Treatment of social insurance schemes in the 2008

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Treatment of social insurance schemes in the 2008 SNA Regional Seminar on Developing a

Treatment of social insurance schemes in the 2008 SNA Regional Seminar on Developing a Programme for the Implementation of the 2008 SNA and Supporting Statistics in the ECO Member Countries Ankara, Turkey 11 -13 September 2013 United Nations Statistics Division

Outline of Presentation § Overview of social insurance schemes § Social security § Employment-related

Outline of Presentation § Overview of social insurance schemes § Social security § Employment-related social insurance schemes other than social security 2

Overview of social insurance schemes § Insurance scheme where the following two conditions are

Overview of social insurance schemes § Insurance scheme where the following two conditions are satisfied: • Benefits received are conditional on participation in the scheme and constitute social benefits; and • At least one of the three conditions following is met: ▫ Participation in the scheme is obligatory either by law or under terms and conditions of employment ▫ Scheme is collective one operated for the benefit of a designated group of workers, whether employed or nonemployed, participation being restricted to members of that group; ▫ Employer makes a contribution (actual or imputed) to the scheme on behalf of an employee, whether or not the employee also makes a contribution § Always involves at least one unit (employer, general government, financial corporation, or NPISH) other than the beneficiary 3

Overview of social insurance schemes § Two main classes • Social security schemes •

Overview of social insurance schemes § Two main classes • Social security schemes • Employment-related social insurance schemes other than social security § Can be broken down into various attributes including: • Institutional sector allocation • Type of benefit (pension and non-pension) ▫ Non-pension schemes are not common • Autonomy (autonomous vs. non-autonomous) ▫ Autonomous social insurance schemes are those schemes with funds which operate as separate and independent institutional units from the units (such as corporations) which create them • Funding (funded vs. unfunded) ▫ A funded scheme is one where identifiable reserves have been accumulated to meet the obligation to pay future benefits accrued to the present § Beneficiaries can be resident or non-resident households 4

Overview of social insurance schemes Terms § Social contributions • Actual or imputed payments

Overview of social insurance schemes Terms § Social contributions • Actual or imputed payments to social insurance schemes to make provision for social insurance benefits to be paid ▫ Employers, employees, self employed and unemployed § Social insurance benefits • Social benefit payable because the beneficiary participates in a social insurance scheme and the social risk insured against has occurred • Contribution supplements • Investment income payable on pension entitlements which is retained by pension funds • Equivalent of premium supplements 5

Social security § Social insurance scheme covering the entire community, or large sections of

Social security § Social insurance scheme covering the entire community, or large sections of the community, that are imposed, controlled and financed by government units § Individual must participate in the scheme to receive social security benefits § Two types • Pension • Non-pension 6

Social security Output § Separate unit • Sum of costs of non-market output §

Social security Output § Separate unit • Sum of costs of non-market output § No separate unit • Output is included with the output of the level of government at which it operates 7

Social security Recording of transactions (similar for pension and non-pension) § Value of output

Social security Recording of transactions (similar for pension and non-pension) § Value of output • Production account of social security fund (general government) § Employers’ and employees’ actual social contributions • Generation of income account ▫ “Uses” of employers • Allocation of primary income account ▫ “Resources” of households • Secondary distribution of income account ▫ “Uses” of households ▫ “Resources” of social security fund § Social security benefits • Secondary distribution of income account 8

Social security Recording of transactions (similar for pension and nonpension) § Government (individual) final

Social security Recording of transactions (similar for pension and nonpension) § Government (individual) final consumption expenditure • Use of disposable income account § Social transfers in kind • Redistribution of income in kind account § Service charge (output of social security fund) • Adjusted disposable income account (actual final consumption) • Rest of the world account (Exports of goods and services) 9

Employment-related social insurance schemes other than social security § Two types • Pension ▫

Employment-related social insurance schemes other than social security § Two types • Pension ▫ Defined contribution ▫ Defined benefit • Non-pension ▫ Unfunded ▫ Funded 10

Employment-related social insurance schemes other than social security – pension § Defined contribution •

Employment-related social insurance schemes other than social security – pension § Defined contribution • Fund must exist • Benefits payable on retirement are defined exclusively in terms of the level of the fund built up from the contributions made over working life and increases in value that result from the investment of these funds • Entire risk to provide adequate income in retirement is borne by participant 11

Employment-related social insurance schemes other than social security – pension § Defined benefit •

Employment-related social insurance schemes other than social security – pension § Defined benefit • Fund may exist. If not, a notional fund is assumed to exist • Benefits payable on retirement are determined actuarially by the use of a formula, either alone or as a minimum amount payable • Risk to provide an adequate income in retirement is borne either by the employer or is shared between the employer and employee 12

Employment-related social insurance schemes other than social security – pension Output § Operated by

