Abstract
Ιmplicit pension debt is attracting increasing attention worldwide as a driver of fiscal dynamics, operating in parallel to the (explicit) National Debt. A prudent examination of a state’s fiscal prospects should ideally encompass both, with due attention paid to the special features of each kind of debt. The explosion of government deficits as a result of the COVID-19 pandemic only adds to the urgency of understanding the scale and nature of issues around accounting for contingent liabilities. The reports of the EU Ageing working group, produced and published every three years are used to derive estimates of the stock of outstanding implicit pension debt from flows of projected deficits. This can be performed for all European member states. This paper uses the last two rounds of the Ageing Report (2021, 2018) and derives conclusions on the evolution of pension debt and its correlation to the external debt. The paper concludes that producing comparable estimates of IPD should become an important input in EU policy discussion.
Highlights
Pensions, Implicit Debt and Long-Term Fiscal Planning10.3390/risks9110190In June 2015, the Greek government only had enough cash to pay either the senior international bondholder, the International Monetary Fund (IMF), or the monthly pensions for July of the current year
Ageing Working Group (AWG) projections have three key characteristics which enable their use in IPD calculations: they come with the authority of system operators (1), who are publicly answerable for the results (2) and who have legal and constitutional responsibility for the continuity of the systems projected (3)
The three characteristics together dictate that the logic of the projections is squarely that of open groups (OGL) employing Projected Benefit Obligation (PBO) methodology—i.e., that systems need to be sustainable for the foreseeable future, taken to be at least 40 years ahead11
Summary
In June 2015, the Greek government only had enough cash to pay either the senior international bondholder, the International Monetary Fund (IMF), or the monthly pensions for July of the current year. This was a face-down between an explicit, legal, obligation and an implicit, moral one. When delivery of promises falls due, countries could find themselves in a similar situation to Greece’s in 2015—weighing the relative urgency and costs of legal and political obligations To plan for such an eventuality, the economic characteristics of both kinds of commitments need to be considered. The most significant type of economic characteristic and the starting point of any discussion is the relative and absolute size of total commitments
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