Implementation of the new pension satellite account in Spain by Alfredo Cristobal
Canadian Pension Satellite Account
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Transcript of Canadian Pension Satellite Account
Canadian Pension Satellite Account
Presentation to the OECD Working Party on Financial Statistics and Working Party on National Accounts
Patrick O’Hagan October 3rd, 2007
Pensions in the SNA … SNA was developed in a period when an aging
population was not an issue The impact of this phenomenon now evident on post-
war economies, and economic issues surrounding pensions coming to the forefront
Coincidentally, treatment of pensions garnered significant attention in the revisions to SNA93
In Canada the SNA, while developed was not set up to address some of these emerging issues related to pensions … therefore a Pension Satellite Account (PSA) was conceived to better articulate pension stocks and flows and to fill in gaps in data
PSA is largely analytical in nature Last year Canada agreed to present an overview of the
PSA at the 2007 WPFS-WPNA meeting
CSNA sector-based
Institutional sector-based accounts architecture to the CSNA are designed to articulate economic behaviour. The sector accounts include: the income and outlay account; the capital account, the financial account and the balance sheet account (including the other changes in assets).
Incomes and current and expenditures in the sector accounts consolidate to GDP income arising from production and GDP final expenditure on production
GDP – Income arising from production
GDP – Final expenditure on production
Real GDP – by expenditure component- PE- I- X,MPersons Corporations Governments Non-residents
Current account transactions
- Incomes, outlays
Capital account transactions
- Capital investment, saving
Financial account transactions
- Financial asset flows
- Liability flows
Other changes in assets account
Revaluations and other volume changes
Balance sheet account
Non-financial assets
Financial assets
Financial Liabilities
Net worth
SatelliteAccounts:
Non-profit
Tourism
Pensions
CSNA Core Sector Accounts and Satellite Accounts in Income and Expenditure Accounts Division
Diverse treatment of pensions in the CSNA sector accounts
Income and outlay, saving Financial transactions Accumulated saving (wealth) Benefit payments / withdrawals Gains and losses on pension assets Actuarial evaluations
Pension flows … not fully articulated in CSNA
Dimensions to the PSAThe PSA adopts the stock-flow structure to the
sequence of sector accountsSupplementary detail to sectors … in particular
to the household sectorPSA covers the entire universe of the
retirement regime in Canada in considerable detail
The three tiers are: (i) government-sponsored social security, (ii) employer-sponsored pension plans (including both private and public, as well as funded and unfunded) and (iii) voluntary individual retirement saving plans
Structure of the PSA Opening
wealth position
Inflows: Contributions, investment- income
Outlays: Withdrawals, other flows
Other changes: Gains/losses, etc
Closing wealth position
Social security
Employer-sponsored plans
Individual savings plans
Social security plansCanada/Quebec Pension Plan
Funded (invested) assets are recorded in Government sector, and affect net debt of government
No liability of government is recognized to households for this social program
Household pension transfer income Old Age Security
No assets -- PAYG social program system … benefit payments (expense) out of government general revenue
Household pension transfer income
Individual retirement saving plans –
Accumulation and payout products Registered retirement saving plans (RRSP) introduced
in 1957. Contributions to RRSP are tax-sheltered with a limit and are on a voluntary basis. Withdrawals are allowed but subject to income tax at the time of withdrawal
The amount will be converted to payout vehicle such as registered retirement income fund (RRIF) or an annuity when the owner turns age 69
Typically part of insurance companies and banks or investment funds liabilities to households. A self-directed RRSP (sometimes referred to as a self-administered plan) allows many more investment options than a regular RRSP … measurement issues
Composition of individual retirement saving plans
$ billion
-
200
400
600
800
1990 1992 1994 1996 1998 2000 2002 2004
Self-directed RRSPInvestment fundRRIFLIC+ seg fDeposits
Employer-sponsored contributory plans detail
Defined benefit, defined contribution, hybridOthers (e.g., profit-sharing)Funded, unfunded …public, privateSurplus, deficitBy institutional investor
۰by asset type
Assets, income … valuation issues
Trusteed Pension Funds: Bulk of Employer-sponsored pension plans
$ billion, TPP by f inancial instrument
0
200
400
600
800
1000
1993 1995 1997 1999 2001 2003 2005
real estate
Stocks;
fixed income
Two features of the Canadian SNA treatment of ESPP
All ESPP pension plans have a similar treatment with respect to their impact on personal saving and wealth. Specifically, an government unfunded plan (no invested assets) ― by virtue of the fact that it is recognized as a liability (by government) ― is treated as a household sector asset, with corresponding saving flows
