View the most recent version.

The Revised Sectoring of Government Employee Pension Plans

With the release of the first quarter 2000 of the National Income and Expenditure Accounts the sectoring of federal and provincial government, non-autonomous pension plans has changed¹. These pension plans are now part of the personal sector. Previously these plans were included in either the federal or provincial government sector accounts. This revision affects the entire 1961 to 2000 period. Government sponsored plans are now treated consistently with autonomous or trusteed pension funds yielding a more complete picture of personal saving. Further, the new pension accounting treatment is consistent with that of the Public Accounts of Canada and the U.S. National Accounts. The change in accounting has no effect on production but a significant effect on saving (and net lending) in the sector accounts. In short, personal saving increases while government saving² declines by an equal amount.

Pension plans have three sources of income: employee contributions paid out of salaries and wages, employer contributions (part of employee supplementary labour income) and investment income (interest and dividends) earned on the assets in the pension fund. The plans outlays, of course, include pension payments to retirees. Previous accounting for government sponsored plans credited all contributions to and investment income of the plans to government income and saving. Pension payments to retirees were charged against government outlays and credited to personal income. As the contributions plus investment income of these plans have exceeded pension payments out of the plans, the net effect was a positive contribution to government saving.

Top of Page

Pension accounting in the Personal Sector

As indicated above, employer and employee contributions to pension funds are counted as part of the wages, salaries, and supplementary labour income of the personal sector in both previous and current treatments. The investment income of the pension funds is now counted as the investment income of persons rather than as government investment income. Current transfers from government to persons in the form of public sector pension benefits disappear from personal income and are now treated as a reduction in personal wealth, which is outside the scope of these accounts³. On the outlay side of the personal sector the employer and employee contributions to pension funds are no longer transferred to government as part of contributions to social insurance plans. The net effect is increased personal saving resulting from higher personal income and reduced personal outlays.

In addition to the adjustments to saving, the revised treatment also requires an additional entry (beginning in 1990) to account for the transfer of the actuarially determined surplus from the pension plans to the federal government. Such transactions are classified as capital transfers and do not affect saving but do affect net lending.

Table 1 summarizes the impact of the change on the Personal Sector over the period of revision.

Table 1: Personal Sector Revisions

	1961	1971	1981	1991	1995	1999
Income	Millions of dollars
Investment Income	120	476	2806	9681	12170	15349
Public Sector Pension Benefits	-100	-357	-1694	-4907	-6057	-8511
Outlay
Contributions to Social Insurance Plans	-253	-695	-3122	-4855	-4269	-4444
Change to Personal Saving	273	814	4234	9629	10382	11282
Net Capital transfers				-1275	-1725	-4900
Net Lending	273	814	4234	8354	8657	6382

Pension accounting in the Government Sector

The revision to the pension accounting in the government sector is of course a mirror image of the personal sector. Government income is reduced due to lower contributions to social insurance plans (a reduced personal outlay) and by the investment income of pension funds that is now recorded as income in the personal sector. Government outlays are reduced, as the payment of pension benefits is no longer recorded. Tables 2,3,4 summarize the revisions for Total, Federal and Provincial Governments.

Table 2: Government Sector Revisions

	1961	1971	1981	1991	1995	1999
Income	Millions of dollars
Contributions to Social Insurance Plans	-253	-695	-3122	-4855	-4269	-4444
Investment Income	-120	-476	-2806	-9681	-12170	-15349
Outlay
Public Sector Pension Benefits	-100	-357	-1694	-4907	-6057	-8511
Change to Government Saving	-273	-814	-4234	-9629	-10382	-11282
Net Capital Transfers				1275	1725	4900
Net Lending	-273	-814	-4234	-8354	-8657	-6382

Table 3: Federal Sector Revisions

	1961	1971	1981	1991	1995	1999
Income	Millions of dollars
Contributions to Social Insurance Plans	-222	-552	-1521	-2832	-3004	-3244
Investment Income	-115	-453	-2236	-7723	-10414	-12676
Outlay
Public Sector Pension Benefits	-80	-270	-1272	-3457	-4642	-6081
Change to Federal Saving	-257	-735	-2485	-7098	-8776	-9839
Net Capital Transfers				1275	1725	4900
Net Lending	-257	-735	-2485	-5823	-7051	-4939

Table 4: Provincial Sector Revisions

	1961	1971	1981	1991	1995	1999
Income	Millions of dollars
Contributions to Social Insurance Plans	-31	-143	-1601	-2023	-1265	-1200
Investment Income	-5	-23	-570	-1958	-1756	-2673
Outlay
Public Sector Pension Benefits	-20	-87	-442	-1450	-1415	-2430
Change to Saving	-16	-79	-1729	-2531	-1606	-1443
Net Capital Transfers
Net Lending	-16	-79	-1729	-2531	-1606	-1443

Notes :

1. The National Balance Sheet Accounts, released March 29, 2000, have been revised to reflect this change.
2. Though the change affects both Federal and Provincial Government Sectors the major impact is on the Federal Government Sector. For example in 1995 the change in accounting increases personal saving by $10.4 billion balanced by declines in Federal saving of $8.8 billion and Provincial saving of $1.6 billion.
3. Though within the scope of the National Balance Sheet Accounts.