By Sung- Ja Kim National Accounts Division Economic Statistics Department The Bank of Korea

1. Statistical measurement of the liabilities of pension schemes FOR THE general government of Korea Joint OECD/ABS Workshop on Pensions 22-24 April 2013, Canberra By Sung-Ja Kim National Accounts Division Economic Statistics Department The Bank of Korea

2. Contents 1. Pension schemes in Korea 2. Introduction of new statistical standards 3. Up to date outcome of continuing conferences and T/F meetings 4. Ongoing recording of the supplementary table on pension schemes 5. Possible problems and limitations

3. 1. Pension schemes in Korea Public Private

4. 2. Introduction of new statistical standards • “Supplementary table on pension schemes in social insurance” account needs to be recorded.- Transition from 93’SNA to 08’SNA- Publication of 12’ Supplementary table on pension schemes scheduled in 2014 • Korean gov’t adopted accrual basis accounting in its accounting system.- Implementation of 01’GFS • Several conferences and T/F meetings ongoing- regarding new statistical measurement and recording method, coverage and classification of each pension scheme

5. 3. Up to date outcome of continuing conferences and T/F meetings • Classification of public pension schemes almost finished through “Fiscal Management Conference” and working group T/F meetings- Classification of private retirement pension schemes is being discussed by “Flow-of-Funds Account Team” of Bank of Korea and related gov’t officials.- Fiscal Management Conference is a ministerial meeting for discussing issues about gov’t financial stats and fiscal reforms where related gov’t officials and BOK members participate. • All pension schemes in public sector have been classified into the “not in the core account”

6. 3. Up to date outcome of continuing conferences and T/F meetings • National Pension scheme in “H” account. • Gov’t Employees Pension scheme and Military Personnel Pension scheme in “G” account. • Conference participants considered several characteristics and referred to the 5 criteria suggested from the CMFB final report. • The most important criteria applied are as follows..- The degree of integration within the gov’t structure- The risk exposure and ability to change the benefit formula- The funding of a scheme

7. 4. Ongoing recording of the supplementary table on pension schemes • Currently available data are pension liabilities of Gov’t Employees Pension and Military Personnel Pension • Stock data of private sector pension schemes belong to either DB or DC.- DC : market value is applied- DB : identical method with Gov’t Employees Pension is applied - Flow data have no clear distinction between the two. • As a representative case, methodology on Gov’t Employees Pension is presented from the next slide.

8. 4. Ongoing recording of the supplementary table on pension schemes Gov’t Employees Pension (GEP) assessment and recording in 2011 • Evaluation system and concept- PUCM (Projected Unit Cost Method)- PBO (Projected Benefit Obligation)- Only until 2012 fiscal year can pension liabilities be recognized by applying hypothesis other than PBO. - Liabilities of GEP 2011 calculated by ABO concept

9. 4. Ongoing recording of the supplementary table on pension schemes Gov’t Employees Pension (GEP) assessment and recording in 2011 • Detailed procedure of GEP liabilities calculation Liabilities of current workers 1. Estimated pension payment of each cohort is calculated by considering expected retirement time/point of each cohort and current remuneration. 2. Each cohort’s pension liabilities is calculated by applying proportion of one’s tenure to estimated pension payments. 3. Pension liabilities of officials in service as of 31st Dec 2011 are the summation of each cohort’s pension liabilities.

10. 4. Ongoing recording of the supplementary table on pension schemes Gov’t Employees Pension (GEP) assessment and recording in 2011 • Detailed procedure of GEP liabilities calculation Liabilities of pensioners 1. Pension liabilities are calculated by estimating each cohort’s pension amount payable according to the benefit formula. 2. Pension liabilities of pensioners as of 31st Dec 2011 are the summation of each cohort’s pension liabilities.

11. 4. Ongoing recording of the supplementary table on pension schemes Gov’t Employees Pension (GEP) assessment and recording in 2011 • Detailed procedure of pension cost calculation • Pension cost is calculated by adding exact amount of current term pension benefit payment obligation (or current term pension benefit) to the figure made by subtracting pension liabilities as of 31st Dec 2010 from pension liabilities as of 31st Dec 2011. • Interest cost is calculated by applying expected 2011 discount rate which is used on 31st Dec 2010 to the present pension liabilities. • In case of past service cost, there could be variations in pension liabilities amount due to the change in wage payable for past service. • There could be some actuarial profits or losses when fluctuation of present value of pension liabilities occurs.

12. 4. Ongoing recording of the supplementary table on pension schemes Gov’t Employees Pension (GEP) assessment and recording in 2011 Outline of actuarial assumptions

13. 4. Ongoing recording of the supplementary table on pension schemes Gov’t Employees Pension (GEP) assessment and recording in 2011 Outline of actuarial assumptions

14. 4. Ongoing recording of the supplementary table on pension schemes Assessment result for pension liabilities Unit : billion won, data extracted at the end of Dec 2011

15. 4. Ongoing recording of the supplementary table on pension schemes Assessment result for pension liabilities • 2011 total GEP liabilities comprise 23% of 2011 nominal GDP. • 2011 GDP : 1,237,128.2 (in billion won)

16. 4. Ongoing recording of the supplementary table on pension schemes

17. 5. Possible problems and limitations □ Usage of 10 year average national bond yield as a discount rate & demographic change & frequent assessment period • Korean economy is going through a structural change

18. 5. Possible problems and limitations • Korean life expectancy has been increasing. (by population census carried out every 5 years)

19. 5. Possible problems and limitations Demographic Change Frequent Assessment Period Change in Pension Liability Fluctuation of Discount rate

20. 5. Possible problems and limitations

21. Thank you for listening!

22. Reference • Task Force on the statistical measurement of the assets and liabilities of pension schemes in general government, 31 January and 1 February 2008, Final Report of the Eurostat/ECB Task Force on the statistical measurement of the assets and liabilities of pension schemes in general government to the CMFB • Ministry of Strategy and Finance, 2011, Fund Financial Statements(Ⅰ) for 2011 fiscal year • Statistics Korea, 4th Dec 2012, 2011 Life Tables for the Nation and Provinces • ECOS, the Bank of Korea