1887

OECD Working Papers on Finance, Insurance and Private Pensions

Selected studies on finance, insurance and private pensions policy prepared for dissemination in order to stimulate wider discussion and further analysis and obtain feedback from interested audiences. The studies provide timely analysis and background on industry developments, structural issues, and public policy in the financial sector. Topics include risk management, governance, investments, benefit protection, and financial education. Previous papers addressing these policy issues are available via http://dx.doi.org/10.1787/19936397.

English

Funding in Public Sector Pension Plans

International Evidence

Most countries have separate pension plan for public sector employees. The future fiscal burden of these plans can be substantial as the government usually is the largest employer, pension promises in the public sector tend to be relatively generous, and future payments have to be paid out directly from government revenues (pay-as-you-go) or by funded plans (pension funds) which tend to be underfunded. The valuation and disclosure of these promises in some countries lacks transparency, which may be hiding potentially huge fiscal liabilities that are being passed on to future generations of workers.

In order to arrive at a fair comparison between countries regarding the fiscal burden of their DB public sector pension plans, this paper gathers more evidence on public sector pension plans regarding the type of pension promise and quantifies the future tax burden related to these pension promises. The reported liabilities are recalculated using both a fair value approach (local market discount rates) and a common, fixed discount rate across all countries which reflects projected growth in national income. We also estimate for a number of plans from a sample of OECD countries the size of the net unfunded liabilities in fair value terms as of the end of 2008. This fiscal burden can also be interpreted as the implicit pension debt in fair value terms.

English

Keywords: hybrid plans, pension fund, public sector pensions, actuarial evaluation, fair value, defined benefit, funding
JEL: H75: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government: Health; Education; Welfare; Public Pensions; J32: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions; G23: Financial Economics / Financial Institutions and Services / Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors; H83: Public Economics / Miscellaneous Issues / Public Administration; Public Sector Accounting and Audits; H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions
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