On-going work in Eurostat on pension schemes




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On-going work in Eurostat on pension schemes

  1. Task force on the classification on pension schemes


In November 2002, the Financial Accounts Working Party approved the decision of Eurostat to set up a new Task Force about some issues relating to the classification of pension schemes in national accounts.

The reason was essentially the development of reforms aiming to face the "demographic shock" that should result in a huge burden on government finance. For several years, the Commission has strongly pointed out this unfavourable trend and urged Member states to prepare it without delay.

Notably, Public Authorities in some countries, both EU Member states and Candidates countries, has set up new structures or arrangements in which the future pensions will depend, under various conditions, on financial performance of some assets, whereas some Social Security Funds have already built reserves in order to smooth the level of contributions on a long period.

The Task Force on Pension Scheme has already met twice, in January and April 2003.

The Task-Force is composed by representatives of Eurostat, DG ECFIN, the ECB, the OECD, the IMF, 7 EU Member states (Denmark, France, Finland, Germany, Italy, Netherlands, Sweden) and 2 accession countries (Latvia and Poland).

The mandate of the Task Force is limited to the classification of pension schemes1 through the examination of criteria required for considering a social security scheme and such recording the relating flows in accounts of general government.

Eurostat is of the opinion that current ESA95 does not provide full guidance for borderline cases. As a reminder, Eurostat must ensure homogenous treatments in EU for all similar cases.

Therefore, it was clear that the Task Force had no mission to make proposals relating to change in ESA95, in the context of a reconsideration of the whole issue relating to social insurance. Such works must be lead at an international level and will be part of the revision of SNA 1993 that has stared recently.

Among issues discussed in the Task Force, it is worth to underline:


  • The interpretation of the wording in 4.88 of ESA95 referring to the definition of social security schemes which are "imposed, controlled and financed" by government units. The Task Force focused its attention on a comprehension examination of the meaning of these three criteria.

The Task Force pointed out some difficulties relating to the interpretation of the criteria. In this context, the reference to obligation did not seem to be a decisive criterion. Control and financing were specified.

  • The distinction between "defined-contribution" and '"defined benefit" schemes and the consequences in terms of classification.

The discussion showed that a key point is the role of the manager ("sponsor") of the scheme as regards its obligations for ensuring the payment of pensions.

  • The importance of individual ownership rights on assets held by households in the case of funded schemes.

Where these rights are evidenced, a scheme should not be classified as a social security scheme in normal conditions.

  • The role of guarantees granted by government, according to the nature of guarantee provided, as a fundamental criterion for classification of pension schemes (for instance, government could take a commitment of acting as a payer of last resort, or could take in charge employee's contributions during some non-occupational period, where no income is perceived by employer).

This point is still controversial within the Task Force. Eurostat is of the opinion that, as such, the existence of guarantees is not a sufficient criterion for the classification of a scheme as government scheme.

  • An important and other controversial issue relates to "defined contributions pension schemes".

Eurostat is of the opinion that where the majority of the pension received results, for each participant in the scheme, from the performance of assets invested on markets, the scheme should not be classified as social security scheme, even if the flows of payments "in" and "out" are "managed" by government units.

As a consequence, the flows of contributions and benefits under such schemes normally would not be part of government accounts and, in no way, have an impact bon deficit/surplus.2

Among the issues still open which will need to be discussed in the next Task Force meeting, some attention will have to be devoted to the issue on classification of those units outside general government which are managing parts of a social security scheme.

Conversely, it is important to consider the case of government agencies managing schemes that cover different kinds of arrangements, namely partly as "pay as you go" and partly as "defined contribution" funded scheme. In this case Eurostat intends to propose some guidelines that would indicate whether the arrangement should be considered as a single scheme or as two different schemes.

It was also decided to launch a stocktaking exercise on present practices in Member States and Acceding countries about the "Recording of flows and stocks relating to pension schemes in national accounts".

This would provide a view on the different practices in the various EU Member States relating to the criteria of classification currently implemented. The questionnaire was designed for covering possible borderline cases. This could also give an idea on the possible impact of any future decision in the light of the conclusions of the work of the Task Force.

The answers are still under examination.

The next meeting of the Task Force will take place on 21 October 2003, with the objective to reach a final opinion on the above-mentioned points and to prepare a CMFB3 consultation.4

After the meeting the final proposal will be sent to the Financial Accounts Working Party and the National Accounts Working Party, before final submission to the CMFB for formal opinion and vote on the issue and before Eurostat's final decision.

It is foreseen therefore that new rules on the classification of pension schemes will have to be applied in the first EDP notification of March 2004.


