Countries to disclose pension liabilities
EUROPE - Pension liabilities of EU governments could soon be disclosed in a supplementary table of the European System of National and Regional Accounts (ESA).
Under a compromise solution for a review of the accounts regulations, the table would contain information "on the estimated value of government's accrued-to-date liabilities on pensions", the European Commission pointed out in its 2007 public finances report.
However, they would not be required to include them as part of a government's accounts.
Figures would be collected on all pension systems - public and private - as well as funded and unfunded, the commission noted.
It added "they will essentially provide an estimate of the cost of a hypothetical dismantling of the pension system". The commission also notes the estimates will help set up pension reforms.
These suggestions are part of ongoing negotiations for a review of System of National Accounts (SNA) adopted by the United Nations. The European Union said it would take on the changes for its ESA regulation and implement them from March next year.
A compromise still had to be reached with those governments which only wanted to list pension liabilities in relation to schemes for civil servants, teachers, doctors and other public sector staff but not from PAYG schemes or other plans for the rest of the population.
This first position was mainly supported from countries outside the European Union. EU member states, on the other hand, did not want to make a distinction between pension liabilities for civil servants and the rest of the public as pension schemes for both groups are similar in most regions of Europe.
However, the commission explains "it was felt that the recognition of unfunded pension liabilities in the government accounts would fundamentally change the nature of the accounts". One example mentioned was "it would reduce the reliability of figures" and "crucial variables (government saving, balance and debt, etc.) would dramatically change.
In the UK, the Whole Government Accounting (WGA) - a commercial-style accounting system for the whole of the public sector - which as being modified to reflect the public sector circumstance and first introduced by Chancellor Gordon Brown in 1998, will become fully operational this year.
According to Baring Asset Management, the size of the unfunded public sector occupational pension liabilities "will be reported to total over £600bn - somewhat greater than the traditionally-recognised national debt (totalling £572bn)".
In a report on UK public sector pension liabilities entitled Solving the UK's Pension Problem, Toby Nangle, fixed income investment manager at Baring, points out "the recognition of this liability as debt would bring the UK debt/GDP ratio from 43.5% to 91.5%".