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Employer's unfunded insurance schemes and GDP - practical and conceptual issues
Anton Steurer (Eurostat) on 6/9/2003 10:08:59 AM
The views expressed in this paper are the author?s and do not necessarily reflect the opinion of Eurostat.

This paper focuses on two issues related to the possible alternative treatments of employers? unfunded insurance schemes.

The first issue is the precise meaning of the 1993 SNA and ESA 1995 guidance for estimating employers? imputed social contributions (D.122) associated to employers? unfunded schemes. [ESA 1995, the European System of Account 1995, is the European transcription of 1993 SNA]. ESA 1995 and 1993 SNA suggest that the ideal source for D.122 estimates would be actuarial calculations. ESA 1995 and 1993 SNA also seem to imply that the result of D.122 estimates based on actuarial calculations would be similar to estimates based on the unfunded benefits actually paid (D.623) as long as the scheme is in a steady state. However, actuarial calculations as made in practice impute a property income, which for employers? unfunded pension schemes may result in significantly lower D.122 estimates compared to estimates based on the benefits actually paid. The main purpose of this paper is to seek advice from the EDG on this issue.

The second issue is the practical methods used by European Union (EU) Member States for estimating D.122 for employers? unfunded insurance schemes of government. Also this issue may be of considerable relevance for the EDG as recommendations on future alternative treatments may benefit from taking into account the feasibility or adequacy of the planned changes. D.122 has an impact on GDP when the employer is a non-market producer. Hence, changing the method for estimating D.122 will change GDP. In most EU Member States it is indeed the government sector?s D.122 that accounts for the majority of total economy D.122 (around 65% of total economy D.122 for the EU as a whole). In 2001, government D.122 represented between zero and 2.2% of GDP in EU Member States. In a few countries this share declined significantly between 1995 and 2001, generally reflecting a change from an employer?s unfunded scheme to another scheme. In principle, the ESA 1995 and 1993 SNA would prefer that D.122 be estimated using some wage-share method so that benefits paid (D.623) and imputed social contributions (D.612 and D.122) should typically differ. In aggregate, roughly half of the EU total of government D.122 is estimated with the benefits-paid method, and the other half with the wage-share method.

The paper first provides a summary of the current ESA 1995 and 1993 SNA guidance for estimating D.122 (section 1). For ease of exposition, the paper then describes the methods that can be used to estimate D.122 (section 2) and based on that identifies the conceptual issues related to using actuarial calculations as a source (section 3). Finally, the paper offers some interim conclusions for consideration by the EDG (section 4).

In particular the paper concludes that where actuarial estimates for employers' unfunded schemes of governments (or notional contributions derived from these estimates) are used as the source for estimating D.122, an upward adjustment would perhaps be needed.

Conceptually, a simple change to the 1993 SNA could include an imputed liability for all unfunded employers' schemes in the government's balance sheet that is determined by the discounted future benefits, plus imputed interest flows being credited to this imputed liability. This would result in a lower GDP as government D.122 would be lower. A conceptually not entirely satisfactory but very practical option could include precisely defining what `segregated reserves/funds' (1993 SNA § 7.45 and Annex IV § 12) means in the case of countries where government recognizes a notional liability and treats these as non-autonomous pension funds.  

The paper's principal purpose is:

  • to point at the link between estimates of employers' imputed social contributions under the current ESA 1995 and 1993 SNA and possible alternative treatments of unfunded employer pension schemes, including the practical consequences of possible alternative treatments ; and  

  • to seek the EDG's view on the current the ESA 1995 and 1993 SNA issue of `imputed property income' and the effect of discounting when actuarial estimates are available as a source.

Anton Steurer is an economist at Eurostat (unit B1: National accounts methodology, statistics for own resources)

The author of this contribution to the discussion group on this site bears the sole responsibility for both the substance and the style of the contents. The purpose of the discussion group is to elicit comments and to promote debate on specific topics. As such, the views expressed on any of the issues raised are not to be attributed to the IMF.
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