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Workshop on Pensions
April 22-24,2013
in Canberra
Sayako Konno
Financial Statistics Group
Economic Statistics Division
Research and Statistics Department
Bank of Japan
“Measurement for the Retirement Benefit Obligations in Japan’s Flow of Funds Accounts
(Practice of recording unfunded private pension liabilities)”
1. Overview of Japan’s Pension Plan
2. Coverage by JFFA (Japan’s Flow of Funds Accounts)
3. Revision in JFFA
3.1 Overview of Revision in JFFA
3.2 What is Retirement Benefit Obligations (RBO)?
3.3 Treatment of RBO in 08SNA
3.4 Unrecorded Portion of RBO in JFFA
3.5 Volume of Unrecorded Portion
3.6 Recording Method in JFFA
4. Remaining Tasks
Outline of Presentation
Types of pension plans and outstanding of pension reservesTypes of pension plans and outstanding of pension reserves
1.Overview of Japan’s Pension Plan
Three tiers of pension plan:
1) Corporate Pensions (Employee’s Pension Fund, Qualified Retirement Pension Plans etc) ,other pensions (National Pension Funds etc), and personal pensions.
2) Earning-related pension (Employees’ Pension insurance, Mutual Aid Pension).
3) National Pension (Basic Pension).
Most of pension plans in Japan are defined benefit schemes.
Other pensions (17 trillion yen)
(contract- out portion)
2) Employees' pension insurance
1) Personal pension products of life insurance companies (79 trillion yen)
2) Mutual Aidpension
1) Nationalpensionfunds
(Value: end of December 2012)
3) National Pension<Pension for all Japanese>
:Defined benefit scheme
1) Otherpensions foremployees
1) DC pensionplans (Individual
type)
<Corporate pensions (104 trillion yen)>
:Defined contribution scheme
Public pensions (assets outstanding: 176 trillion yen)
1) DC pensionplans
(corporate type)
1) Corporate pensions (exceptDC pension plans <corporate
type>)
2. Coverage by JFFA (Japan’s Flow of Funds Accounts)
JFFA covers:
corporate pensions (Employee’s Pension Fund, Defined Benefit Corporate Pensions Funds etc),
other pensions (National Pension Funds etc), and personal pensions (Tire 1).
JFFA does not cover: National pension funds, Employees’ Pension Insurance, and Mutual Aid Pension (Tire 2 and 3) as public pensions are considered as transfer benefits from social security funds (government) in which contribution does not link directly to benefits.
Coverage of Retirement Benefit Obligations by the JFFA
Corporate PensionsOther PensionsPersonal Pensions1) Employee's Pension Fund2) Qualified Retirement Pension Plans3) Defined Contribution Pension Plans (corporate-type)4) Defined Benefit Corporate Pensions Funds1) The National Pension Fund
Personal Pensions
Not recorded in JFFA
note1: Outstanding amounts of pension reserves (end of December 2012)
2) The Organization for Workers RetirementAllowance Mutual Aid
3) The small-scale enterprise mutual aid account ofthe Organization for Small & Medium Enterprisesand Regional Innovation, Japan.
4) The Coal Mining Pension Fund.
5) Farmers' Pension Fund (Account for Payment ofPension).6) The defined-contribution Pension (personal type).
17
Pension Type
1) National Pension Funds2) Employees' Pension Insurance3) Mutual Aid Pension
Sector in JFFA
Households
Corporate Pensions
Other Pensions
Insurance
note1
Social SecurityFund
79
Asset
Liability
Liability
Liability
104
201
Asset/Liability
(Trillion Yen)
Tier1
Tier2+ 3
(Before Revision) A part of actuarially calculated retirement benefit obligations, which was
not covered by corresponding financial assets, was not recorded because of the lack of data source.
(After Revision) JFFA has revised to record the full coverage of retirement benefit
obligations. Background: (1) The data became available after the implementation of Retirement Benefits
Accounting Rule from April 2000.• The rule required to disclose in financial statements the underfunded situation of corporate
retirement benefit plans including pension plans.
