death, invalidity and retirement estimated by age and sex  Unit Credit Method: Time individual paying contributions / total expected working life Future pension

23. Expert Group on National Accounts. UNECE. Geneva, April 201023 Assumptions related to the benefits  No retirement under the age of 50  Retirement by disability: All people at 65  Disability: No cases under 16  Widowhood: No cases under 16  Orphanage: All cases from 0 to 21

24. Expert Group on National Accounts. UNECE. Geneva, April 201024 Assumptions related to the valuation  Demographic tables (men, women) till 100 years (NSI)  Social security records  invalidity pensioners  Salary increase: +1,8% real terms  PBO  Discount rate: 3% real terms (same used in AWG works)  Inflation rate: 2%  Age difference between married couples: 3 years  Marriage rate of pensioners: 92%  Instalments: 12 payments  Reversion in case of widowhood: 60% pension  Orphan income  until age of 22

25. Expert Group on National Accounts. UNECE. Geneva, April 201025 Outcome (2005)  Total entitlements: 2,19 trillion euro  GDP: 0,91 trillion euro  Ratio: 2,41 times  Similar rations in 2006 to 2008  90% Social Security and 10% government employer pension scheme

26. Expert Group on National Accounts Modelling and estimating social security pension entitlements in Spain by Alfredo Cristobal alfredo.cristobal@ine.es Director of National Accounts and Employment (INE) UNECE. Geneva, 27 th April 2010 Measuring and recording of pensions