In this contribution Jeff Golland suggests that certain unfunded pension schemes operated by governments for their employees should be recorded as financial liabilities in national accounts (recordings of the associated flows are shown in an attached table).
Many governments plan, monitor, and judge their fiscal policies using statistics from national accounts. At present, national accounts do not record financial liabilities for unfunded government-operated pension schemes. The impact on the government deficit is simply the payment of pensions to retired employees, net of any current employee contributions, and no liability is recorded in government debt. However, if a government makes payments to private?sector pension funds on behalf of its employees, the impact on the government deficit would be different. The impact would be the accruing pension rights of its employees plus the interest on the extra borrowing by government needed to finance the pension contributions (which arise earlier than the pension payments), and government debt would be higher for the same reason. This difference in accounting for the cost of different ways of proving public sector occupational pensions can lead to sub-optimal decision making in terms of economic efficiency.
The proposal for national accounts is to record, under the category AF6, a financial liability of government equal to the net present value of the accrued pension rights of its employees in unfunded pension schemes.
Jeff Golland works for the European Central Bank. Formerly at the UK ONS and at the UK Treasury, he has contributed to the Eurostat's Manual on Government Deficit and Debt.
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