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

1. Pension schemes in Korea

“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

2. Introduction of new statistical standards

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”

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

3. Up to date outcome of continuing conferences and T/F meetings

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.

4. Ongoing recording of the supplementary table on pension schemes

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

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.



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.



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.



Outline of actuarial assumptions



Unit : billion won, data extracted at the end of Dec 2011

Assessment result for pension liabilities

Item2010 fiscal year

(A)2011 fiscal year

(B)B-A

Pension liabilities 254,632.1 289,844.4 35,212.3


• 2011 total GEP liabilities comprise 23% of 2011 nominal GDP. 2011 GDP : 1,237,128.2 (in billion won)

Assessment result for pension liabilities


Table 3 : Pension liabilities in Korea -at the end of 2011

In trillion, % of GDP

Private sectorSub-total private sector

Government

Sub- total Government

TOTAL

Supple-mentary table column

A B E G H

DCindividual

DCWorkplace

funded

DBWorkplace

funded

Workplace funded

Workplace unfunded

pensions

In trillion won

342(290+5

2)

% GDP 27.6

* GEP pension and Military Personnel pension only


Bond yield ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11

1year 5.45 5.19 4.42 3.92 3.97 4.68 5.19 5.12 2.91 2.95 3.42

3year 5.68 5.78 4.55 4.11 4.27 4.83 5.23 5.27 4.04 3.72 3.62

5year 6.21 6.26 4.76 4.35 4.52 4.96 5.28 5.36 4.64 4.31 3.90

10year 6.86 6.59 5.05 4.73 4.95 5.15 5.35 5.57 5.17 4.77 4.20

20year 0.00 0.00 0.00 0.00 0.00 5.37 5.44 5.60 5.39 4.98 4.34

□ 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

5. Possible problems and limitations

Korean life expectancy has been increasing.

(by population census carried out every 5 years)


Frequent Assessmen

t Period

Frequent Assessmen

t Period

Fluctuation of Discount

rate

Fluctuation of Discount

rate

Demographic Change

Demographic Change

Change in Pension Liability

Change in Pension Liability


Reference

1.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

2.Ministry of Strategy and Finance, 2011, Fund Financial Statements(Ⅰ ) for 2011 fiscal year

3.Statistics Korea, 4th Dec 2012, 2011 Life Tables for the Nation and Provinces

4.ECOS, the Bank of Korea

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

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