Government Finance Statistics Manual 2014

290 Government Finance Statistics Manual 2014

A2.51 If government controls the fi nancial corpo-

ration that manages the employment-related pension

scheme for government employees, the corporation

will be part of the public fi nancial sector, and the rel-

evant fl ows and stock positions would be recorded

when compiling GFS for the public sector. Th e receipt

of social contributions by this insurance enterprise or

pension fund gives rise to a liability, classifi ed in the

fi nancial instrument insurance, pensions, and stan-

dardized guarantee schemes (6306), and more spe-

cifi cally in pension entitlements (63063). Th e liability

originates from the obligation to pay future pension

benefi ts—any subsequent payment of the benefi ts will

be recorded as a reduction in this liability. Although

the social contributions are payable directly by the em-

ployer to the fi nancial corporation, they are recorded

in GFS as if payable by the employer to households

as compensation of employees: households in turn

pay the contributions to the fi nancial corporation.

Because of this rerouting, these transactions should

not be eliminated in consolidation of the public sector

(see paragraph 3.28).

A2.52 For the fi nancial corporation, revenue

from the investment of the fi nancial reserves should

be classifi ed as the relevant category of property in-

come. However, since these resources are considered

to give rise to an asset of the policyholders, such

income should be attributed to policyholders. An

expense is recorded, classifi ed as property expense

for investment income disbursements (2813), with a

counterpart entry that increases the liability to re-

fl ect the policyholders’ increase in claims for pension

entitlements.

A2.53 Autonomous employment-related pension

schemes can be organized as a defi ned-benefi t pension

scheme or a defi ned-contribution pension scheme.

Defi ned-benefi t pension schemes

A2.54 A defi ned-benefi t pension scheme is one

where the benefi ts payable to an employee on retire-

ment are determined by the use of a formula, either

alone or as a minimum amount payable. Th e level of

benefi ts promised to participating employees is deter-

mined by a formula embodied in the terms of the so-

cial insurance scheme. Th ese terms are usually based

on factors such as the participants’ length of service

and salary.^14 Th e calculation of imputed contribu-

tions and net present value of future benefi ts requires

advanced actuarial techniques, beyond the responsi-

bility of GFS compilers. Th e present value of future

benefi t entitlements increases each period because

there is one fewer period over which it is discounted.

Th is increase should be a transaction in property ex-

pense for investment income disbursements (2813) (see

paragraph 6.113). Furthermore, a holding gain should

be recorded with respect to the liability in order to re-

fl ect any change in the value of the liability because

of a change in the interest rate used to discount the

future benefi ts. A change in the liability resulting

from a change in the benefi t structure should always

be treated as an other volume change, because it does

not constitute a transaction but represents a unilateral

change brought about by the employer.

Defi ned-contribution pension schemes

A2.55 A defi ned-contribution pension scheme

is one where the benefi ts payable to an employee on

retirement are defi ned exclusively in terms of the level

of the funds built up from the contributions made

over the employee’s working life and the increases in

value that result from the investment of these funds by

the manager of the scheme. Th e risk of the scheme to

provide an adequate retirement income is thus borne

by the employee, and the benefi ts that will be payable

depend on the assets of the fund.^15 For a defi ned-

contribution pension scheme, a pension fund is al-

ways deemed to exist.

A2.56 Contributions to a defi ned-contribution

pension scheme are invested on behalf of the employ-

ees as future benefi ciaries. Th e investment income on

the cumulated assets of the pension fund is recorded

as revenue for the fund, classifi ed according to the na-

ture of the respective property income revenue (usu-

ally including interest (1411), dividends (1412), or

(^14) Th ere are four sources of changes in pension entitlements in a
defi ned-benefi t pension scheme: (i) the current service increase—
it is the increase in entitlement associated with the wages
and salaries earned in the current period; (ii) the past service
increase—it is the increase in the value of the entitlement due to
the fact that for all participants in the scheme, retirement (and
death) is one year nearer; (iii) a decrease due to the payment of
benefi ts to retirees of the scheme; and (iv) other factors—that is,
factors that are related to other changes in the volume of assets.
(^15) Defi ned-contribution schemes are also referred to as money-
purchase schemes.