Implementation of the new pension satellite account in Spain by Alfredo Cristobal alfredo.cristobal@ine.es Director of N

1. Workshop on the implementation of the 2008 SNA Implementation of the new pension satellite account in Spain by Alfredo Cristobal alfredo.cristobal@ine.es Director of National Accounts and Employment OECD. Paris, 24-27 October 2011

2. Contents • Motivation • Pension Schemes sponsored by General Government in Spain • Model for estimating household future pension entitlements Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

3. Contents • Motivation • Pension Schemes sponsored by General Government in Spain • Model for estimating household future pension entitlements Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

4. Increase of the population longevity (+ or – 6 years till 2048) • Moderate birth rates • Gradual ageing in the demographic structure Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

5. Same case for people over 65 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

6. Population aged over 65: Is set to double in 40 years 32% of the total population Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

7. Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

8. Accrued-to-date liabilities • To estimate the impact of these liabilities in Pay-As-You-Go (unfunded) schemes • In principle, should not be included in core accounts (implicit, no real liability)  supplementary table Table 29 of the ESA2010 Transmission Program • Narrow measure. By themselves, they are not an indicator of sustainability of public finance • To add flows • Assets? • To estimate the expected expenditure of government (AWG) Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

9. Accrued-to-date liabilities • Substantial amount (two-times GDP or even more) • Capacity of government to meet this cost. Government decides … • Retirement age • Period to be considered for pension calculations • Formula to calculate pensions • Others … Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

10. Milestones • CMFB Task Force (Spain attended: NSI and Central Bank) • Working group at domestic level chaired by NSI • National model • Supplementary table • Data for 2005 (flows and stocks) • Check with data provided by Freiburg University • Contact group • New estimates for 2006 to 2009 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

11. Contents • Motivation • Pension Schemes sponsored by General Government in Spain • Model for estimating household future pension entitlements Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

12. Spain: two pension schemes managed by General Government • 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 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

13. 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 • +- 0,9 million active individuals and +- 0,5 million pensioners (2009) Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

14. Social Security scheme • Rest of workers • Pay-As-You-Go system • +- 20,6 million active (employed or unemployed) individuals and +- 8,6 million pensioners (2009) Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

15. Similarities • People obliged by law to participate. No personal election • Risk exposure • Legal framework • Funding (both unfunded) • Ability of Government to change the conditions or the benefit formula • No duplicity: if pension entitlements for both schemes have been accumulated, only one must be chosen Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

16. Contents • Motivation • Pension Schemes sponsored by General Government in Spain • Model for estimating household future pension entitlements Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

17. 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 (leader) Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

18. 2 similar models • Social Security • Government employer pension scheme Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

19. Model for Social Security • 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) Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

20. 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 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

21. Case 2: Future pensions of active population • Continuous sample of working lives (+/- 800.000 individuals) Stochastic model + assumptions • Pension generated by each individual in the sample (type, date, amount) Grossing up • Pensions generated by whole active population • Discount rate: present value of pension entitlements Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

22. Continuous sample of working lives • Sample: representative of all individuals with relations with Social Security in one year • Continuous: is yearly updated • Working lives: with historic data kept in Social Security records Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

23. Continuous sample of working lives • Target population (universe): more than 29 million individuals • Sample size: almost 1,2 million (4%, grossing up factor: 25) • Of these, 835 th active individuals (last year) • 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 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

24. 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 • Frequency of death, invalidity and retirement estimated by age and sex • Unit Credit Method: • Time individual paying contributions / total expected working life • Future pension Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

25. 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 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

26. Assumptions related to the valuation • Demographic tables (men, women) till 100 years (NSI) • Social security records  invalidity pensioners • Salary increase: +1,8% real terms • Pseudo 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 Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

27. Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

28. Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

29. Thank you for your attention ! Workshop on the implementation of the 2008 SNA. OECD. Paris, October 2011

30. Workshop on the implementation of the 2008 SNA Implementation of the new pension satellite account in Spain by Alfredo Cristobal alfredo.cristobal@ine.es Director of National Accounts and Employment (INE) OECD. Paris, 24-27 October 2011