GLOBAL – The way unfunded pension schemes are treated in national accounts is set to be resolved at a meeting in Frankfurt early next year.
On the table is a proposal to treat the schemes – which schemes for government employees - in the same way as corporate funded schemes.
If approved it could result in what one official has termed a “new order of magnitude” of public debt and deficit for some European countries.
The proposal was put forward by a group moderated by the International Monetary Fund’s Statistics Department in a paper last year.
The matter is due to be debated at a meeting of the Advisory Expert Group on National Accounts, which is set to meet at the European Central Bank from January 30 to February 9. It’s the top item on the agenda.
But European institutions have sought an alternative approach. A joint paper by the European Central Bank and the Bank of England suggested disclosing unfunded liabilities in “supplementary” – not core - accounts. The ECB and BOE cited “intractable” issues such as discount rates.
And Eurostat said it was a “matter of concern” that unfunded pension obligations of employer schemes would be recognized as liabilities whereas social security schemes would not be.
It saw “considerable implications for European government finance statistics that a change in the way pensions is accounted for in SNA state national_accounts would entail”.
The statistics are the basis of the excessive debt procedure that underpins the framework for the euro, the Stability and Growth Pact.
Eurostat argued against a “situation of major departure” from the current system.
The OECD – which believes there are merits and demerits in both approaches - came up with a compromise proposal that aims to separate clearly the different types of pension obligations while allowing a better record of exchanges of liabilities.
The OECD says its position on the matter is “delicate” as its member countries are split on the issue.
Heikki Oksanen of the European Commission’s Directorate General for Economic and Financial Affairs has said the proposed revision “would require everyone to become accustomed to a new order of magnitude for public debt and deficit”.
“In the European welfare states it may rise from the current explicit debt of 60% of GDP to 280%, for example,” Oksanen wrote in a paper last year.
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