In the current debate on the European Union (EU) fiscal rules there is a widespread consensus on the need to place more focus on government debt and long-term fiscal sustainability in the surveillance of budgetary positions. More specifically, pension developments should be taken into account in assessing fiscal sustainability. The way to make this operational has not yet been defined. The paper examines the pension expenditure projections available in EU countries and their use in the assessment of fiscal sustainability. While acknowledging the progress in the availability and quality of projections, the paper notes that their comparability is still unsatisfactory. Any mechanical use of existing pension expenditure projections should therefore be avoided. The paper also examines the different definitions of pension liabilities and their potential role in the EU fiscal framework. It argues that pension liabilities may bring a clearer understanding of the impact of fiscal policies, may provide a measure of the cost of terminating pay-as-you-go pension schemes and may be useful for the measurement of deficits computed on accrual basis. However, the level of pension liabilities does not provide indications concerning the sustainability of pension schemes and their effects on public budgets. Pension liabilities should not be added to conventional debt. The paper argues that both pension expenditure projections and estimates of pension liabilities can complement the deficit and debt indicators currently used in the EU fiscal rules. The paper concludes by pointing to the need of improving some technical and organisational aspects concerning age-related expenditure projections, such as the independence of forecasters, the transparency of projections and the homogeneity of methods.
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Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series Discussion Paper with number
231.
Length: 63 p. Date of creation: Oct 2004 Date of revision: Handle: RePEc:hit:piedp1:231
Note: International Workshop on The Balance Sheet of Social Security Pensions Organised by PIE and COE/RES, Hitotsubashi University, Hitotsubashi Collaboration Center, Tokyo, Japan, 1st-2nd November 2004, Preliminary draft Contact details of provider: Web page: http://cis.ier.hit-u.ac.jp/ More information through EDIRC
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