  1. Task force on lump sum in the context of the transfer to government of pension obligations managed by a public corporation for its own staff.


In several Member States, certain public corporations have set up specific pension schemes for their own staff that which are directly managed. According to ESA95 rules, these pension schemes are classified outside general government.5

For various reasons, government, as owner of the public corporations, may intend to "clean" their balance sheets, for instance, with a view to enlarging ownership of these corporations or to increase their market value. The fact that the corporation is relieved from some future obligations has the effect to improve its position on the market.

Various arrangements might be observed, strongly influenced by various domestic factors.

Government could accept to take responsibility for the payment of future pensions to the employees of the corporations. It could also charge itself for only part of the future pension, for instance, on the basis of the "accrued-to-date" pension rights (the amount of pensions that, all things being equal, should be paid, independently of the acquisition of new rights after the transfer). Other arrangements might be observed where government could ensure only payment compensation for contributions or benefits.

In any case, the common point is that, as counterpart to the future commitments taken by government, impacting government expenditure, the corporation pays a "lump sum" to government, as a one-off flow.

In the past, several arrangements had been observed. Following discussions between European experts, Eurostat agreed on a classification in national accounts as a non-financial transaction (capital transfer) with, thus, a positive impact on government deficit/surplus.

At the beginning of 2003, Eurostat was informed that new and similar transactions should occur in several Member States. Eurostat has considered that the issue relating to the treatment in national should be considered again, for the following reasons:


  • since the previous classification, ESA 95 has been put in force (with a generalised accrual basis);

  • since the implementation of the Stability and Growth Pact, the EU monitoring is particularly focusing on one-off transactions that do not mean a long-term consolidation of government finance;

  • experience of the ESA95 Manual on government deficit and debt, published by Eurostat with the active cooperation of MS, showed that there was frequently room for interpretation in ESA95.

Therefore, Eurostat has requested the opinion of the CMFB.

In this context, following the usual procedure, Eurostat set up a Task Force that met on 18 June 2003. The Task Force was composed by representatives from Eurostat, DG ECFIN, the ECB, the OECD and 6 EU Member states (Belgium, France, Greece, Netherlands, Portugal, and Sweden).

It was decided that the CMFB consultation would focus on the main effects on government deficit and surplus (EDPB9) of the initial transaction between government and the public corporation and would be limited to the case of unfunded schemes for which obligations (responsibilities) are transferred to a government unit. Eurostat's opinion is that the case of transfer of funded schemes is not an issue, while the shift from funded schemes to unfunded schemes would need further consideration.6

It is important to stress that, even if from an economic point of view the existence of transfer of liabilities is not questionable, the current ESA95 (and current SNA93) does not recognise the liabilities of unfunded pension schemes.

As a matter of principle, EDP decisions must be only based on existing ESA95.

The key issue is the classification of the counterpart transaction to the transfer of cash from the public corporation to government.



The TF has examined several options but exclude some of them. Then Eurostat has consulted the National Accounts and Financial Accounts Working groups (not on the substance but on the presentation of the issue). Finally Eurostat has summed up the issue in the form of an alternative.7

  • In a first option mainly based on the non-recognition of a pension liability and strictly based on a cash basis approach, the lump sum paid to government is treated as an unrequited transfer. The transfer has a positive impact on government deficit/surplus at the time the transaction takes place.

  • In a second option, that tries to better reflect the "economic substance" of the whole transaction and relies on an accrual approach, the transfer of the implicit liability for future pensions is recorded as a payment in advance, as a counterpart of the cash transferred to government. There is no impact on government deficit/surplus at the time of the transaction.

1Excluding the case of employer's scheme.

2In a first step, such new schemes have a positive effect on government deficit/surplus as the accumulation of assets exceeds the payment of benefits. But this improvement could be seen as artificial as government is in fact acting in this case similarly to a financial intermediary. In addition, such surplus may not avoid an increase in debt, as government cannot use this surplus for financing deficit from other government activities.

3Committee on Monetary, Financial and Balance of Payments Statistics. Each has tow voting rights, one for the National Institute of Statistics, one for the National Central Bank.

4This approach is in accordance with the "Code of Best Practice", endorsed by the ECOFIN Council on 18 February 2003.

5See ESA95 4.88 b (autonomous or non-autonomous pension funds) and c (unfunded schemes set up by employers for their employees).

6A transfer of a funded scheme is a matter of restructuring. If any, a shift from a funded employer's scheme to an unfunded scheme "managed" by government would require special attention.

7However, within each option, some aspects of the classification of the transaction are open.



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