EUROSTAT TASK FORCES ON PENSION SCHEMES IN 2003

1. EUROSTAT TASK FORCES ON PENSION SCHEMES IN 2003 OECD National Accounts Experts Meeting 7 October 2003

2. As a reminder, the 1992 TREATY establishing the European Union has set up a budgetary surveillance, the “Excessive deficit procedure” (article 104), reinforced for the euro-zone in the 1998 TREATY (“S.G.P”) Eurostat, in this context, has a leading role in statistical areas

3. This has been recently confirmed in a “Code of Best Practice” endorsed by the ECOFIN Council on 18 February 2003 “The Commission’s role as statistical authority in the context of EDP is exercised by Eurostat, on behalf of the Commission”

4. A protocol in the 1992 Treaty specifies reference to the system of national accounts in force (ESA79 then ESA95) • Governmentmeans “general government sector” • Deficitmeans “net borrowing” • Debtmeans financial instruments as defined in the system on a consolidated basis

5. In practice Further specifications were given in a specific Regulation (European Council) including however some differences from national accounts but EXCLUSIVELY for: Ô Coverage of debt instruments and valuation (1993 and 2000) Ô Definition of deficit (2000)

6. In this context, Eurostat is assigned two major functions: • Controlling the compliance of data with the accounting rules(assessment of data notified twice a year) • Specifying the rules and providing guidance if the need arises

7. The main issues are: Coverage of government sector (market or non-market ?) Accruals (when?) Classification of transactions(transaction or “other flow” ?non-financial or financial ?) “Exact” measure of government debt (government liability?)

8. In this respect, EUROSTAT may act: • On a bilateral basis for strictly national issues • In a co-operative approach for issues considered as “of common interest”

9. BUT WITH A CORE PRINCIPLE: Similar cases in all Member States must have comparable effects on government deficit and debt

10. In the Co-operative approach, the procedure is : • Work by experts in a temporary Task Force (ECB as de jure member) • Report to permanent Working Groups (Financial Accounts, National Accounts) • Consultation of the CMFB (created in 1991) • Final decision by Eurostat

11. THE USUAL RULES OF PROCEDURES OF CONSULTATION OF THE CMFB HAVE BEEN “CODIFIED” IN FEBRUARY 2003, notably as regards time limits

12. Most the results of methodological issues that were considered are part of: ESA 95 Manual on government deficit and debt 2nd edition in 2002, 3rd planned in 2004 New parts already available on the web

13. IN 2003 EUROSTAT HAS DECIDEDTO SET UP6 NEW TASK FORCESTwo were devoted to pension schemes issues

14. CLASSIFICATION OF PENSION SCHEMES ESA95 includes rules but: -obvious room for interpretation -recent reforms implemented in Member States (and Acceding Countries) -need to clearly define the exact role (“responsibility”) of government units - risks of divergent classification in MS

15. The TASK FORCE met twice and will meet again at end of October 2003 • The mandate is limited (interpreting, not changing, current ESA95) • The issue on employers’ schemes is not discussed (notably for civil servants) • A decision must be taken before the end of the year • There could be strong impact on government deficit (and on consolidated debt)

16. The Task Force has closely examined the ESA95 definition of a social security scheme: - coverage of population - “responsibility for the management” by government units - meaning of words “imposed, controlled and financed”

17. The Task Force has also discussed: - the difference between control and supervisory - the consequence of minimum pension - the consequence of minimum rate of return - the management of social security schemes by non-government units

18. The decision will cover at least four issues under consideration by the Task Force: • 1) “Defined-benefit funded schemes” In which conditions should these schemes be classified as social security scheme? • 2) “Defined-contribution funded schemes” As pension are depending on market performance, should these schemes never be classified as social security schemes?

19. 3) Guarantees given by government Should the guarantees as such have no impact on classification except if they are called or very likely to be called? • 4) Cases of arrangements combining funded and unfunded “legs”? In which conditions should the funded “leg” be classified not as a social security scheme?

20. TRANSFER OF EMPLOYER PENSION SCHEME TO GOVERNMENT BY PUBLIC CORPORATIONS A decision (as capital transfer) in 1997 but: - implementation of ESA95 in 2000 - currently, more attention given to “one-off” transactions in GF monitoring - conceptual grounds for possible reconsideration

21. The TASK FORCE met only once in June • Some new cases were examined but the work focused on conceptual rationale • Only the transfer of unfunded scheme was considered • The TASK FORCE had not the mandate to change ESA95 as regards government liability in the case of unfunded schemes • A CMFB consultation is on process • A decision will be published before end of October

22. Two options have been submitted to the CMFB for opinion as regards the “lump-sum” paid to government: • As a non-financial transaction (transfer) - positive impact on deficit off-set by future benefits paid by government • As a financial transaction - no immediate impact on deficit - no future impact of future pensions only up to the limit of a government liability (if recognized)