Funding in Public Sector Pension Plans: International Evidence
AbstractMost 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.
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Bibliographic InfoPaper provided by OECD Publishing in its series OECD Working Papers on Finance, Insurance and Private Pensions with number 8.
Date of creation: May 2011
Date of revision:
funding; defined benefit; fair value; pension fund; hybrid plans; actuarial evaluation; public sector pensions;
Other versions of this item:
- Eduard Ponds & Clara Severinson & Juan Yermo, 2011. "Funding in Public Sector Pension Plans - International Evidence," NBER Working Papers 17082, National Bureau of Economic Research, Inc.
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
- H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-05-24 (Accounting & Auditing)
- NEP-AGE-2011-05-24 (Economics of Ageing)
- NEP-ALL-2011-05-24 (All new papers)
- NEP-EEC-2011-05-24 (European Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard Disney & Carl Emmerson & Gemma Tetlow, 2009.
"What is a Public Sector Pension Worth?,"
Royal Economic Society, vol. 119(541), pages F517-F535, November.
- Ponds, E.H.M. & Severinson, C. & Yermo, J., 2012. "Implicit debt in public sector plans: An international comparison," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5452874, Tilburg University.
- Meijdam, A.C. & Ponds, E.H.M., 2013. "On the Optimal Degree Of Funding Of Public Sector Pension Plans," Discussion Paper 2013-011, Tilburg University, Center for Economic Research.
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