Expert Group on National Accounts

Expert Group on National Accounts

Modelling and estimating social security pension entitlements in Spain

by Alfredo [email protected]

Director of National Accounts and Employment (INE)UNECE. Geneva, 27th April 2010

Measuring and recording of pensions

Agenda item 5

Expert Group on National Accounts. UNECE. Geneva, April 2010 2

Contents

Introduction

Pension Schemes sponsored by General Government in Spain

Model for estimating household future pension entitlements



Contents

Introduction





Increase of the population longevity (+ or – 6 years till 2048) Moderate birth rates Gradual ageing in the demographic structure


Life expectancy at birth in Spain

76

78

80

82

84

86

88

90

2009 2014 2019 2024 2029 2034 2039 2044

Source: INE Spain. Long-term projections of the population: 2009-2048

76

78

80

82

84

86

88

90

women

men


Same case for people over 65


Life expectancy at 65 years old in Spain

82

83

84

85

86

87

88

89

90

91

92

2009 2014 2019 2024 2029 2034 2039 2044


82

83

84

85

86

87

88

89

90

91

92

women

men


Population aged over 65: Is set to double in 40 years32% of the total population


Population projected over 65 years old in Spain

0

1

2

3

4

5

6

7

8

9

10

2009 2048


mill

ion

of

pe

rso

ns men

women



Population projected in Spain by age in 2009

100+

95-99

90-94

85-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

menwomen

Population projected in Spain by age in 2048

100+

95-99

90-94

85-89

80-84

75-79

70-74

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

15-19

10-14

5-9

0-4

women men


Accrued-to-date pension entitlements

To estimate the impact of these entitlements in Pay-As-You-Go (unfunded) schemes

In principle, should not be included in core accounts (implicit, no real liability) supplementary table

Narrow measure. By themselves, they are not an indicator of sustainability of public finance To add flows To estimate the expected expenditure of government (AWG)

Substantial amount (two-times GDP or more) Capacity of government to meet this cost. Government

decides … Retirement age Period to be considered for pension calculations Others …



Estimates

CMFB Task Force (Spain attended: NSI and Central Bank) Supplementary table Working group at domestic level chaired by NSI National model Data for 2005 to 2008 (flows and stocks)



Contents

Introduction





Spain: two pension schemes sponsored by GG

Government Employer social security scheme for officials belonging to the so called Administracion General del Estado (Clases Pasivas)

Social security scheme for the rest of workers



Clases Pasivas

Officials from … Central Government Army, Justice, Law Courts Public universities related to the State

Those officials initially belonging to Central Government and currently working in the State Government (Regional) after transferring powers

Ex-presidents, vice-presidents and ministers



Similarities

People obliged by law to participate. No personal election Risk exposure (borne by GG in both cases) Legal framework Funding (both unfunded) Ability of GG to change the conditions or the benefit formula No duplicity: if pension entitlements for both schemes have

been accumulated, choose one of them



People covered in 2005 …

Active population (thousands) Clases Pasivas: 938 (4,6%) Social Security: 19.325

Pensioners (thousands) Clases Pasivas: 515 (6,5%) Social Security: 7.395



Contents

Introduction





Domestic Working Group

Ministry of Labour and Social Affairs Social Security Treasury Ministry of Finance Audit Office of the General Government Central Bank National Statistical Institute (chair)



2 similar models

Social Security

Government employer pension scheme



Social Security: Model

Just contributory pensions Retirement pensions Retirement by disability Disability allowance Widowhood Orphanage

Social contributions are not fully related with pensions Individuals

Active population (currently paying social contributions not having generated a pension yet)

Current pensioners Total of pension entitlements =

+ Pensions of existing pensioners (case 1) + Future pensions of current active population (case 2)



Case 1: Already existing pensions

Number of pensions * average amount of contributory pension Type of pension, sex, age of birth

Actuarial techniques Assumptions on

Revaluations Life expectancy Discount rate

Present value of the pension entitlements



Case 2: Future pensions of active population

Sample of working lives (+/- 800.000 individuals)

Stochastic model + assumptions

Pension generated by each individual in the sample (type, date, amount)

Grossing up factors (+ or – by 25)

Pensions generated by whole active population



Sample of working lives

Target population: almost 30 million Sample size: 1,2 million (+- 4%)

Of these, 835 th active population

Distribution (random draw) 607 th will receive a retirement pension with different ages from 50 to

99 154 th will receive a disability pension with different ages from 18 to 66 63 th will receive a widowhood pension by decease of the partner

included both in the sample with different ages from 15 to 73 11 th will not receive any benefit by decease without partner



Sample of working lives. For each individual Number of days paying social contributions to Social Security Average contributions base (salaries)

Simulation process (stochastic model and assumptions) Future salaries (PBO) Frequency of death, invalidity and retirement estimated by age and sex

Unit Credit Method: Time individual paying contributions / total expected working life Future pension



Assumptions related to the benefits

No retirement under the age of 50 Retirement by disability: All people at 65 Disability: No cases under 16 Widowhood: No cases under 16 Orphanage: All cases from 0 to 21



Assumptions related to the valuation

Demographic tables (men, women) till 100 years (NSI) Social security records invalidity pensioners Salary increase: +1,8% real terms PBO Discount rate: 3% real terms (same used in AWG works) Inflation rate: 2% Age difference between married couples: 3 years Marriage rate of pensioners: 92% Instalments: 12 payments Reversion in case of widowhood: 60% pension Orphan income until age of 22



Outcome (2005)

Total entitlements: 2,19 trillion euro

GDP: 0,91 trillion euro

Ratio: 2,41 times

Similar rations in 2006 to 2008

90% Social Security and 10% government employer pension scheme


Expert Group on National Accounts


by Alfredo [email protected]

Director of National Accounts and Employment (INE)UNECE. Geneva, 27th April 2010

Measuring and recording of pensions

Documents

Expert Group on National Accounts