Implicit debt in public-sector pension plans: An international comparison

Authors


  • The article is derived from a recent and longer OECD Working Paper (Ponds, Severinson and Yermo, 2011). The authors would like to thank Yuecheng Liu for research assistance. The study has benefited from a research grant from Netspar. The views expressed are the sole responsibility of the authors and do not reflect those of their organizations or the governments of OECD Member countries. The authors are solely responsible for any errors. Eduard Ponds is also associated with APG, Netherlands.

Eduard Ponds, Tilburg University, Warandelaan 2, 5037 AB Tilburg, Netherlands; Email: eduard.ponds@apg-am.nl.

Clara Severinson, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; Email: clara.severinson@oecd.org.

Juan Yermo, OECD, 2, rue André Pascal, 75775 Paris Cedex 16, France; Email: juan.yermo@oecd.org.

Abstract

Most countries have separate pension plans 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 hide potentially huge fiscal liabilities to be passed on to future generations of workers. In order to arrive at a fair comparison between countries regarding the fiscal burden of their public-sector pension plans, this article recommends that unfunded pension liabilities should be measured and reported according to a standard approach for reasons of fiscal transparency and better policy-making. From a sample of Member countries of the Organisation for Economic Co-operation and Development, the size of the net unfunded liabilities as of the end of 2008 is estimated in fair value terms. This fiscal burden can also be interpreted as the implicit pension debt in fair value terms.

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