(2) Treatment in SNA•93SNA: The liability of DB pension plan is equal to the present value of the promised benefits.•08SNA: Employment-related pension entitlements should be recognized as liabilities towards
households, irrespectively of whether the necessary assets exist or not.
3.1 Overview of Revision in JFFA
3.2 What is Retirement Benefit Obligations (RBO)?
Image of Retirement Benefit Obligations (RBO) “Retirement benefit
obligations” is defined as expected total benefits at retirement earned to date and discounted to the present value.
“Retirement Benefit Obligations” is calculated by three steps;
A) Expected Benefit Payments in full values.
B) Expected Benefit Payments which have accrued at the end of current term.
C) Discounted at present value (Retirement benefit obligations).
(C)RetirementBenefit
Obligations
(A)ExpectedBenefit
Payments(38 years)
(B) Full Valueof Expected
BenefitPayments(28 years)
Expected BenefitPayments
accrued in thefuture
Discounted at Present Value
Retirement(at age of 60)
fiscal year-end of statement of financial
position
the End of Current Term(at age of 50)
Entering Company(at age of 22)
28 years
38 years
3.3 Treatment of RBO in 08SNA
(1) Retirement benefit obligations should be recognized as liability of “corporate pensions” sector, and asset of “households” sector.
(2) Introduction of Actuarial calculation The level of the employer’s contribution should be determined actuarially.
(3) Clarify relationship between pension fund and employer Any excess of the liabilities over the available assets should represent a claim
of the pension fund on the employer.
(4) Presentation of supplementary table The table shows the liabilities and associated flows of all private and
government pension schemes, whether funded or unfunded and including social security.
3.4 Unrecorded Portion of RBO in JFFA
Retirement Benefit Obligations Unrecorded Portion of RBO : Retirement Benefit Obligations +
Prepaid Pension Costs – Pension Assets
= Unrecognized Liabilities +
Accrued Pension Costs
“Unrecognized liabilities”
includes “Transition Obligations”, “Actuarial Gains/Losses”, and “Past Service Liability (PSL)” which are not recognized in the B/S.
“Accrued Pension Costs”
should be recorded on the B/S as liability for retirement benefits. If it becomes asset, it will be “Prepaid Pension Costs.”
Pension Assets
UnrecognizedLiabilities
AccruedPension Costs
RetirementBenefit
Obligations
PrepaidPension Costs
UnrecordedPortion of
RBO in JFFA
Non-financial CorporationsNon-financial Corporations BanksBanks
3.5 Volume of Unrecorded Portion
Unrecorded Portion of RBO : 25 trillion yen
Unrecognized liabilities : 10 trillion yen
Accrued pension costs : 15 trillion yen
Unrecorded Portion of RBO : 1.8 trillion yen
Unrecognized liabilities : 0.6 trillion yen
Accrued pension costs : 1.2 trillion yen
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(Trillion Yen)
(FY)
Banks
Unrecognized Liabilities
Accrued Pension Cost
Figures are the sum of individual companies. (Source) Consolidated financial statements of listed companies.
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(Trillion Yen)
(FY)
Listed Companies (except banks) on a stock exchange
Unrecognized Liabilities
Accrued Pension Cost
3.6 Recording Method in JFFA
JFFA records a part of actuarially calculated retirement benefit obligations which corresponds to unrecognized liabilities and accrued pension costs as below.
The unrecorded portion has been retroactively revised in three sectors from 2002 2Q.
Pension reserves Pension reserves
27 trillion yen 27 trillion yen
Accountsreceivable/payable
Accountsreceivable/payable
27 trillion yen 27 trillion yen
(Volume: end of December 2012)
Private nonfinancial corporations Corporate pensions Households
Asset Liability Asset Liability Asset Liability
The remaining tasks on unrecorded portion of RBO are;
1. Refine stock data:include companies other than banks and private nonfinancial corporations. include unlisted companies.
2. Estimate transaction data:make a distinction between transaction and reconciliation. Currently, the stock difference of unrecorded portion of RBO from the previous term is recorded in the reconciliation table only.
- Thank you for your attention -
4. Remaining Tasks