Institutional Units and Sectors 37
2.146 A variety of practices exist among sinking
funds as to both their operation and the degree of con-
trol exercised by the “parent” unit (such as government):
- Some sinking funds retire or purchase only the
parent unit’s securities for which they are estab-
lished. Such sinking funds are normally not sepa-
rate institutional units and are classifi ed with the
unit that controls them. - Some sinking funds may have been assigned
other responsibilities, such as the conduct of
government lending programs or even the col-
lection of earmarked taxes. Such sinking funds
are normally not separate institutional units and
are classifi ed with the unit that controls them. - Other sinking funds may purchase and sell secu-
rities of other governments or institutions—do-
mestic or external debtors and creditors—usually
seeking securities that have similar maturity
dates. Such sinking funds may well be institu-
tional units providing services on a market basis
and are classifi ed as public fi nancial corporations.
Pension Schemes
2.147 Th e means by which pensions are provided to
persons in retirement varies from country to country.
Various types of pensions are provided by public sector
units to individuals via social assistance, social security
schemes, and employment-related schemes other than
social security. Due to the complexities involved in the
classifi cation and sectorization of these arrangements,
a detailed discussion is provided in Appendix 2.
Provident Funds
2.148 Provident funds are compulsory saving
schemes that maintain the integrity of the contribu-
tions for individual participants. Some governments
create provident funds rather than providing so-
cial insurance benefi ts. Under provident fund ar-
rangements, the compulsory contributions of each
participant and of their employer on behalf of each
participant are kept in a separate account and could
be withdrawn under specifi ed circumstances, such
as retirement, unemployment, invalidity, and death.
Th ese contributions are then managed and invested
to obtain a return for each participant.
2.149 Th e establishment of a provident fund raises
the issue of whether this fund is classifi ed as a social
security scheme elsewhere in the general government,
as a public corporation, or outside the public sector.
Provident fund arrangements as defi ned in the pre-
ceding paragraph are diff erent from social security
schemes insofar as for each contributor segregated as-
sets exist and it is not foreseen for government to be
able to alter the benefi ts. Th ese provident funds thus
are excluded from social security schemes.
2.150 Th e classifi cation of a provident fund con-
trolled by government in the general government sec-
tor or fi nancial corporations subsector is determined
by the same sectorization principles that apply to any
other entity, as described earlier in this chapter:- A resident provident fund controlled by gov-
ernment that satisfi es the defi nition of an in-
stitutional unit is classifi ed as a public fi nancial
corporation. Individual contributions determine
individual benefi ts, and the entity is involved in
fi nancial intermediation by pooling the contri-
butions from many households and investing
them on their behalf similar to the case of invest-
ment funds and defi ned-contribution pension
funds (see paragraphs 2.53–2.54). Th erefore,
these units are classifi ed in the public fi nancial
corporations subsector as market producers. - A resident provident fund controlled by govern-
ment that does not satisfy the criteria to be an in-
stitutional unit is classifi ed with the government
unit that controls it.
2.151 It is possible that a provident fund may be
established in such a way that it includes aspects of
a social security scheme (social insurance) as well as
aspects of a compulsory saving scheme. In such cases,
the fund would be classifi ed according to the scheme
that predominates while still applying the sectoriza-
tion principles outlined in this chapter.Sovereign Wealth Funds
2.152 Some governments create special purpose
government funds, usually called sovereign wealth
funds (SWFs).^42 Created and owned by the general
government for macroeconomic purposes, SWFs
hold, manage, or administer assets to achieve fi nan-
cial objectives, and employ a set of investment strate-
gies that include investing in foreign fi nancial assets.
Th e funds are commonly established out of balance of(^42) While these funds may have various names, this section refers
to them as “sovereign wealth funds” for ease of reference.