Pension schemes in the updated SNA

Anne Harrison

Editor

Range of pensions

• Employer’s schemes– Private employer– Public employer

• Social security

• Private pension provision

Social insurance scheme

• No change to SNA

• Must be a requirement imposed by a third party (by government or as a condition of employment)

• Deal only with private employers’schemes

Alternatives

• Schemes may be contributory on the part of the employee or non-contributory

• Schemes may be defined contribution (money purchase) or defined benefit (defined by a formula)

Less relevant alternatives

• Funded or unfunded

• Autonomous, non-autonomous but segregated, non-autonomous and non-segregated

• Concentrate on entitlements of pensioners not assets of the scheme

Defined contribution schemes

• No change from 1993 SNA

• Employer and or employee make contributions

• Excess of contributions over cost of running the schemes become assets of the scheme

• Entitlements are exactly equal to assets

DC schemes cont

• Property income from the management of the assets is distributed to future pensioners and treated as contribution supplements

• Holding gains and losses add to assets of fund manager and an equal amount is added to the entitlement via the revaluation account

Defined benefit schemes

• May or may not be actual contributions by employer and or employee

• May be imputed contribution by employer

• Sum of actual and imputed contributions must exactly equal the increase in pension entitlement coming form the current period’s service plus service charge

Change

• Focus on entitlement not assets

• May have imputed contribution in addition to actual contribution if actual contributions insufficient to meet current period entitlements

• May have imputed contribution even when employer takes a “contribution holiday”

Property income

• Increase in net present value of start of period pension entitlement due to lapse of time and the fact that fewer discount factors apply

• How this is to be funded is irrelevant; the amount is predetermined and increases the entitlement by a known amount. Full amount treated as property income

Estimates

• Actuarially based

• Assume most likely that business accounts will provide

• Investigating use of pension modelling software

Other change in volume of entitlements

• Life expectancy

• Promotion

• Change in pension scheme

Other change in value of entitlements

• Change in discount rate

• Inflation protection clause

Service charge

• If no other valuation available is sum of costs

• Paid by future beneficiaries

• By convention out of current contributions (matches DC case)

If employer has full responsibility for pensions

• Employer must make up any difference between entitlements and assets available

• Employer may be entitled to keep any excess of assets over entitlements

• But some jurisdictions may forbid this

If employer lays off responsibility

• Via insurance company

• Via multi-employer scheme

• Then insurance company or multi-employer scheme is responsibility for any shortfall but keeps any excess

Change in unit holding liability for entitlement

• Shows as transaction in financial account

Public employee schemes

• Eurostat task force looking at possible compromise

• Supplementary table containing all estimates for all schemes, private, public and social security

• Criteria given for which entries carry forward to core accounts and which not

• Gives flexibility to compilers and users