|In his contribution to this EDG, Brian Donaghue analyzes the treatment of government obligations for pensions other than pensions for its employees (referred to here as public pensions). He concludes that, in contrast to the position of current macroeconomic statistical manuals, a liability should be recognized on the part of governments for public pensions, although it is a constructive rather than a legal liability. He does not distinguish between the treatment of pensions arising from social security schemes and pensions arising from social assistance schemes. He also considers the question of when the liability for the pensions arises and how to estimate the liability. He concludes that the liability begins to accumulate when a person reaches working age, which he sets at 18, and that the liability should be the present value of the future benefits that actual and prospective pensioners have already earned according to existing laws and regulations.
While this author is broadly in agreement with Donaghue?s views, the subject is complicated and deserves extensive discussion. This note attempts to amplify some of Donaghue?s points and raise some qualifications. The intent is to broaden the discussion and to encourage other contributions. In particular, some discussion of (a) the borderline between an actual and contingent liability for government as opposed to private business, (b) when the pension rights are acquired, and (c) what flows are necessary once the liabilities are recognized may usefully add to the debate.
John Pitzer worked with the IMF and is now a consultant. He was the primary author of the Government Finance Statistics Manual 2001 (GFSM 2001).
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