Second, Canada has a treatment for that does not require the D8 adjustment described in SNA93 to bring personal saving and personal disposable income into line. Essentially the pension funds are consolidated in the household sector
Institutional dimensions to pension saving and wealth feed into PSA
Trusteed pension plans Insurance companiesGovernment consolidated revenue
arrangementsDeposit accepting institutionsMutual fundsOtherSocial schemes
Institutional investors assets drive net
assets pension growth
DepositsFixed income securitiesEquities Investment fund unitsReal estateOf which: Foreign
Investments, income, capital gains in PSA
Key sources of data for the PSASurveys of institutional investors (insurance,
pension funds, banks)Enterprise surveys for employersGovernment public accounts and other
government administrative dataTax dataHousehold survey dataSome degree of modeling and derived dataFOCUS ON ANALYSIS
Analytical issues
Understanding personal saving and wealth accumulation
Structure of the pension systemEconomic forecastsProjections to tax revenueImpact on capital marketsSustainabilityDimensions of risk
Downward trend in personal saving supported by pension saving
Personal Savings Rate
0
5
10
15
20
25
1980
/03
1981
/12
1983
/09
1985
/06
1987
/03
1988
/12
1990
/09
1992
/06
1994
/03
1995
/12
1997
/09
1999
/06
2001
/03
2002
/12
2004
/09
Evolution of pension saving and wealth Despite the downward trend in personal saving since
1990, household wealth has continued to accumulate at good pace … essentially substituting capital gains (price appreciation of assets) for saving out of current income
Pension saving is an increasing share of a downward trending personal saving; pension wealth has been a significant contributor to the growth in household net worth
Pension assets account for close to half of the size of the total financial assets and close to one-third of the net worth
Impact of increasing pension payments/withdrawals
Downward trend in personal saving supported by pension saving
$million
-80
-60
-40
-20
-
20
40
60
80
1990 1992 1994 1996 1998 2000 2002 2004
saving non-pension saving
Capital gains result in a different interpretation of personal saving
Modified Personal Saving Rate(Including Capital Gains)
-15-5
515
2535
4555
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
%
Forecasting the economy, with less spending out of current incomePersonal expenditure accounts for about 60%
of GDPAs population ages, increasing sources of funds
from other than income ― dis-saving in financial account
Propensity to spend quite high out of retirement dis-saving
Need to systematically articulate this detail drawn from the PSA for users
Projecting tax revenue for fiscal purposes
There is already a gap between reported SNA income and income taxes paid, largely because realized capital gains are excluded from SNA income
Increasingly taxes will be generated out of ESPP pension benefit payments and individual retirement plan withdrawals
Need to systematically articulate this detail drawn from the PSA for users
Impact on capital marketsAssets in ESPP, social security and individual
saving plans are very significant As assets in these funds grew sharply beginning
in about 1987-90s, they have had a substantial influence on capital markets – both growth and fluctuations
As these funds are drawn down by retirees over the years to come, the impact on these markets is unclear
PSA provides the detail required to make assessments of this impact
SustainabilityThe question of will there be enough (and what
is the distribution by age and income class) to finance the wave of retiring baby-boomers
If not, implications for standard of living… for government fiscal balances
Coverage by individual and ESPPPSA by soon adding a link to household survey
micro data will provide the detail required to support projections and assessments to study sustainability
Shifting composition of pension assets
% of total pension assets
0%
20%
40%
60%
80%
100%
1990 1992 1994 1996 1998 2000 2002 2004
RRSPRPPC/QPP
Pension system risks
To employers, in particular corporations with DB ESPP, as asset values fluctuate
To individuals as employers move towards DC ESPP, as known benefit streams provide income security
To individuals in relation to returns on individual retirement saving plans
PSA provides the detail required to undertake analysis of potential risks to pension assets
Risk: Gains and losses on largest segment of funded ESPP
Contributions and net captial gains/losses
-10
-5
0
5
10
15
1993/03 1994/06 1995/09 1996/12 1998/03 1999/06 2000/09 2001/12 2003/03 2004/06 2005/09
Employee contributions Employer contributions Net capital gains/losses
Billions
Individual risk …shift from defined benefit to defined contribution ESPP
0
20
40
60
80
100
120
1980 1990 2004 1980 1990 2004
Participants Plans
DB DC%
Future PSA work Initial estimates released in paper in 2008Shift database frequency to quarterlyDevelopment of standard supplementary SNA
tables on pension incomes, saving and wealth, payments/withdrawals, taxes paid and estimates of personal expenditure from retirees for current analysis
Expand detail on actuarial deficits/surplusesLink up with household micro data to expand the
analytical capability