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Accrued-to-date Pension Liabilities: Malta 2006-2007

Accrued-to-date Pension Liabilities: Malta 2006-2007. Clyde Caruana Statistician Unit A2: Public Finance. National Statistics Office Lascaris Valletta VLT 2000 Tel: 25997000 Fax: 25997205 / 25997103 E-mail: nso@gov.mt www.nso.gov.mt. Background.

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Accrued-to-date Pension Liabilities: Malta 2006-2007

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  1. Accrued-to-date Pension Liabilities: Malta 2006-2007 Clyde Caruana Statistician Unit A2: Public Finance National Statistics Office Lascaris Valletta VLT 2000 Tel: 25997000 Fax: 25997205 / 25997103 E-mail: nso@gov.mt www.nso.gov.mt

  2. Background • Eurostat/ECB Task force established in June 2006. • Review existing material on pension schemes. • Produce a uniform methodological framework for the compilation of statistical estimates of the assets and liabilities of pension schemes. • Calculation of pension liabilities is in line with the amended SNA 2008.

  3. Background cont… • Reference is also being made in the drafting of a new ESA chapter. • Eventual inclusion of Supplementary Tables on pensions in social insurance in the National Accounts. • Further refinements planned. • The end result of this task is to present users with pension scheme data and providing the means of more comparable data.

  4. Definition • Accrued-to-date liabilities (ADL) are the present value of pensions to be paid in the future on the basis of accrued rights; neither the future contributions of existing workers, nor the accrual of new rights by them are considered. • It is considered by the Eurostat/ECB task force to be the most appropriate approach for national accounts.

  5. Accrued-to-date Liabilities • ADL is the only method which can be assimilated to conventional public debt. • Social Security contributions are, in most respects, equivalent to the purchase of a government liability. • There is in existence a ‘future promise’ between the government and worker, that the former shall pay an annual pension to the latter on retirement age. • However the pension scheme is still based on an unfunded PAYG system.

  6. Compilation of ADL • National Statistics Office supplied all data to the University of Freiburg. • Income and Pension data were supplied by single years and gender. • The Maltese pension system falls under the non-core part of the supplementary table as it is still unfunded. • The General Government (non-core) covers the Social Security Pensions and the Treasury Pension.

  7. Compilation of ADL

  8. Compilation of ADL • Pension Reform of 2006 was of utmost importance to this exercise. • Rise in the retirement age (from 60-61 to 65). • Increase in the number of contribution years (up to 40 years). • Change in the wage indexation after 2011 (from the current (wage growth – inflation) 90-10 to 70-30).

  9. ADL Model • The model takes into account: - Future Population Projection Assumptions - 1.5% real growth in GDP and wages - 2.0% Inflation Rate - 3.0% Discount Rate (Real)

  10. Outcome due to Pension Reform • Reform lead to the following future pension liability reductions: - €1.57 billion - 12.2% of Pension Entitlements (2006) - 30% of GDP

  11. Definition of Benefit Obligation • ABO is a “termination liability”, the amount the agent would have to pay another party to assume the obligation to pay current workers their retirement benefits based on current salary levels. • PBO is a liability which is consistent with the “ongoing concern” assumption of accounting, which takes into consideration future wage increases.

  12. Benefit Obligations

  13. Pension Entitlement Balance Sheet

  14. Social Security Pension Scheme • ABO Method - €11.3 billion / 235.3% of GDP (2005) - €10.4 billion / 203.5% of GDP (2006) - €10.9 billion / 201.6% of GDP (2007) • PBO Method - €12.8 billion / 266.5% of GDP (2005) - €11.5 billion / 226.3% of GDP (2006) - €12.2 billion / 224.2% of GDP (2007)

  15. Treasury Pension Scheme • ABO Method - €2.06 billion / 42.8% of GDP (2005) - €2.10 billion / 41.2% of GDP (2006) - €2.09 billion / 38.6% of GDP (2007) • PBO Method - €2.15 billion / 44.7% of GDP (2005) - €2.18 billion / 42.7% of GDP (2006) - €2.17 billion / 40.1% of GDP (2007)

  16. Sustainability • The Accrued-to-date method does not reflect an argument for sustainability. • Sustainability requires the incorporation of employment and per capita income evolution over time. • Conclusion derived from ADL is that the higher the share of future public resources committed to pension expenditure the more GDP should increase. • If GDP growth is not adequate other adjustments will be necessary, i.e. either higher tax rates or further pension rights negation.

  17. Thank You

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