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5310.0.55.002 - Information Paper: Implementation of new international statistical standards in ABS National and International Accounts, September 2009  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 28/10/2009  First Issue
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CHAPTER 10 PENSION FUNDS IN THE BALANCE OF PAYMENTS

Warning: The estimates in this publication are indicative. They are presented to give an indication of the magnitude of the impacts of proposed change to Australia's macro-economic accounts. All estimates are subject to refinement and revision in the compilation of the quarterly balance of payments to be published on 8 December 2009.


INTRODUCTION

This chapter will focus on the BPM6 treatment, data sources and models for pension funds of one economy transacting with households of other economies. New data series will be developed and backcast to June 1959 for pension fund items and will be included in the September quarter 2009 issue of Balance of Payments and International Investment Position, Australia (cat. no. 5302.0).

Pension funds are established for the purpose of providing benefits for the retirement or invalidity of specific groups of employees. Pension funds’ transactions include receiving contributions, paying benefits and investing funds.

Pension funds are often referred to as superannuation entities in the Australian context. Since the Superannuation Guarantee (Administration) Act 1992, superannuation assets and transactions have grown to be a large component of the financial sector. Pension funds are a large contributor to estimates within the National Accounts, however, under BPM5 pension funds were not included in the international accounts. BPM6 recommends the explicit measurement of resident to non-resident transactions of pension funds.


CONCEPTS

The new series records stocks (foreign assets and liabilities) and flows (contributions, benefit payments, investment income) for superannuation accounts of non-residents with Australian pension funds and superannuation accounts of residents with non-resident pension funds.


Entries in the Balance of Payments and International Investment Position

Pension funds are defined as an institutional subsector. Pension entitlements are defined as a financial instrument. These entitlements may be liabilities of pension funds or unfunded pension schemes. They are classified as other investment in the functional classification.

1 Account entries for pension fund

Account Transaction Credits (exports) Debits (imports)

Services Pension Fund Service Charge Charged to Non-residents Received from Residents
Primary Income Employer Contributions (CoE) Non-resident employers on behalf of residents Resident employees on behalf of non-residents
Investment income Attributed to Residents Attributed to Non-residents
Secondary Income Social Contributions Paid by Non-residents Paid by Residents
Social Benefits Received by Residents Paid to Non-residents
Assets Liabilties
Financial Account Transactions Change in Assets (net of revaluations) Change in Liabilities (Net of revaluations)
International Investment Position Closing stocks Foreign Assets of residents Foreign Liabilities to non-residents



In the International Investment Position (IIP), the valuation of pension entitlements will be the technical reserves available for pension entitlements. These entries will appear in the external account in the Australian System of National Accounts (cat. no. 5204.0).


Population estimates and member accounts

The in-scope population for pension estimates will be those residents and non-residents that have cross border pension positions or flows. Under this principle, residents have offshore pension fund assets (foreign assets) and non-residents are owed foreign liabilities. The method for deriving pension funds international flows will be based on the proportion of member accounts likely to be overseas.

It is likely that there are a small number of people living overseas that are contributing to Australian pension funds or receiving benefits and a larger number living in Australia receiving benefits from or contributing to overseas pension funds (see table 2). These estimates will be constructed by reconciling overseas population estimates, numbers of non-residents receiving social security payments and consulate staff. Further advice was sought from the pension funds. This remains a measurement challenge for the future as industry has advised that this is a difficult concept to measure but is most likely a small number of their member base.

2 Proportions for pension fund flows

Type Population Proporton

Contributors Under 65 years 0.1% of contributor account transactions
Beneficiaries Over 65 years 0.3% of beneficiary account transactions
Total All working population 0.1% of member account transactions



No attempt was made to estimate the number of member accounts of overseas pension funds held by residents of Australia, rather a ratio was constructed with available data. The main source of information about residents with overseas pension accounts was benefits received.


Services

There may be explicit or implicit service charges for pension schemes. In the Australian context explicit charges are readily available from the Australian Prudential Regulatory Authority (APRA). Service charges will be composed of management and investment fees charged by pension funds. Pension fund service charge credits (exports) will be calculated as a proportion of member account transactions.

