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Accounting of pay-as-you-go pension schemes using accrued-to-date liabilities: An example for Switzerland

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  • Metzger, Christoph

Abstract

Due to demographic change, the fiscal sustainability of pension schemes financed on a pay-as-you-go (PAYGO) basis is of more interest for policy makers than ever. Unsustainable financing brings along a future burden to pensioners through pension cuts and/or to the working population through increasing contribution rates. With comparable data about the unfunded accrued-to-date pension liabilities of social security pension schemes soon being available due to a recent update of the international System of National Accounts (2008 SNA), we present a simple framework for accounting of paygo pension schemes using these estimates of accrued-to-date liabilities. Additionally we incorporate another definition of liabilities, the current workers' and pensioners' net liabilities (CWL). Applying this accounting framework using both definitions of liabilities to the Swiss pension scheme (AHV), we show that financing of the AHV is unsustainable. In order to restore fiscal sustainability either an increase in the contribution rate to 12 percent or a cut in average pension levels of about 38 percent would be necessary.

Suggested Citation

  • Metzger, Christoph, 2016. "Accounting of pay-as-you-go pension schemes using accrued-to-date liabilities: An example for Switzerland," FZG Discussion Papers 59, University of Freiburg, Research Center for Generational Contracts (FZG).
    • Handle: RePEc:zbw:fzgdps:59
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    References listed on IDEAS

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    1. María del Carmen Boado-Penas & Salvador Valdés-Prieto & Carlos Vidal-Meliá, 2008. "The Actuarial Balance Sheet for Pay-As-You-Go Finance: Solvency Indicators for Spain and Sweden," Fiscal Studies, Institute for Fiscal Studies, vol. 29(1), pages 89-134, March.
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    4. Settergren, Ole & Mikula, Boguslaw D., 2005. "The Rate of Return of Pay-As-You-Go Pension Systems: A More Exact Consumption-Loan Model of Interest," Discussion Paper 249, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    5. Carlos Vidal-Meliá & Mar𨁤el Carmen Boado-Penas, 2013. "Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1303-1320, April.
    6. Holzmann, Robert & Palacios, Robert & Zviniene, Asta, 2004. "Implicit pension debt: issues, measurement and scope in international perspective," Social Protection Discussion Papers and Notes 30153, The World Bank.
    7. Carlos Vidal-Melia & Maria Carmen Boado-Penas, 2011. "Compiling the Actuarial Balance for Pay-As-You-Go Pension Systems. Is it better to use the Hidden Asset or the Contribution Asset?," Post-Print hal-00762894, HAL.
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    Cited by:

    1. Metzger, Christoph, 2016. "The German statutory pension scheme: Balance sheet, cross-sectional internal rates of return and implicit tax rates," FZG Discussion Papers 63, University of Freiburg, Research Center for Generational Contracts (FZG).

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    More about this item

    Keywords

    accounting of pension schemes; accrued-to-date liabilities; supplementary table; fiscal sustainability;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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