Employment-related social insurance schemes other than social security – pension Output § Operated by employer • Sum of costs of market output § Employer uses pension administrator to administer scheme • Output is explicit fee paid to pension administrator § Insurance corporation runs scheme for several employers (multiemployer scheme) • Output is calculated as: ▫ Social contributions ▫ plus contribution supplements ▫ minus benefits payable ▫ minus increases (plus decreases) in pension entitlements 13

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined contribution) § Value of output • Production account § Employers’ and employees’ actual pension contributions • Generation of income account ▫ “Uses” of employers • Allocation of primary income account ▫ “Resources” of households • Secondary distribution of income account ▫ “Uses” of households ▫ “Resources” of pension fund § Investment income payable on pension entitlements • Allocation of primary income account • Contribution supplements in secondary distribution of income account 14

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined contribution) § Social insurance pension benefits • Secondary distribution of income account • Financial account § Changes in pension entitlements • Use of disposable income account • Financial account § Service charge (output) • Use of disposable income account (final consumption) • Rest of the world account (Exports of goods and services) • Secondary distribution of income account 15

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined benefit) § Similar to defined contribution, but increase in pension entitlements is actuarially determined considering • Current service increase (increase in entitlement associated with the wages and salaries earned in the current period) • Past service increase (increase in the value of the entitlement since retirement is one year nearer) • Decrease in the level of entitlement due to the payment of benefits to retirees of the scheme • Other factors (reflected in other changes in assets account) 16

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined benefit) § Sum of employers’ and employees’ actual pension contributions may be insufficient to meet current service increase and service charge of pension fund • Imputed employers’ pension contribution is needed to ensure equality ▫ Generation of income account ▫ Allocation of primary income account ▫ Secondary distribution of income account 17

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined

Employment-related social insurance schemes other than social security – pension Recording of transactions (defined benefit) § Past service increase reflects investment income payable on pension entitlements which may not be matched by actual property income earned from investing pension funds • Imputed interest on the pension fund’s claim on the pension manager ▫ Allocation of primary income account § Claim of pension fund on pension manager • Represents imputed employers’ social contribution and imputed interest on pension fund’s claim on the pension manager ▫ Financial account 18

Employment-related social insurance schemes other than social security – non-pension Unfunded § Typically operated

Employment-related social insurance schemes other than social security – non-pension Unfunded § Typically operated and managed by employers § Employers make imputed non-pension contribution on behalf of employees § No investment income and thus, no contribution supplements § Output is calculated as sum of costs of market output 19

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (unfunded

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (unfunded non-pension) § Value of output • Production account § Employers’ imputed non-pension contributions • Generation of income account ▫ “Uses” of employers • Allocation of primary income account ▫ “Resources” of households • Secondary distribution of income account ▫ “Uses” of households ▫ “Resources” of pension fund 20

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (unfunded

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (unfunded non-pension) § Social insurance non-pension benefits • Secondary distribution of income account § Service charge (output) • Use of disposable income account (final consumption) • Rest of the world account (Exports of goods and services) • Secondary distribution of income account 21

Employment-related social insurance schemes other than social security – non-pension Funded § May be

Employment-related social insurance schemes other than social security – non-pension Funded § May be carried out by insurance corporations or employees on behalf of present and past employees (for example, health cover) § Liabilities are recorded only when and to the extent that they exist in the employer’s accounts § Output is calculated in the same way as output of non-life insurance 22

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (funded

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (funded non-pension) § Value of output • Production account § Employers’ and employees’ non-pension contributions • Generation of income account ▫ “Uses” of employers • Allocation of primary income account ▫ “Resources” of households • Secondary distribution of income account ▫ “Uses” of households ▫ “Resources” of non-pension fund § Investment income payable on non-pension entitlements • Allocation of primary income account • Contribution supplements in secondary distribution of income account 23

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (funded

Employment-related social insurance schemes other than social security – non-pension Recording of transactions (funded non-pension) § Social insurance non-pension benefits • Secondary distribution of income account • Financial account § Changes in non-pension entitlements • Secondary distribution of income account • Financial account § Service charge (output) • Use of disposable income account (final consumption) • Rest of the world account (Exports of goods and services) • Secondary distribution of income account 24

Key references § 2008 SNA, Chapter 17, Part 2 (Social insurance schemes), § Handbook

Key references § 2008 SNA, Chapter 17, Part 2 (Social insurance schemes), § Handbook on Financial Production, Flows and Stocks in the System of National Accounts • Joint UNSD/ECB publication • UNSD responsible for Chapters 1 -3; ECB responsible for Chapters 410 • Chapter 3 discusses calculation and allocation of output of various types of financial services including explicit fees, FISIM, money lending, central bank output, dealers’ margins, insurance and social insurance • Volume measures • Draft on http: //unstats. un. org/unsd/nationalaccount/consultation. Docs/draft. Fin. HB-June -2013. pdf circulated for global review in Jun-Jul 2013 25

Thank You 26

Thank You 26