EUROPE – The chair of the European Parliament’s economic committee has welcomed as a “win for transparency and good governance” rules that would force all EU member states to disclose unfunded pension liabilities.
The disclosures, first suggested by a 2007 revision of the European System of National and Regional Accounts, were previously contested by a number of member states – a move deemed “highly irresponsible” by Sharon Bowles, a UK MEP and chair of the Economic and Monetary Affairs Committee (ECON).
Bowles welcomed the European Parliament’s adoption of the guidelines in today’s session, saying national accounts were the “cornerstone of all macroeconomic statistics”.
“In the budgetary framework of the six pack,” Bowles said, in reference to the EU budget deficit rules renegotiated in the wake of the euro-zone crisis, “it was agreed that there should be better reporting of public sector liabilities and an end to off-balance-sheet accounting for governments, and it takes good statistics to track that.
“Unfortunately, four large member states were reluctant to have mandatory transmission of pension liabilities data, which the Parliament saw as a blatant attempt to keep potentially embarrassing information out of the public domain and away from calculations.”
France, Germany, Italy and Portugal had previously opposed greater disclosure, but the MEP said several rounds of negotiation had seen agreement reached.
Bowles said the agreement was a “win for Parliament and a win for transparency and good governance”.
The UK has already sought to comply with the new guidelines, last year calculating that the country’s entire pension obligations – including state pension, private pension and funded and unfunded pension schemes – amounted to £7.1trn (€8.1trn).
A recent study by EDHEC-Risk Institute recently stressed the importance to investors to correctly evaluate the impact of pension liabilities.
At the time, it noted that some countries reported liabilities accounting for 400% of GDP if a 3% discount rate was applied, and that the inclusion of liabilities presented investors with a different picture than one ratings agencies would otherwise fashion.
“As such, countries with virtuous public finances in the Maastricht sense,” it said, citing Sweden, Luxembourg and Denmark for their compliance with the EU’s 3% annual deficit cap, “are much less virtuous if their public pension commitments are taken into account, while the situation of countries such as Spain, Italy or even Portugal is relatively better.”
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