Treatment of Pension Schemes in  | View Thread
Government implicit liabilities in respect of their employees' unfunded pension plans
F. Lequiller on 1/10/2003 2:20:20 PM
Extract from Improving the quality and comparability of the OECD Government Finance Data by François Lequiller (OECD) in the December 2002 issue (no 12) of The Statistics Newsletter (OECD).

The December 2002 newsletter is accessible at :
OECD Economics Department and OECD Statistics Directorate have agreed on the implementation of a new definition of general government total outlays and receipts. [In this context] this article considers the treatment of general governments? implicit liabilities in respect of their employees? unfunded pension plans.

Implicit liabilities of general government employees unfunded pension plans

At the time that the SNA was drafted, this is in the 1980s, the issue of pensions schemes were not perceived as acutely as they are today. In addition, business accounting standards and general government accounting standards were less developed than they are today. As a result the current SNA treatment of pension schemes is no longer perceived as fully appropriate.

In recent years, in several countries, such as the USA, Canada, Australia, and New Zealand, a small revolution has taken place regarding general government accounting standards. They have evolved from cash basis to much more elaborate accrual-based accounting systems. Part of this move covered the recognition by these countries? governments of the (implicit or explicit, depending on the point of view) liability they have in regard to the future pension benefits of their own employees. Actuarial estimates are now made of these pension liabilities on a current basis by the accounting authorities.

This move has incited the national accountants of these countries to include these liabilities in their core national accounts table, while the SNA does not yet fully recognize the implicit liability of unfunded pension schemes and only recommends these liabilities to be compiled as memorandum items. As a result, the OECD adjusts some of these countries? data on gross and net debt. For example, the gross debt data transmitted by Canada is adjusted by excluding unfunded liabilities with respect with their employee pension plans, i.e., 20 percent of GDP.

The IMF and the OECD Statistics Departments have officially started a process to reopen this issue, as part of the updating of the SNA. There is growing support among statisticians in favour of adapting the SNA to the new standards of government accounting. In practice, this issue is going to be discussed among an international task force of statisticians during 2003, with possible new recommendations to be adopted by the accounting body of the SNA in 2004.

For more information see ?Improving the Quality and Comparability of OECD Fiscal Data,? available on OLIS ECO/CPE/STEP(2002)7, or contact

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