1. 2.1 METHODOLOGY FOR DELINEATION AND MEASUREMENT OF PENSION ENTITLEMENTS Peter van de Ven Head of National Accounts, OECD Advisory Expert Group (AEG) on National Accounts Washington D.C., September 8 – 10, 2014

2. Introduction Criteria for distinguishing between schemes recorded inside and outside the core accounts => interpretation of the current text of the 2008 SNA (OECD) Measurement of pension entitlements (Eurostat) –Discount rate –Treatment of promotions and (future) wage increases –Life expectancy 2

3. General overview Employment-related pension schemes: full accrual accounting and pension liabilities should be recognised, whether they are (partially) funded or unfunded Social security type of schemes (PAYG): no recognition of pension liabilities However … employment-related schemes may be intertwined with social security => SNA allows for flexibility, until more precise criteria will have been developed 3

4. Interpretation of the 2008 SNA (1/7) Employment-related schemes: related to labour contract, may be sponsored by private and public employers Social security: imposed, controlled and financed by government, for the purpose of providing benefits to members of the community as a whole, or of particular sections of the community Distinction, or at least the interpretation of this distinction, not that straightforward … … especially in relation to pension schemes provided by government as an employer 4

5. Interpretation of the 2008 SNA (2/7) Distinction between “private” and “public” pension schemes Para. 17.121 refers to schemes run by private employers, although … … quite a number of arguments used in para. 17.121 and 17.122 refer to employers more in general: –Schemes other than the most basic form of social security –Usually not subject to retrospective adjustments of the amounts payable –Part of the compensation package and negotiations between employees and employers 5

6. Interpretation of the 2008 SNA (3/7) Furthermore, para. 17.193 states the following: “some flexibility regarding the recording of pension entitlements of unfunded pension schemes sponsored by government for all employees (whether private sector employees or government’s own employees) is provided” This seems to relate to schemes closely related to social security, not schemes specifically set up for civil servants (funded as well as unfunded) 6

7. Interpretation of the 2008 SNA (4/7) SNA 2008 makes reference to the distinction between funded versus unfunded schemes, but … … as a supporting argument, not a decisive argument Para. 17.193: “… some flexibility is provided regarding the recording of pension entitlements of unfunded pension schemes sponsored by government for all employees (whether private sector employees or government’s own employees)” However, this quote basically refers to schemes which are intertwined with social security 7

8. Interpretation of the 2008 SNA (5/7) 8

9. Interpretation of the 2008 SNA (6/7) Criteria for (not) recognising pension liabilities of unfunded employment-related pension schemes sponsored by government: Separated from generic social security schemes Schemes tailored to specific characteristics of the individual, direct relationship between contributions and accumulated entitlements Schemes only applicable to a specific group of (government) employees, related to employment contract Entitlements cannot be easily adjusted, certainly not retrospectively 9

10. Interpretation of the 2008 SNA (7/7) Eurostat-survey with five possible criteria: Degree of integration within the general government structure (autonomous schemes) Risk exposure and ability to change the benefit formula Nature of the contract Legal framework close to social security pension schemes Funding => Outcome of survey: “legal framework close to social security pension schemes” considered as most important => ESA 2010: No recognition of any unfunded pension schemes sponsored by government 10

11. Issues to be addressed by the AEG Does the AEG agree with the presented ambiguity that one may derive from the current guidelines on pensions, and does the AEG agree on the need for further work on achieving more transparency? Does the AEG consider the setup of a decision tree, including criteria for determining whether or not pension liabilities should be recognised and recorded in the core tables? The AEG is requested to consider the various criteria that have been presented in this note, elaborate on new criteria and discuss a hierarchy or framework regarding the criteria. In particular, does the AEG support the assessment that closeness to social security is the single most important criterion for not recognising and recording pension liabilities in the core accounts? 11

12. Thank you for your attention! 12