Debits (imports) will be calculated from a ratio based on exports.


Primary income

There will be two elements to primary income. Employer contributions will be rerouted through compensation of employees as they are attributed to the employee. Employer contributions are directly available through APRA. International flows will be calculated based on a proportion of relevant member account transactions.

The second transaction will be investment income attributable to current beneficiaries and contributors. These transactions will be considered to be supplementary contributions of the beneficiaries and contributors. These transactions will be calculated by a proportion of total member accounts transactions.


Secondary income

There will be two transactions that occur for secondary income credits and debits.

Social contributions will be recorded in the international accounts when a resident makes contributions to a pension scheme in another economy for his or her employment in that economy, or when an employer makes actual or imputed contributions on behalf of the employee. Social contributions to pension schemes will be determined as follows:

Employers’ contributions;

+ Employers’ imputed contributions;

+ Employees’ actual contributions;

+ Contribution supplements corresponding to investment income payable by pension schemes on pension entitlements;

- Service charges payable to pension schemes.

Social benefits in the secondary income account will be the amounts payable to the beneficiaries, and include pensions. These will exclude lump sum payments.


Financial account

Financial account transactions will be the changes in technical reserves due to transactions and consist of amounts of the estimated obligations to beneficiaries and holders that were accrued during the period. Pension entitlements will include those under both funded and unfunded schemes, but not potential benefits under social security schemes such as war veterans pension. The increase in pension entitlements shown in the financial account theoretically matches the entry in the use of income accounts for the adjustment for change in pension entitlements plus any change in pension entitlements, as well as any capital transfers that may occur.


International investment position

In the IIP the value of pension entitlements will be due to direct liabilities for domestic pension funds and assets based on the ratios derived from the domestic economy. Obligations of unfunded pension schemes will be also recognized as liabilities and are embedded within the estimates. It should be noted that potential payments by social security schemes will not be recognized as financial assets or liabilities in the IIP. Payments will be treated as current transfers in the secondary income account as they are made.

Foreign liabilities are calculated as a proportion of net equity in reserves for pension funds from the Australian System of National Accounts. Foreign assets will be calculated based on ratios from the domestic economy.


IMPACT ON THE BALANCE OF PAYMENTS

The revisions from the introduction of pension funds into BPM6 will increase the level of the current account deficit by 1.3% (about $940 million) in 2007-08. Australian asset position with the rest of the world will increase by 1.1% (about $12,200 million) and foreign liabilities will increase by less than 0.1% (about $1,000 million). Service charges for pension funds will decrease net services by 48.3% (about $590 million) and net secondary income flows will decrease by 54.7% (about $190 million).

3 Australian foreign liability and benefits flows

1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m

Pension funds service charge
8
10
11
13
15
17
14
15
17
17
21
29
37
55
Investment income
4
4
4
4
8
8
8
4
8
8
8
12
16
16
Social Benefits paid
28
32
39
47
53
66
20
21
21
33
37
37
46
49
Social contributions
36
40
47
55
68
82
52
44
53
61
62
101
162
53
Foreign liabilities
187
219
267
312
357
440
470
489
514
611
696
852
1 119
1 076


4 Australian foreign asset and benefits flows

1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m

Pension funds service charge
71
92
97
142
156
148
109
123
165
187
272
445
499
653
Investment income
37
38
36
45
86
73
63
32
77
88
104
187
220
193
Social Benefits recieved
204
232
248
356
392
384
360
360
384
396
408
436
444
452
Social contributions
327
372
416
604
714
720
407
362
514
673
805
1 386
1 319
643
Foreign assets
1 590
1 919
2 200
3 186
3 482
3 548
3 701
4 089
5 105
6 829
9 146
12 664
14 491
12 276

Figure 1 - Total credits (exports), of pension funds services
Graph: Figure 1 - Total credits (exports), of pension funds services


Figure 2 - Total debits (imports), of pension funds services
Graph: Figure 2 - Total debits (imports), of pension funds services


Figure 3 - Pension fund foreign assets and liabilities
Graph: Figure 3 - Pension fund foreign assets and liabilities




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